You could see a lower tax refund this year, and this is why
Some Americans could receive smaller refunds for the 2022 tax season
The Internal Revenue Service (IRS) issued 122 million refunds for fiscal year 2020, totaling more than $736.2 billion in 2021 refunds, according to IRS data. But in 2022, some Americans could receive checks that are smaller than they're used to, according to William Neilson, formerly of the IRS and current associate tax editor at business and economic forecasting publisher Kiplinger.com.
Neilson says that the drop could be attributed to child tax credit changes that were implemented in 2021. Although the tax credit was increased for the 2021 tax year, half of it was already paid out through six monthly payments in during that year. Families were given monthly payments of $300 for each child under the age of six, and $250 per month for each child between the ages of six to 17.
Parents typically receive a child tax credit of $2,000 at the time of their tax return. But due to changes implemented through the American Rescue Plan, the IRS raised that payment to $3,000 or $3,600 depending on the age of the child, and paid out half of it in monthly advance payments in 2021. That will leave a credit of $1,500 or $1,800 per child when it comes time to file your taxes this spring.
If you could be receiving a lower tax return and need help managing expenses, consider taking out a personal loan to lower other high-interest debt you might have. Visit Credible to find your personalized interest rate without affecting your credit score.
BANK OF AMERICA SLASHES ITS OVERDRAFT FEES
The reason why some families could receive higher tax returns
While many families may see lower tax returns because they already received advance payments in 2021, households that added new members during that year could see higher returns. Adding a new child to the family will usually increase tax returns, since it adds another child tax credit.
The increase for those that added to their families in 2021 could be substantial. That’s because children born, adopted or fostered by families in 2021 were not included in the advance child tax credit monthly payments, since they were based on the previously filed tax returns. The IRS states that such children would be considered "qualifying," and qualifying families will receive the full $3,000 or $3,600 if they are under six when families file their tax return.
Additionally, these children were likely not included in the $1,400 stimulus checks sent out last year, since those payments were also based on previous tax returns. Families will also receive these missed stimulus payments when they file their 2021 tax return.
If you need more money than you are expecting to get through your income tax return, consider taking out a personal loan to consolidate payments or pay down debt. Visit Credible to compare multiple lenders at once and find the one that is the best fit for you.
INTERNATIONAL BNPL PROVIDER APEXX GLOBAL TO LAUNCH IN US
Families with children in day care get higher refunds
When working parents with children in day care file taxes, they could see higher refunds in 2022 for the 2021 fiscal year. That’s because the American Rescue Plan also made changes to the Child and Dependent Care Credit, raising the amount of credit parents can receive for paying for childcare from $3,000 to $8,000 per child. The plan created a maximum of $16,000 for two dependents or more, according to the IRS.
It also made this money refundable, rather than just a credit, allowing more families to get money back from paying for child care. This credit is available at its full amount for anyone making less than $125,000 per year, and begins to lessen as incomes rise. It is eliminated completely once adjusted gross incomes reach $438,000.
If you are at risk of receiving a lower tax refund in 2022, consider taking out a personal loan to help pay down debt. Contact Credible to speak to a loan expert and get all of your questions answered.
Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at email@example.com and your question might be answered by Credible in our Money Expert column.