Why Is My 2022 Tax Return So Low?
For many tax brackets, the one nice thing about filing season is the chance to get a nice juicy tax return for your effort. Unfortunately, the Internal Revenue Service, better known as the IRS, is predicting lower returns overall for the 2022 tax year. This news seems to act as the cherry on top of the sundae that has been the last four years for individuals and families already debilitated by skyrocketing inflation and interest rates.
Learn: 3 Ways Smart People Save Money When Filing Their Taxes
Why Your Tax Return Is So Low
If you are one of the many who will be looking at a low tax return this year, it may be comforting to know you are not alone. Tax bills aside, when you count on any refund or stimulus payment as part of your annual financial outlook, a lower refund affects everything, from short-term expenditures to long-term goals such as retirement plans. Worse still, when you unexpectedly owe taxes, this can dampen not only your tax season but also your fiscal year.
Here are some leading factors contributing to why your tax returns might be lower this year.
- COVID-19 Relief
- Child Tax Credit
- Earned Income Tax Credit
- Charitable Donations
1. COVID-19 Relief
Congress declining to make any of the pandemic relief tax credits offered in 2021 permanent has put a damper on what many families will receive in their tax returns, or also possibly owe. These relief efforts went a long way to aid families already struggling financially in the midst of the pandemic.
To see COVID-19 tax relief efforts disappear — or just revert to what they were pre-pandemic — is a bit tough to digest, given how much the pandemic is still wreaking havoc on many financial landscapes. Given this, the loss of the pandemic-era tax break benefits may feel premature to many taxpayers about to file for 2022.
2. Child Tax Credit
The Child Tax Credit has been reduced to its pre-pandemic amount of $2,000 for tax year 2022 — down from the full amount of $3,600 per child it reached in 2021 and throughout the pandemic era. Though the Child Tax Credit is still available to offset the cost of raising a child or dependent care, this reduction hits families pretty hard.
Your filing status will affect how the Child Tax Credit applies to your return, since it will be reduced to $2,000 per child if your modified AGI in 2021 exceeds the following:
- $150,000 if married and filing a joint return or if filing as a qualifying widow or widower
- $112,500 when filing as head of household
- $75,000 if you are a single filer or are married and filing separately.
In addition, for those with families who also qualify for the Child and Dependent Care Credit, you could see a reduction from a potential $8,000 for 2021 to a maximum of $2,100 for 2022. That is a big difference.
3. Earned Income Tax Credit
The Earned Income Tax Credit is designed to give tax breaks to low-income and moderate-income workers and families. This tax credit may also see a reduction for some taxpayers who have no children.
Though in 2021 you may have received upwards of $1,500, you may now only receive $560, according to the IRS. The difference in those two amounts could pay someone’s rent, so it is understandably upsetting to those who are feeling the effects.
4. Charitable Donations
If you have filed for charitable donations in the past, you may run into a roadblock when trying to do so again this year. You can no longer select a standard deduction for charitable deductions, but rather have to itemize those deductions.
If you have averaged a certain amount of charitable contributions annually, be sure to keep track of specific donations — otherwise, you might see a lower amount in this year’s tax return.
Final Take: How To Increase Your Tax Return
Though tax relief companies do exist for you to consult with, if your tax return is lower than expected or lower than you feel it should be, you may have a few options to reduce your tax bill. For example, you could contribute to a traditional retirement account and have that attributed to last year. If you contribute to a health savings account, this could also offer a potential tax deduction if the account qualifies.
- Why is my tax return so low in 2022?
- Your tax return may be lower in 2022 than in previous years due to factors such as reductions in tax credits – such as the Child Tax Credit, Child and Dependent Care Credit and Earned Income Tax Credit – the expiration of many COVID-19 tax relief benefits or a reduction in charitable donation allowances.
- Why is there less in our tax refund this year?
- There are several contributing factors to why your tax refund is less this year, including reductions in the following:
- – COVID-19 Relief
- – Child Tax Credit
- – Child and Dependent Care Credit
- – Earned Income Tax Credit
- What is the Earned Income Tax Credit?
- The Earned Income Tax Credit offers tax breaks to low-income and moderate-income workers. This is one of the credits that will be reduced for 2022 tax returns.
- How do you get a bigger refund for 2022?
- Though there isn't an abundant supply of tax credits or ways to reduce your tax bill, there may be a few ways to get a bigger refund. You could contribute to a traditional retirement account and have it counted for 2022, which could lead to a tax deduction. If you contribute to a qualifying health savings account, this could also offer a potential tax deduction.
- These options will depend on such factors as your taxable income and whether the accounts qualify for tax breaks.
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- Internal Revenue Service. 2022. "2021 Child Tax Credit and Advance Child Tax Credit Payments — Topic C: Calculation of the 2021 Child Tax Credit."
- Internal Revenue Service. 2023. "Earned Income Tax Credit (EITC)."
- CNBC. 2023. "IRS warns tax refunds may be ‘somewhat lower.’ With high inflation, that’s a ‘double whammy’ for families, says advisor."
- Time. 2023. "Why Your Tax Refund May Be Lower This Year."
- The New York Times. 2023. "Your Tax Refunds May Be Smaller This Year."