Your Tax Refund May Be Smaller This Year

Last year, you may have benefited from a number of special tax credits and deductions that focused on helping families impacted by the pandemic—and seen a generous tax return as a result. But many of those benefits expired in the 2022 tax year, so your tax refund will likely look a lot smaller this year (especially if you have a lot of young kids).  

"This year, most temporary COVID-19 relief measures and programs have expired," says Kathy Pickering, chief tax officer at H&R Block. "It’s important for taxpayers to be aware of these changes, as they may impact their refund. Awareness can limit any surprises when filing taxes or making plans for what they’ll do with their refund."

With inflation still an issue in the economy, a small tax refund (or a tax bill) will definitely be unwelcome news for most families. An H&R Block survey found that 69% of Americans are extremely concerned about inflation and its impact on their taxes. And they are already seeing that a significant number of their clients are receiving a smaller tax refund than in previous years.

As the April 18 deadline to file taxes this year approaches, here are some of the income tax rule changes that could be impacting your final tax bill—and a look at why you might want to hold off on any big dreams of how to spend a big refund.

The Child Tax Credit Is Reduced

In 2021, the child tax credit was increased to $3,600 per child under 6, and $3,000 for kids from 6 to 17 as part of the American Rescue Plan to help people deal with pandemic-related economic issues. But this year, the child tax credit has dropped back to its usual amount, $2,000, which means many parents—especially those with young children—are facing a potentially much larger tax bill than they did last year. And H&R Block expects that the reduction in the child tax credit is having the biggest impact on taxpayers' tax bills.

That’s especially true for lower-income families, who were able to get the full credit refunded to them, even if they didn’t make enough money or pay enough in taxes to qualify for the full amount. This year, they will only get $1,400 per child. 

Keep in mind that the child tax credit phases out if you have an adjusted gross income of $200,000 or more if you’re single, and $400,000 or more if you’re married and filing a joint return.

The Child and Dependent Care Tax Credit Has Decreased

The child and dependent care tax credit was also temporarily increased to help families cover child care costs during the pandemic. In 2021, you could claim up to $8,000 for one qualifying person, and $16,000 for two or more children, toward a maximum of 50 percent of your overall care expenses, according to the IRS. (And as anyone dealing with child or dependent care knows, it’s easy to go well beyond that quickly!)  

This year, the IRS child and dependent care tax credit drops to $3,000 for one person, and $6,000 for care for two or more people. 

And while last year the credit was fully refundable, this year, you will only be able to offset your taxes owed with the credit—so if your tax bill was smaller than the tax credit, you’d only get a refund of the actual tax you paid.

The Earned Income Tax Credit Reverted to Pre-Pandemic Numbers

This credit, which is claimed by people with incomes below $59,187, was raised to $8,000 in 2021, but goes back to its usual $2,100 this year. 

Charitable Donations Disappeared for People Who Take the Standard Deduction

Donating to charities netted you a bigger benefit than just feeling and doing good for the past few years. For the past few tax years, you could receive a tax deduction on your charitable contributions of $300 for single filers, and $600 for married couples, even if you claim the standard deduction. This year, that goes away, and you’ll only be able to claim the deduction if you are someone who itemizes their tax deductions.

How to Help Your Tax Situation

If you're worried that your taxes might be much higher this year, look at ways you might be able to reduce your overall bill. (We have a list of the most overlooked tax deductions that can get you started.)

If you do find yourself with taxes due—and no rainy day savings to help you out, you can ask for a payment extension or payment plan. You will still owe interest, but it will help you make paying your taxes easier on your wallet.