According to Smith, there are 8 factors that might be affecting the tax refunds taxpayers will receive this year. Read the list to learn about these factors!Even before the COVID-19 pandemic, the tax code was already hard to predict. Among stimulus payments, extended tax deadlines, and pandemic-related tax deductions, filing tax returns has been more complicated than ever. What’s even worse is that the tax refunds taxpayers will receive this year might be affected by several factors.
No Stimulus Checks
Smith says the first factor that might affect tax refunds is that no one was able to receive stimulus payments this year. Stimulus payments were not considered as taxable income. Therefore, they could have been a big help to compensate for expenses without falling into a higher tax bracket.
Charitable Deduction Expires Soon
The second factor is that the charitable deduction will be expiring soon. All tax deductions reduce the overall taxable income. However, the charitable deductions will already be expiring at the end of 2022.
Tax Brackets Increased
The third factor is that the tax brackets increased in amount. The amount of taxes taxpayers pay is determined by which tax bracket they fall into. By the end of 2021, the Congress unfortunately increased the tax brackets for 2022.
State Taxes Must Still Be Paid
The fourth factor is that even though student loan debts were forgiven, state taxes may still be needed to pay. Depending on which state in the U.S. the loan borrower lives in, they may have to pay the same amount of state taxes as their canceled debts.
EITC Has Returned To Normal
The fifth factor that might affect tax refunds, according to Smith, is that the Earned Income Tax Credit (EITC) has reverted back to its requirements before the pandemic. The EITC is a tax deduction for individuals with low income. However, in 2022, the strict EITC requirements are applied again.
Some Refunds May Be Processed Longer
The sixth factor is that if a taxpayer mails their tax documents instead of filing online, refunds may take longer to process. Refunds must not be expected any sooner than six months.
IRS Expects To Receive Cryptocurrency Reports
The seventh factor is that the Internal Revenue Service (IRS) expects taxpayers to report their cryptocurrency transactions. If a taxpayer lost money upon trading crypto, the amount of taxes they owe might be reduced.
Child Care and Dependent Tax Credit Has Returned To Normal
Lastly, Smith says the Child Care and Dependent Tax Credit has reverted back to its qualifications before the pandemic. However, like EITC, strict qualifications are applied again.