The 2022 tax refund released by IRS during tax season 2023 should not shock anyone because the laws enacted to support people suffering from the Covid-19 pandemic are no more valid for the tax year 2022. People got higher refunds during tax season 2022 (the tax year 2021 ) because of the increases in refundable tax credits, relaxation in rules to claim such refundable tax credits, and to increase in the number of dependents, employment, or self-employment income. These laws have returned to their 2019 status; therefore, refunds will decrease for the tax year 2022.
Four Reasons for Lower 2022 Tax Refund
1.No stimulus payments.
During 2020 and 2021, the government distributed cash relief to people below a certain income due to the pandemic in the form of additional stimulus payments. Since Covid-19 problems have subsided considerably, those stimulus payments are no longer in the statute for the tax year 2022. Therefore, taxpayers can not claim or expect additional payments in their 2023 tax refund.
2. Child tax credit law reverts to 2019 levels.
During the pandemic, the government increased the child tax credit, and rules for qualification for CTC were relaxed. So, you could claim a child tax credit of $3,600 per dependent in the tax year 2021, but now, because the law for CTC reverted to 2019, you can claim a maximum of $2,000 of CTC per child or dependent for the 2022 tax year.
3. Earned income tax credit (EITC) law Reverts to 2019 levels.
The Earned Income Tax Credit (EITC) and the Child and Dependent Care Credit will revert to pre-COVID levels. For the tax year 2021, you were qualified to receive EITC and could claim $1500 even if having no children, but now during the year 2022, you can not claim more than $560.
4. Child & dependent care tax credit reverts to 2019
American Rescue Plan Act of 2021 relaxed and enhanced the childcare tax credit rules for the tax year 2021. So, in 2021, the maximum CDCT you could claim was $8,000. However, for the tax year 2022, the maximum child & dependent care tax credit allowable is only $2,100. Read more on this and also test the child & dependent care tax credit calculator.
5. No Charity Deduction Without Itemizing
During COVID, taxpayers could take up to a $600 charitable donation tax deduction on their tax returns even if they claimed the standard deduction. This rule has changed for the tax year 2022. Now, the taxpayers who don’t itemize deductions and take the standard deduction won’t be able to deduct their charitable contributions. So this will also reduce the tax refund claim.
Even IRS has informed taxpayers that the 2022 tax refund will be lesser, in the following words :
Due to tax law changes such as the elimination of the Advance Child Tax Credit and no Recovery Rebate Credit this year to claim pandemic-related stimulus payments, many taxpayers may find their refunds somewhat lower this year.
IRS tax news 2023
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