Taxpayers can expect 'refund shock' when they file 2022 tax returns
PITTSBURGH (KDKA) — It's called "refund shock," and many taxpayers can expect to see it when they file their 2022 tax returns.
As KDKA-TV money editor Jon Delano explains, there may not be a lot most of us can do about it.
Thanks to pandemic relief measures passed by Congress in the last year of the Trump administration, and especially during the first year of the Biden administration, many Americans got very big tax refunds earlier this year. But don't count on a repeat.
"We call it refund shock or refund whiplash, and really it has to do with a lot of the tax benefits put in place last year as part of the way to combat the pandemic – a lot bigger credits, a lot more credits, stimulus money – a lot of that went away at the start of this year," says Mark Steber, chief tax information officer for Jackson Hewitt.
The average refund for 2021 was well over $3,000, more than 15 percent above the average pre-pandemic refund in 2019. But Steber says to expect a big drop in your tax refund for 2022 because three credits, in particular, were not renewed.
"The child tax credit went up to $3,600 per child, fully refundable. That's now back to $2,000," says Steber.
The dependent care credit, which went up to $8,000, dropped back to $2,100, while the earned income tax credit for taxpayers with no kids dropped from $1,500 to $500.
"All of those went back to pre-pandemic amounts," notes Steber.
Democrats in Congress tried to extend the child tax credits, but they were blocked by Republicans and U.S. Sen. Joe Manchin.
Another credit lost to most taxpayers who file the un-itemized return – the charitable tax donation.
"Last year, as part of that pandemic package, they put in place a special charitable deduction above the line if you don't itemize of $300 or so per person. That went away," says Steber.
This year only the 9 percent of taxpayers who itemize their taxes can deduct their charitable donations. With one month to go before the end of the tax year, is there anything taxpayers can do to maximize their tax refunds?
"There are some steps you can take, but nothing really cataclysmic that can really offset some of that tax law and tax credit reductions that came into place," says Steber.
For the 91 percent of taxpayers who take the standard deduction and do not itemize, Steber says to make sure you take advantage of every available tax credit even if they are lower this year than last.
"Education credits or earned income credits or child tax credits or dependent care credits – you get those even if you don't itemize and you can look to those to boost your refund during the tax year," Steber said.
And there are some other things all taxpayers can do.
"You can increase your tax withholding – you certainly have a paycheck or two remaining in the year," Steber said. "You can put some additional money to your 401(k) or company deferral. That comes off your income."
And don't forget those year-end home projects that might qualify for a tax credit.
"There's a host of alternative energy credits that are in play if you do home improvements that were expanded as part of the pandemic," notes Steber.
The bottom line, says Steber, is to maximize your tax refund you really need a long-term strategy, not a last-minute one.