Why Your Tax Refund Was Noticeably Smaller This Year
Due to the end of the pandemic, tax refunds this year are almost 10 percent smaller than they were the year prior.
If you’ve already done your taxes for 2022, great job getting them in on time! That means you’re not one of the 19 million taxpayers who file for an extension yearly, but, unfortunately, you won’t be awarded for your punctuality. In fact, the majority of Americans will notice a smaller tax refund this year, if they even get anything back at all, and it’s mostly due to the end of the pandemic, according to NPR.
The IRS has announced a 9.8 percent drop in the amount of money they have given back in tax refunds for this year. For the 2021 tax return, the average person received $3,226 back, and now the average is closer to $2,910, and that’s if you get anything back at all. Financial expert Lynnette Khalfani-Cox says that it is likely that many people will owe the government money instead.
The main reason that tax refunds are smaller this year is that the pandemic and the government funding supporting the pandemic era are coming to a close. Stimulus checks and all other COVID-19-related government funding projects are gone.
In 2021, many Americans received a $1,400 stimulus check, but some received this amount in a tax credit, instead of a physical check. With that gone now, many returns are going to be much less than they were last year.
The loss of the pandemic stimulus hits especially hard for families with children. For the 2021 tax year, families with kids under six years old received an extra $3,200 worth of tax credits. If a family had two kids, they would have received $7,200 in their tax refund because of their dependents. Now, that same family will only receive $4,000.
The extra tax refund that parents received for having children under six years old last year made a major difference to the child poverty levels in the United States. In 2020, the child poverty level was 9.7 percent, but after the additional tax refunds received in 2021, the rate went down 46 percent to only 5.2 percent. Now that the extra credits are gone, the rate is expected to go back up, closer to what it was in 2020.
For those who haven’t filed their taxes yet and were counting on the extra tax refunds from last year to help them not owe, Khalfani-Cox says that filing an extension may be your best bet. “That will give you an extra six months, and then you’ll have until Monday, Oct. 16, to actually submit your taxes.”
If you don’t file your taxes on time or file for an extension, then you might end up facing a plethora of problems, besides not having a larger tax refund this year. Failure-to-file and failure-to-pay penalties can add up every single month, making for a heck of a bill once you get around to sorting it out.
The current financial climate of the United States is turning out to be pretty tumultuous. With rising inflation, rising interest rates, and rising layoffs across the country, lower tax refunds is the last thing the people need. With this type of environment, Khalfani-Cox says the best thing to do is pay close attention to your finances through 2023 and plan ahead for the future.