The tax refund increased by over 15% in 2022 from the 2021 average. Many families rely on this refund each year for their financial situation. However, those same families may now find that the size of their refund is not as large as the previous year. Before filing your taxes, it’s essential to understand the potential factors that may cause you to have a smaller tax refund or even owe money.
You may be wondering why the average refund has increased, yet the size of your refund may be smaller. Let's explore why this could be the case.
No Tax Breaks in 2022
In 2021, the government provided some tax breaks to help support individuals and families during the pandemic. However, these tax breaks will not be available in 2022. This could mean that you may have received an additional amount on your paycheck throughout 2021, but this extra money will not appear on your taxes in 2022.
Tax breaks aim to boost income for people who may be struggling financially. However, if the same amount of money was earned in 2021 and 2022, this could result in a smaller refund.
No Stimulus Payments in 2022
The difference in the average refund size may also be attributed to the lack of stimulus payments throughout 2022. In 2021, over $1.9 trillion was set aside for these payments, but this is not the case for 2022.
On average, eligible individuals received $1,400 in stimulus payments in 2021. If you were one of those eligible for the payment and not one of the people who 'saved' it towards their taxes, this could mean a smaller refund size for you in 2022.
Changes to Tax Laws
Tax laws change frequently, and new legislation can influence your refund size. One such regulation is the suspension of all public student loan repayments by the U.S. Department of Education until 2022. This means taxpayers with student debt may be unable to claim the Student Loan Interest Deduction on their taxes this year, leading to a smaller refund.
Even if you cannot take advantage of any tax breaks or stimulus payments in 2022, there are still ways to increase your refund size or reduce the amount of money you owe.
Ways to Increase Your Refund/Reduce What You Owe
First and foremost, you should take full advantage of eligible tax credits. This can include the Earned Income Tax Credit (EITC), available for individuals with low-to-moderate incomes. Additionally, the Child Tax Credit offers up to $2,000 per dependent child under 17. Eligibility requirements apply for both credits, so review all the information before filing your taxes.
You can also look into other strategies, such as traditional tax planning or more sophisticated methods. A professional accountant knowledgeable about tax law can help you take advantage of all available deductions and credits.
As a taxpayer, it’s important to understand why the refund may be smaller this year than in other years. You may be able to increase your refund or reduce what you owe with a few proactive steps. Consulting a professional tax advisor and taking full advantage of available deductions and credits may help maximize your return.