Authored By Richard Staniszewski | Senior, Tax
With higher-than-average tax refunds last year— averaging nearly $3,200, a whopping 14% increase compared to previous years—the IRS is advising taxpayers that 2023 refunds for tax year 2022 are likely to be smaller. The expected decrease in tax refunds is largely due to Covid-era tax benefits reverting to pre-pandemic levels. There are quite a few tax provisions that are either no longer available or decreasing in size this year, ultimately reducing taxpayers’ chances of cashing in a large refund. Such provisions include:
- Stimulus Checks – With the last stimulus payments being sent out in spring of 2021, there was no opportunity to claim additional stimulus money in 2022.
- Child Tax Credit (CTC) – The CTC is decreasing back to $2,000 per child for tax year 2022, down from as much as $3,600 per child during tax year 2021.
- The Child and Dependent Care Tax Credit – The maximum credit was reduced from $8,000 to $2,100 for two or more qualifying persons or $1,050 for one qualifying person.
- Earned Income Tax Credit (EITC) – Low-income taxpayers without children will be most affected by the EITC changes in 2022. The credit reverts to $500 for this group as opposed to $1,500 for tax year 2021.
- Charitable Contributions – The additional $300 ($600 in the case of a joint return) above-the-line deduction for those who take the standard deduction is not available for taxpayers in 2022. Additionally, taxpayers who don’t itemize and take the standard deduction, won’t be able to deduct their charitable contributions.
Taxpayers should keep these changes in mind when filing their 2022 tax returns. Doing so will help to mitigate errors when filing taxes or calculating outcomes. To adequately prepare for the tax year to come and avoid underpayment penalties and/or interest, taxpayers should also periodically review their payroll withholding. If you have any questions or need help navigating your taxes, please contact your tax advisor, or reach out to a member of the SC&H Group tax team.