Why IRS tax refunds might be lower this year
To be fair, the IRS did give everyone a heads up that smaller refunds were coming — Kiplinger reports that "for months, the IRS has warned taxpayers that federal income tax refunds could be 'somewhat lower this year.'" And while tax season isn't quite over (the tax filing deadline for 2023 is Tuesday, April 18), it seems that the IRS was right on the money about this year's checks.
How much lower could IRS refunds be?
Overall, the total amount the IRS has refunded this year is down 9 percent from this time in 2022, The Wall Street Journal reports based on IRS tax season data released in late March. Individually, the average refund is roughly 11 percent smaller compared to this time last year. That translates to an average refund of $2,903 this year.
Why are IRS refunds expected to be smaller this year?
The main reason for this year's diminished IRS refunds is expired tax breaks. During the pandemic, a number of major tax breaks were introduced. However, for tax year 2022, those tax credits were either not available, or were reduced to the amounts and thresholds that were in place prior to the pandemic. Specifically, Kiplinger points to the following key tax changes:
Expiration of changes to the child tax care credit: In 2021, families could claim $3,000 per child, or $3,600 per child under 6 years old, and children as old as 17 could qualify for the tax credit. Plus, in 2021, the child tax credit was refundable. Fast forward to the 2022 tax year, and parents can only claim $2,000 per child under 17. On top of that, the credit is no longer fully refundable and the amount of the credit phases out based on income.
Expiration of changes to the child and dependent tax credit: This credit was also expanded in 2021 and has since shrunk back down to its pre-pandemic version. While previously individuals could deduct up to 50 percent of $4,000 in child care expenses per person if they had an adjusted gross income under $125,000, now it's a maximum of 35 percent of child care expenses for one child or dependent. Further, the credit is nonrefundable again, and it's only available to those who have earned income.
Changes to the amount of the earned income tax credit: Compared to the 2021 tax year, the earned income tax credit — which Kiplinger explains is "a form of financial relief for those with low to moderate income" — is $942 less for an eligible taxpayer without qualifying children.
Changes to the amount you can claim in charitable cash contributions: In another key change for the 2022 tax year, the special rule that let taxpayers take a deduction for charitable cash contributions of up to 100 percent of their adjusted gross income has expired. Now, "the deduction for charitable cash contributions generally can't be more than 60 percent of your AGI," per Kiplinger. Plus, filers now have to itemize their deductions to get this tax break.
Additionally, "last year's stock- and bond-market downdraft saddled many investors with surprise taxable payouts that could weigh on refunds," The Wall Street Journal says, though the number of refunds overall is up a bit in comparison to last year.
Beyond tax changes and market shifts, "many factors can impact the size of your refund including inflation adjusted income tax brackets, a higher standard deduction, changes to your income and family size, and changes to other tax deductions and credits," Kiplinger notes.
How soon can you expect to get your refund?
With expectations leveled on how much your IRS refund might be for this year, you might be wondering when you will receive that money. According to TurboTax, "in prior years, the IRS issued more than 9 out of 10 refunds to taxpayers in less than 21 days last year. The same results are expected for 2022."
Note that the above estimated timeline applies to those who e-filed. For those who opted to file on paper, refunds could take four weeks or longer to process, the IRS says.
If you're wondering about the status of your refund, it is possible to check in on it. You can do so with the IRS Where's My Refund Tool or by calling the IRS at 800-829-1954 (though you'll need to wait at least 24 hours after e-filing to check).
Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She has previously served as the managing editor for investing and savings content at LendingTree, an editor at SmartAsset and a staff writer for The Week. This article is in part based on information first published on The Week's sister site, Kiplinger.com.
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