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Smaller Tax Refunds Ahead: Changes to Credits, Deductions, and Pandemic Policies Impact Tax Returns

It’s tax season and many people may have lower returns, fewer credits and deductions, and higher costs due to rising prices and debt. The IRS starts accepting returns for 2022 on January 23rd and will distribute refunds later.

Financial advisor Lynnette Khalfani-Cox recently said that taxpayers should anticipate smaller tax refunds in 2023, according to NPR News on January 22, 2023. She listed four primary reasons for this, including the discontinuation of stimulus checks and the elimination of the increased child credit. Additionally, some individuals may even have tax arrears.

Khalfani-Cox also mentioned that a pandemic-era tax exemption for charitable deductions was removed, and investors may have to pay taxes on investment gains, especially for those who were forced to liquidate their holdings in a volatile stock market.

Families with two children under the age of six will not receive the same level of tax credits as they did last year, AS News reported on January 24, 2023. This is due to a change in the amount of credit offered for families with two young children, which has been reduced from $7,200 to $4,000. This change is a result of pandemic legislation no longer being in effect.

The United States Census Bureau, using the Supplemental Poverty Measure, reported that child poverty rates decreased by 46% in 2021, the lowest child poverty rate on record, due to the child tax credit and related pandemic policies. The rate dropped from 9.7% in 2020 to 5.2% in 2021.

 

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