Your Tax Refunds May Be Smaller This Year

Your Tax Refunds May Be Smaller This Year

For the earned-income tax credit, available to low- and moderate-income workers, a qualifying taxpayer with no children who received about $1,500 in 2021 would now receive $560, according to the I.R.S. And the child and dependent care credit, available to those who need care for family members while they work, returned to a maximum of $2,100, from $8,000 in 2021.

The changes could shrink refunds, or possibly result in a balance due in some cases.

Kathy Brown, president of the National Association of Enrolled Agents, a group for federally licensed tax preparers, said some taxpayers may be disappointed if they are expecting the same refund as last year.

Ms. Brown said she heard from a client who was eager to have her return processed so she could use her refund to take her child on a Disney vacation. Ms. Brown advised her to hold off on booking the trip, cautioning her that the refund “won’t be as large as it was last year.”

Some people who typically get small refunds or break even often file for an automatic filing extension, since they don’t feel a sense of urgency, Ms. Brown said. But this year, she said, filers shouldn’t assume they won’t have a tax bill. “They may not get a refund, and they may actually owe tax.” In that case, getting an extension may cost them interest and a late-payment penalty because an extension allows more time to file, but not to pay.

Taxpayers may also see reduced refunds this year because of the end of Covid relief stimulus payments, also known as economic impact payments. The third and final payment, of $1,400, went out to most eligible people automatically starting in March 2021. But those who didn’t receive it could claim it as a recovery rebate credit on their 2021 tax return, so it would reduce their tax bill or be included in their refund when they filed their return in 2022. But there were no stimulus payments last year, so no recovery rebate credit is available on 2022 returns, said Kathy Pickering, chief tax officer at H&R Block. “There have been a lot of changes, with the expiration of Covid relief programs,” she said.

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