Last year, you may have reaped the benefits of several specific tax credits and deductions that aimed to assist families affected by the pandemic—resulting in a substantial tax refund. However, many of those benefits ceased in the 2022 tax year, meaning your tax refund is likely to be noticeably reduced this year (especially if you have young children).
“Most temporary COVID-19 relief measures and programs have expired this year,” states Kathy Pickering, chief tax officer at H&R Block. “Taxpayers need to be mindful of these changes as they could affect their refund. Being aware of these changes can help minimize surprises when filing taxes or planning how to allocate their refund.”
Amid ongoing concerns about inflation in the economy, a reduced tax refund (or potentially even a tax bill) is undoubtedly unwelcome news for many families. An H&R Block survey revealed that 69% of Americans are extremely worried about inflation and its repercussions on their taxes. Moreover, a substantial number of their clients are witnessing a decrease in their tax refunds compared to previous years.
As the deadline of April 18 for filing taxes this year approaches, here are some key changes in income tax rules that might affect your final tax bill. It’s wise to hold off on planning significant expenses based on expectations of a substantial refund.
The Child Tax Credit Has Decreased
Last year, the child tax credit saw an increase to $3,600 per child under 6 and $3,000 for kids aged 6 to 17, a measure instated as part of the American Rescue Plan to aid individuals facing economic challenges due to the pandemic. However, this year, the child tax credit has reverted to its typical amount of $2,000. Consequently, many parents, particularly those with young children, might confront a notably larger tax bill compared to the previous year. H&R Block anticipates that the reduction in the child tax credit will significantly impact taxpayers’ tax obligations.
This reduction particularly affects lower-income families who were previously entitled to the full credit refund, even if their income or tax payments didn’t meet the criteria for the full amount. This year, they will only receive $1,400 per child. It’s important to note that the child tax credit diminishes for individuals with an adjusted gross income of $200,000 or higher if filing as single and $400,000 or higher for those who are married and filing jointly.
The Child and Dependent Care Tax Credit Has Decreased In response to the pandemic, the child and dependent care tax credit was temporarily increased to aid families in covering child care expenses. Last year, you could claim up to $8,000 for one qualifying individual and $16,000 for two or more children, encompassing up to 50 percent of your overall care expenses, as per the IRS guidelines. (And as any individual managing child or dependent care knows, it’s easy to surpass those figures quite swiftly!)
This year, the IRS child and dependent care tax credit is reduced to $3,000 for one individual and $6,000 for two or more dependents. Additionally, while the credit was fully refundable last year, this year, it will only offset your owed taxes with the credit. Therefore, if your tax bill is lower than the tax credit, your refund will only reflect the actual tax amount you paid.
The Earned Income Tax Credit Reverted to Pre-Pandemic Levels The earned income tax credit, claimed by individuals earning below $59,187, was increased to $8,000 in 2021 but has returned to its standard amount of $2,100 this year.
Charitable Donations No Longer Apply for Standard Deduction Filers In recent years, donating to charities yielded a significant benefit beyond the sense of philanthropy. You could receive a tax deduction of $300 for single filers and $600 for married couples, even when claiming the standard deduction. However, this year, that benefit has been removed, and the deduction will only be available for individuals who itemize their tax deductions.