Prepare to be disappointed.
Taxpayers, prepare to be disappointed. The IRS has warned that tax refunds this year may be smaller than they were in 2022. Experts say four factors — likely to impact a lot of Americans — are to blame. Here’s a simple breakdown.
No more stimulus
One of the reasons refunds were so generous last year is that eligible taxpayers were allowed to claim unpaid stimulus funds. (In 2022, the average refund was $3,176, up about 14 percent from $2,791 the year prior, according to the IRS.) As most of you are well aware, no stimulus payments were made last year, and because of that no one should be expecting one in this year’s refund, the agency says.
A change to charitable deductions
It’ll also be tougher this year to claim a deduction for charitable gifts. That’s because a provision Congress enacted in 2020, and extended into 2022, has lapsed. The rule allowed people to claim up to $300 for cash donations (or $600 for married couples filing together) even if they didn’t itemize their deductions.
The tax break was intended to help charities get by through the pandemic by incentivizing taxpayers to donate but it wasn’t extended for 2022 — meaning this tax season there isn’t a benefit for charitable gifts if you take the standard deduction, CNBC reports.
A smaller child tax credit
Parents last year received an enhanced child tax credit. A pandemic policy raised the benefit from $2,000 per kid to either $3,000 for children under 18 or $3,600 for kids under 6. It had a remarkable impact, the Census Bureau found, raising 2.9 million children out of poverty.
However, this tax season the child tax credit will shrink back to its previous level. That means parents can expect a benefit of $2,000 per child.
Watch out for unanticipated investment gains
You may be thinking, “What investment gains?” Last year was obviously a rough one for investors. But financial expert Lynnette Khalfani-Cox tells NPR that more pain may be in store for them. She says the market’s volatility forced many mutual funds to sell off a lot of their holdings — including profitable ones. They then distributed those gains. If investors hold onto those funds directly, Khalfani-Cox says, they’ll have to pay taxes on those earnings.
“So yeah, your investment portfolio might have actually declined, but your tax bill nonetheless got bigger,” she tells NPR.
If you’re in that boat, Khalfani-Cox suggests selling some losing stocks to balance out the winners. Those losses can offset your gains dollar for dollar, CNN reports.