The IRS Says You’ll Probably Get a Smaller Tax Refund This Year – Here’s Why

Tax refunds are a big silver lining of enduring winter — but, if you’re expecting a big check In 2023, expect to see a lot less than in previous years.

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Experts and even the IRS are warning that tax refund “sticker shock” will happen early next year for 2022 returns because some of the pandemic benefits that padded refund checks expired in the 2021 filing season. This includes the expanded child tax credit, federal stimulus payments and child and dependent credit.

Adding to the bad news: “If you tend to owe come tax season, you might owe a little bit more in 2023 because you won’t be eligible for as many credits,” NextAdvisor’s Alex Gailey wrote.

“A lot of things going on during COVID have been brought back down for the most part to 2019 levels,” said CPA Krystal Todd, per NextAdvisor.

CNBC has identified the most pressing tax issues this year.

• Tax credits reduced: The American Rescue Plan of 2021 offered certain credits to parents and caregivers. However, those credits did not extend to the current filing year. Although providers could claim $3,600 for each child younger than 6 years in 2021, the credit is now back at $2,000 for this year. As well, the child and dependent care tax credits — which bumped to $8,000 for one child and $16,000 for two or more children in 2021 — are also now back down to the standard $3,000/$6,000 caps.

• Charitable deductions may be more complicated: In 2021, a charitable deduction of $300 (or $600 for married couples filing jointly) was able to be claimed even if you didn’t itemize, and instead took the standard deduction. This filing year, that’s no longer the case. Individuals who wish to receive charitable contributions must file an itemization. All itemized deductions, including those for charitable purposes, must be greater than the standard deduction.

However, the Internal Revenue Service did indicate some good news regarding deductions: married couples filing jointly will be allowed a standard deduction of $27,700 — up $1,800. Single taxpayers, as well as spouses, are allowed a standard deduction of $13,850. This is an increase of $900. For heads of households, the standard deduction is $20,800. That’s an increase of $1,400.

This is all to say that preparing early is more important than ever in advance of 2023’s tax season. Gather all necessary paperwork, receipts, documentation, and documentation to prepare for any deductions or itemizations. You can use the IRS calculator to calculate your taxes due and amount to be paid, as well as plan for any payments.

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Finally, if this seems an extremely daunting task — or simply more trouble than it’s worth — lining up a tax professional who can reduce any potential headaches is strongly advised.

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