Financial experts have warned that this year’s tax refund may be smaller than usual if you’re used to receiving one at this time of year. It’s possible that millions of Americans will see their refunds reduced in 2022, or even face a bill from the IRS.
Tax refunds are expected to be lower this year, according to a YouGov/Forbes Advisor poll of 1,200 Americans. As a result,
only 42 percent of households with an annual income of less than $50,000 (considered low-income) expect a refund.
In most cases, getting a federal tax refund means you paid more in taxes than you should have in the previous year or withheld more money than you should have, based on your real taxable income. However, there have been some recent changes in tax laws that could significantly reduce your refund.
The Clinton-era Child Tax Credit underwent significant revisions last year as part of the American Rescue Plan. From $2,000 to $3,000, or $3,600 for children under the age of six, the maximum amount that could be received was increased.
As a result of the one-year change, more low-income families were able to receive all of their aid. Most importantly, eligible families will begin receiving monthly direct payments in the final six months of 2021.
As a result, only $1,500 in tax credits for older children will be available for claim this year due to the fact that half of the annual credit was distributed last year. Families with multiple children may find this to be a hardship because it is $500 less than in previous years.
The Department of Education allowed millions of Americans to put their monthly student loan payments on hold as soon as the pandemic began in March of 2020. It was a generous offer that was enthusiastically accepted by nearly all of the borrowers, and the debt relief was extended through the year 2021.
This helped many people survive the pandemic, but the write-off for student loan interest that was available in previous loans is no longer available to borrowers.
At Financial Advisory Service in Kansas, financial advisor Patrick Amey explains how much of an impact this write-off can have: “It could be $500 or $600.”
Investors in mutual funds may be subject to a higher tax burden.
If the filer has paid more tax or withheld more income than they are required to, they will receive a refund. This means that if your tax bill unexpectedly rises, your refund could be reduced or even wiped out.
This could lead to unanticipated additional taxes for the beneficiaries, according to CNBC. Many actively managed mutual fund accounts had a good year in 2021. While this is less than the investor’s total funds for the year, being compelled to make a payment at tax time can be a shock.