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Why is my tax refund so low this year?

As tax filing season begins, you should know that the IRS has warned refunds may be smaller this year.

WASHINGTON — Tax season officially begins Monday as the IRS starts to accept and processing tax returns. More than 168 million individual tax returns are expected, according to the agency.

But with a number of key tax credits returning to pre-pandemic amounts, the IRS says taxpayers could see a lower refund this year, especially compared to last year.

Here are some of the reasons why:

Child tax credit changes for 2023

One of the biggest changes expected is the loss of the expanded child tax credit, which was raised from $2,000 to as much as $3,600 per dependent in 2021. 

Most families received half of their expanded 2021 credit on a monthly basis and got the other half once they filed their taxes. 

But the pandemic-era expansion ended in 2022 and full payments will once again only go to families that earned enough income to owe taxes, a policy choice that will limit the benefits for the poorest households.  

"It's going to affect families in very different ways, depending on the household makeup, income," said Joanna Ain, associate director of policy for Prosperity Now, a national nonprofit focused on opportunities for low-income families and racial economic justice. "I think a lot of families are going to be disappointed this year when they don't have access to this really critical tax credit."

The child tax credit lifted 2.9 million children out of poverty in 2021, according to estimates from the U.S. Census Bureau. The agency found the program's expansion specifically accounted for keeping 2.1 million of those 2.9 million children above the poverty line.

"Families were able to pay for monthly expenses, their financial stress went down. They were able to pay for utilities, for food," Ain said. "They were able to get to work more easily. These payments did not replace work by any means. But it did allow a family to pay for gas, perhaps pay for child care, all of these pieces that made it made them better able to work. 

Other tax credit changes

The earned income tax credit and the child and dependent care credit will also return to 2019 standards. 

The EITC, which is available for low- to moderate-income families and people without children, will now be $500 as opposed to the $1,500 given in 2021 to those who qualify. The child and dependent care credit returned to a maximum of $2,100, a stark difference from the maximum of $8,000 set in 2021.

Slipped into the American Rescue Plan, these changes to tax credits and eligibility were largely a reaction to COVID, explained Braden Williams, an associate professor of accounting at the University of Texas at Austin. The expanded tax credits and stimulus checks were ways to encourage economic activity after the pandemic.

"It's a law with what we call a sunsetting provision," Williams said. "After a while, it phases out, or just disappears."

The IRS has pointed out that another reason why you may receive a lower refund this year is because there wasn't any stimulus payment in 2022. 

Can you take charitable donations without itemizing in 2022? 

Tax incentives for charitable donations also underwent a change for 2022 tax returns. 

Rules reverted to pre-2021 requirements and taxpayers can only deduct charitable contributions if they itemize their deductions on Schedule A, and can only claim deductions of up to 60% of their gross adjusted income.

Tips for the 2023 tax season

Gather all your information before filing

The IRS urges taxpayers to gather and organize 2022 tax documents including Social Security numbers and Individual Taxpayer Identification Numbers. 

Along with urging taxpayers to have all the right information before filing a return, the IRS is encouraging Americans to verify for tax credits, such as the earned income tax credit. 

With an accurate tax return, taxpayers can avoid delays or IRS notices down the line. 

IRS Free File Available Jan. 13

The agency's IRS Free File program opened Friday, Jan. 13, and allows taxpayers who made $73,000 or less in 2022 to file their taxes electronically for free using "brand-name software provided by commercial tax filing companies."

Free File forms are also available to any income level and provides free electronic forms that people can fill out and submit at no cost. 

When can I expect my tax refund?

The IRS expects most taxpayers who choose direct deposit and had no issues to receive their refund within 21 days of electronically filing their tax returns. 

Taxpayers can check the agency's "Where's My Refund?" page on IRS.gov for a status on their refunds. 

If you are waiting for a refund and claimed the earned income tax credit or additional child tax credit, the IRS won't not issue those refunds until around Feb. 28 or a few days earlier. The agency explains on its website that by law they can't issue EITC or ACTC refunds before mid-February. Most EITC or ACTC refund statuses on the IRS website will be available starting Feb. 18.

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