There's a good chance your tax refund will be smaller this year
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- As part of President Joe Biden's first stimulus, Democrats expanded a slew of tax credits.
- However, many of those have now wound down, and it means smaller tax refunds for some filers.
- The Child Tax Credit and Earned Income Tax Credit will both be smaller for some taxpayers.
The end of the year is looming, and 2022's taxes are beckoning. But some taxpayers should get ready for smaller refunds when filing season finally arrives.
In new guidance, the IRS outlined what filers should know going into 2023. A key detail: Some enhanced tax credits are no longer available, and that could mean smaller checks for many, including lower-income taxpayers and parents.
Specifically, the enhanced Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC) will revert to their pre-pandemic levels. Both were beefed up as part of President Joe Biden's first stimulus package. For parents, the expanded CTC meant monthly checks up to $300 per child under the age of five — up to $3,600 for the year. Those checks, which went out from July to December of 2021, constituted just half of the expanded credit, meaning that some families got up to $1,800 when filing season rolled around. The credit kept millions of children out of poverty.
But after Democrats failed to renew the enhanced credit, eligible parents are set to receive only up to $2,000 for the child tax credit.
EITC, which gives relief to middle and low earning taxpayers, was also expanded in the stimulus package. That credit, traditionally only available to workers with children or those between the ages of 25 to 64, was permanently expanded to include all filers over the age of 18 who met the credit's work and income requirements, making millions more taxpayers eligible.
However, many of those newly eligible taxpayers will see a smaller credit this year. Eligible childless filers will get about $500 in 2022, down from around $1,500 in 2021, according to the IRS. The Child and Dependent Care Credit, targeted at caretakers and providing relief for caretaking expenses, was also expanded in 2021 and made refundable. That credit will revert to pre-pandemic levels as well, per the IRS.
Tax refund checks can serve as a lifeline for some Americans. A 2019 study from the JP Morgan Chase Institute found that, for nearly half of families who get refund checks, those checks are larger than the balances of all of their cash accounts. Those families getting a major bump from refund checks more than triple their spending on things like bills the week after they receive refunds. Many families pointed to the enhanced CTC monthly checks as another economic lifeline.
Now, many of those credits are winding down, although some progressives are mounting efforts to try and beef up the Child Tax Credit alongside any tax breaks for big corporations.