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The Shocking Truth about Tax Refunds: Smaller Returns Await Many Taxpayers

This year, it may be harder for Americans to gauge the size of their tax refund due to pandemic-era changes. Many taxpayers may see smaller refunds, especially lower-income families, as a result of the expiration of certain tax breaks and other developments. The size of a taxpayer’s refund is important, as it is often their biggest windfall of the year that they earmark for savings, vacations, debt payments, or even covering basic needs, based on a report by The New York Times on January 13, 2023.

The average refund for last year was $3,176 as of October 28th, 2021, an increase of nearly 13% from $2,815 the previous year. The increase was largely due to credits introduced by the American Rescue Act, but these have now expired, as per a report by Yahoo Finance on January 15, 2023. The Child Tax Credit, Earned Income Tax Credit, and Child and Dependent Care Credit have returned to pre-COVID levels, but with less generous amounts. Low-income families will no longer receive the full credit, and there are changes to the EITC income threshold for single filers with no children. The Child and Dependent Care Credit has also been scaled back for this tax season.

Last year, according to a report by CBS News on January 13, 2023, the credit was worth $8,000 for one dependent. This tax season, it’s $2,100. Taxpayers filing their 2022 tax returns this year must itemize using the Schedule A form to deduct any charitable contributions; the above-the-line deduction has been eliminated. The Inflation Reduction Act of 2022 increased the tax credit for solar panels from 26% of the costs to 30% and applies retroactively to panels bought in 2022, with no cap on the credit and no income limitations.

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