Many Americans Don’t Expect a Tax Refund This Year — Here Are 4 Reasons Everyone’s Might Be Smaller
Tax Day, for many Americans, has long been associated with receiving refunds. However, findings in the GOBankingRates’ 2023 Taxes Survey indicated that many Americans do not expect a tax refund this year.
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Why don’t Americans expect a refund this year and what could be the cause? Here are some common reasons why federal tax refunds will be smaller for most taxpayers in 2023.
How Many Americans Don’t Expect a Refund?
GOBankingRates’ 2023 Taxes Survey polled 1,002 Americans on the subject of filing taxes and their tax refund expectations. When asked how much they expected to receive as a refund, nearly 18% of overall respondents said they did not expect a refund at all this year. In a separate question asking what Americans planned to do with their tax refund, nearly the same amount said they did not expect to receive a refund.
When asked whether they expect their tax refund to be more or less than last year, 37% of overall respondents said they expected less.
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Why Are Tax Refunds Smaller This Year?
If you’ve filed your taxes for the year, you may already know some of the reasons why taxpayers are anticipating a smaller tax refund. Robert Persichitte, CPA and CFA at Delagify Financial, attributes the changes to the end of generous COVID-19 provisions.
Almost every taxpayer will have a smaller refund due to the following three reasons:
Less flexibility for low-earning taxpayers: While the requirement was waived for 2020 and 2021, Persichitte said those without earned income cannot qualify for many child-related tax credits.
Lower credits: In 2023, Persichitte said the expanded Child Tax Credit, Earned Income Tax Credit and dependent care credit are all lower than in previous years.
Non-refundable credits: While many tax credits in 2020 and 2021 were temporarily refundable, they switched to non-refundable in 2022. Persichitte uses the example of thinking of a refundable credit like a check in which one receives cash. If you think of a non-refundable credit like a coupon for your taxes, Persichitte said it takes your tax bill to $0. If you don’t owe taxes, however, you don’t receive a benefit.
Paul Miller, managing partner and CPA at Miller & Co., LLP, also said smaller tax refunds are due to the lack of a stimulus payment in 2022. “Taxpayers will not receive an additional stimulus payment with the 2023 tax refund,” said Miller.
There is one silver lining this year in the form of the SECURE 2.0 Act of 2022. Miller said SECURE helps with IRA withdrawals for disasters without charging any penalties.
Is It Bad To Receive a Smaller Tax Refund?
The short answer is no, even if many taxpayers do enjoy receiving a windfall of money from the IRS.
Robert Roper, CPA and senior tax manager at Kroon & Mitchell, Tax & Investments, said the IRS has tried to reduce refunds by matching wage withholding more accurately with your taxes. In working with numerous clients who already received refunds, Roper said they now owe tax as their typical withholding has dropped.
Roper, who has worked to update the W-4 withholding forms for clients to include additional withholding, recommends not allowing yourself to be caught off guard by your potential tax liability in the future.
“I would stress more than ever checking your withholding in 2023 to make sure you aren’t surprised at the end of the next tax year,” said Roper.
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This article originally appeared on GOBankingRates.com: Many Americans Don’t Expect a Tax Refund This Year — Here Are 4 Reasons Everyone’s Might Be Smaller
