Last year’s tax refunds were supersized for many families. Economic impact payments, an increased child tax credit and expanded eligibility for other tax breaks helped boost the average refund to $3,039 in 2022, a 7.5% increase from the year before.
Now, many pandemic-related enhancements to tax credits and deductions have expired, and the IRS warns that Americans should not expect the same refunds this year.
“The worst part is that they aren’t ready for it,” says Chris McMahon, president and CEO of Aquinas Wealth Advisors in Pittsburgh.
If you aren’t sure whether you’ll be one of the households affected this year, here are six reasons why tax refunds may be smaller in 2023:
- No economic impact payments.
- Smaller child tax credits.
- Changes to the child and dependent care credit.
- Reduced income thresholds for the earned income tax credit.
- Loss of the non-itemized charitable contribution deduction.
- More Social Security income may be taxable.
No Economic Impact Payments
To keep the economy afloat during the COVID-19 pandemic, the federal government approved multiple rounds of economic impact payments in 2020 and 2021. Commonly known as stimulus payments, those who didn’t get a direct check from the government could apply for a Recovery Rebate Credit on their tax return.
“There was no stimulus (payment) in 2022, so that could be a huge difference for some people,” says Logan Allec, CPA and owner of tax relief company Choice Tax Relief.
