Will Your 2022 Tax Refund be Smaller?
Jan 9th, 2023
Many U.S. taxpayers may receive a tax refund shock when they file their 2022 tax returns. Even the IRS is warning taxpayers that refunds may be less. The tax agency warned in a November news release: Refunds may be smaller in 2023.
“When it comes to taxes, 2022 is the year of the great reset”, said Mark Steber, chief tax information officer for Jackson Hewitt. "A lot of things that were put into place for 2021, and some part 2020, will revert to pre-pandemic years, which can lead to refund shock or, more importantly, balance-due shock."
Here are some tax changes for the tax year 2022 that could impact your refund:
Child Tax Credit
The CTC is reverting to its prior level of $2,000 per child, compared with a 2023 credit that was high as $3,600 per child.
Child and Dependent Care Tax Credit
Like many other tax credits, the child and dependent care tax credit (CDCTC) saw a significant reduction in 2022. After a pandemic-induced legislative expansion, the CDCTC returned to a maximum credit amount of $2,100 in 2022 instead of $8,000 in 2021.
Earned Income Tax Credit
During the pandemic, the EITC was increased for adults without kids. In 2021, low-income workers without children were eligible to receive a credit worth up to $1,500. For 2022- the tax credit is reverting to a lower amount for this group — $560
Charitable Contributions
Another big change is that taxpayers who don’t itemize and instead take the standard deduction won’t be able to deduct charitable contributions. In 2021, the IRS temporarily allowed individuals to deduct $300 per person, up to $600 per family, in charitable contributions even if they didn’t itemize other deductions. That won’t be allowed for 2022.
Stimulus Payments
Taxpayers will not receive an additional stimulus payment in their refund because there were no Economic Impact Payments for 2022.
Taxpayers are already being squeezed by the highest inflation in a generation. That’s why it is important to keep up to date on the ever-changing tax laws to avoid tax-time surprises.
Personal Exemptions
The personal exemption for the tax year 2022 remains at 0, as it was for 2021, this elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act.
Income Tax Rates
In 2022 the top tax rate of 37 percent affects individuals whose income exceeds $539,900 ($647,850 for married taxpayers filing a joint return). Marginal tax rates for 2022 are as follows: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. As a reminder, while the tax rate structure remained similar to prior years under tax reform (i.e., with seven tax brackets), the tax-bracket thresholds increased significantly for each filing status.
Sources: Image by Alicia Christin Gerald
