The expiry of several pandemic benefits that Congress had intended to provide to assist Americans weather the crisis might leave millions of U.S. taxpayers with a tax refund shock when they submit their 2022 taxes.
According to Mark Steber, chief tax information officer at Jackson Hewitt, households may experience reduced refunds when they file their taxes in early 2023 for the current tax year. According to IRS data, the average tax refund in 2022 (for the 2021 tax year) was close to $3,200, an increase of 14% over the previous year.
However, Steber pointed out that most of the perks, such as the enhanced Child Tax Credit (CTC), that boosted refunds this year had expired.
The CTC, which is credited with pulling millions of children out of poverty, is one example of a tax benefit that is still in place but has been scaled back under the current tax code. In contrast to a pandemic credit that was as high as $3,600 per child, the CTC is returning to its previous amount of $2,000 per child.
With the addition of all those additional tax incentives, the year 2021 “was quite a wonderful year,” Steber said. However, this year saw many of the gains expire, leading to the terms “refund shock” and “refund surprise.”
According to Steber, the average tax refund for the next year will probably be approximately $2,700, or roughly what people received in 2021 (for their 2020 taxes). Of course, each taxpayer has a unique scenario, and refunds rely on a variety of things, from a person’s tax bracket to whether or not they have children.
One piece of advice from Steber is to avoid using their tax return from earlier this year to estimate their refund in 2023.
Stimulus Check
The American Rescue Plan Act, which enabled the third and final payment in the spring of 2021, prevented the government from writing any stimulus cheques in 2022.
Due to the fact that these checks were issued in 2021, they had an impact on tax refunds that were issued earlier this year and were reflected in early 2022 tax returns.
Child Tax Credit
In 2021, the Child Tax Credit was increased, giving parents of children under the age of six $3,600 and parents of children between the ages of six and seventeen $3,000 as a result.
The tax benefit returned to its pre-pandemic amount of $2,000 per kid, irrespective of age, in 2022, though. That’s undoubtedly helpful, but the smaller tax break may affect parents’ refunds.
