Tax season officially begins today, January 23, 2023, as the Internal Revenue Service begins accepting tax returns for your 2022 calendar year earnings. There are a few reasons why you should expect a smaller refund this year. You may even owe the government more money.
According to an article written by Bill Chappell on NPR.org, the first reason you may receive a smaller refund this year is that there are no more stimulus checks. In 2021, many Americans got a $1,400 stimulus check, the third and final installment. But, other taxpayers received a $1,400 recovery rebate credit on their 2021 returns instead. That credit would have either increased your refund, or decreased what you owed.
The second reason you may receive less money on your return, or you may even owe funds, is due to the elimination of the “enhanced child credit.” In 2021, parents with two children under 6-years-old, received an enhanced credit of a combined $7,200 ($3,600 per child). This was instituted during the pandemic, but the credit will revert back to $2,000 per child under six for the 2022 tax season.
The government has also eliminated a special charitable donation deduction that was implemented during the COVID-19 pandemic. It was a $300 deduction for taxpayers who did not itemize, and $600 for married couples. That tax break was not extended into 2022.
Another reason you may get less or owe more is that it has been such a volatile year on the stock exchange. Per Chappell’s article, “some people might face taxes on investment gains, especially if they own mutual funds that had to sell off stocks.” Your portfolio may have lost value in 2022, however, according to financial expert Lynnette Khalfani-Cox, who was quoted in the NPR.org article: “[The] markets’ volatility forced many mutual funds to sell more holdings than they normally would, including profitable ones. They then distributed those gains. And if investors hold the fund directly, rather than in a tax-sheltered account like a Roth IRA, they’ll have to pay taxes on their gain.
With high inflation and families trying to stretch dollars as far as they can, none of this is good news for American taxpayers. But, it is better to be prepared than to be shocked or surprised.
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Larry Martino is the long-time Afternoon Drive personality on 96.3 KKLZ. The views and opinions expressed in this blog are those of Larry Martino and not necessarily those of Beasley Media Group, LLC.