Americans should brace themselves to receive a smaller tax refund in 2023, according to the Internal Revenue Service.
Taxpayers typically receive a refund if they had too much money withheld and overpaid their taxes the previous year. For many families, the money can be substantial: Nearly three-quarters of filers received a tax refund in 2022, with an average payment worth about $3,176 – up from about $2,800 in 2021.
However, the IRS is now warning taxpayers to brace for a smaller refund next year because there were no stimulus payments delivered by the federal government in 2022. In 2021, the IRS delivered a third round of stimulus payments worth up to $1,400 per person. Eligible Americans could claim unpaid funds on their tax return.
“Refunds may be smaller in 2023,” the IRS said in a November news release about preparing for the upcoming tax season. “Taxpayers will not receive an additional stimulus payment with a 2023 tax refund because there were no economic impact payments for 2022.”
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The tax-collecting agency noted that a pandemic-era exception in 2020 and 2021 that allowed individuals taking the standard deduction to claim a tax deduction of up to $300 for cash donations has expired, as well.
“The IRS cautions taxpayers not to rely on receiving a 2022 federal tax refund by a certain date, especially when making major purchases or paying bills,” the agency said. “Some returns may require additional review and may take longer.”
Congress also expanded several tax breaks and credits in the different stimulus bills, and did not extend those measures with the passage of the year-end omnibus spending bill in December. For instance, the child tax credit payment was fully deducible and worth up to $3,600 per child in 2021. But the enhanced credit expired last year, meaning it will “significantly decrease” for taxpayers this year, according to the National Association of Tax Professionals.
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That can be concerning to millions of Americans who depend on the influx of money from Uncle Sam to make major purchases, save for retirement or pay off debt. In 2022, nearly half – 46% – of taxpayers said they relied on their refund to help cushion their finances, according to a LendingTree survey.
“These tax refunds can help folks build that cushion up again, protecting them from needing to rely on credit cards and other loans for a while longer,” LendingTree chief credit analyst Matt Schulz said at the time.
The tax-filing season typically begins sometime in January. The filing deadline this year will be Tuesday, April 18. Even if you receive an extension from the IRS to file your taxes, you still must pay any money owed to Uncle Sam by April 18 or face penalties and interest on any amount not paid.
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The news from the IRS comes as some Americans are still waiting to receive their refunds from the 2021 tax year.
As of mid-November, the IRS had to process about 3.7 million individual tax returns received this year, including 1.7 million returns requiring error correction or other special handling and an additional 2 million that are paper returns waiting to be reviewed and processed.