Many taxpayers count on getting a federal tax refund, which you typically get when you pay an excess amount on your annual taxes. However, the average refund will be lower this year compared to 2022. The IRS warns: Smaller refunds in 2023 are something many taxpayers should expect, along with some delays in receiving a tax refund.
The chief reason for the lower refunds is the removal of COVID-19 tax incentives. Let’s break this down.
During the COVID-19 pandemic, the IRS issued economic impact payments for eligible individuals. Qualifying taxpayers received their stimulus checks in April 2020, December 2020/January 2021, and March 2021. However, taxpayers won’t get stimulus checks for 2022.
To help families cope with the financial impact of the pandemic, the government ruled to expand certain tax credits, namely the Earned Income Tax Credit (EITC), the Child Tax Credit (CTC), and the Child and Dependent Care Tax Credit (CDCTC). However, for the tax year 2022, these credits have reverted to pre-COVID levels, which is a major reason why the IRS warns about smaller refunds in 2023.
The Child Tax Credit, which in 2021 was up to $3,600 per eligible child, drops to a cap of $2,000. For many American families, this may mean a tax refund that shrinks by thousands of dollars. The Child and Dependent Tax Care Credit, a tax break for parents and caregivers of children and disabled dependents, also drops from a maximum of $8,000 to $2,100.
The Earned Income Tax Credit, a refundable tax credit that mainly affects workers with low to moderate incomes, is another credit that returns to pre-COVID levels this tax season. For example, for 2021, an eligible taxpayer without children could claim about $1,500 on EITC. For 2022, the same taxpayer can only claim up to $560.
Here’s another reason why the average refund will be lower in 2023: Claiming a charitable gift deduction will be more difficult compared to 2022.
As another strategy to battle the economic impact of COVID-19, taxpayers got a tax break for charitable donations in 2020 and 2021. For 2021, a taxpayer could claim a refund of up to $300 (for single filers) or $600 (for married couples) on cash donations. This was true even if you chose the standard deduction.
However, this tax incentive has ended. For 2022, you can no longer claim tax benefits on charitable donations unless you itemize your deductions. Since most taxpayers don’t bother with itemized deductions, many people will lose the tax break for donations.
Most taxpayers can expect their refunds within 21 days, provided they file their tax return online and opt for direct deposit. However, in some cases, tax returns may require additional review. Suspected errors or suspicion of identity theft could also slow the refund-issuing process.
If you experience a delay with your tax refund, you can check your refund’s status through your IRS account, by using the Where’s My Refund tool, or by calling the IRS and speaking to a representative.
When tax guidelines change and the IRS warns about smaller refunds in 2023, filing your tax return may seem complicated. Our tax consultancy is here to help you face the upcoming tax season hassle-free and resolve problems like back taxes, liens, and tax audits.
Call 800.TAX.LEVY or contact us online to consult our tax professionals.
Levy & Associates is available for free initial consultations. We’re happy to answer any questions you have about the audit process or address any concerns about your specific situation.
There’s never a good time to be audited, and the time-consuming process will take away from your business or family if you try to face it alone. Let us handle and coordinate communication, so you can return to your daily life.