After the Internal Revenue Service issued several releases warning about potentially lower tax refunds this filing season, some analysts say that it could put strain on some families who may have anticipated an expanded child tax credit.
Analysts Sound Off
Financial expert Lynnette Khalfani-Cox told NPR on Jan. 22 that there are “four main reasons” that cause will cause 2022’s returns to be smaller.
“The first is: no more stimulus checks. The second is that what was called the enhanced child credit—that’s gone,” she noted. A third reason is that a pandemic-era tax break for charitable deductions was killed for this year, she said, noting that the fourth reason is because some individuals might face taxes on investment gains.
Joe Buhrmann, a financial planner and senior financial planning consultant at eMoney Advisor, told CNBC on Friday that the smaller refunds this season and relatively high inflation could be a “double whammy” and “nasty surprise” for some people, namely families.
Tax breaks that were implemented for 2021’s taxes have returned to prior levels, the Internal Revenue Service (IRS) has said. The child tax credit dropped back to a maximum of $2,000 per child.
The Consumer Price Index, a key metric used to measure inflation, went up by 5 percent in December 2022, according to the Department of Labor’s latest statistics published last week. That’s down from the 5.5 percent year-over-year increase that was seen in November of last year.
“That’s money out of refunds right there,” Buhrmann noted, referring to the child tax breaks.
“But a whole bunch of taxpayers actually received what’s called a recovery rebate credit,” Khalfani-Cox also said. “And they got $1,400 per person on their 2021 taxes,” plumping their tax refund or lowering their bill. “But now that’s gone,” she remarked.
What the IRS Says
In a recent news release, the IRS said that some taxpayers should expect a smaller refund due to the expiration of pandemic-related stimulus payments and changes to child credits.