A Smaller Child Tax Credit
The Child Tax Credit got supercharged in 2021, with parents of children under 6 receiving $3,600 and parents of children ages 6 to 17 getting $3,000.
But in 2022, that tax credit reverted to its pre-pandemic level of $2,000 per child, regardless of age. While that’s certainly a help, that slimmer tax break could make an impact on parents’ refunds.
Some lawmakers and child advocates are pushing to reinstate the higher CTC amounts, with Representative Adam Schiff, a Democrat from California, this week urging congressional leaders to extend the expanded CTC. But with Congress leaving soon for its holiday recess, it’s unclear whether there will be any traction on this issue.
Dont Count On That Tax Refund Yet Why It May Be Smaller This Year
- If youre banking on a tax refund, it may be smaller, or you may owe money this season, according to financial experts.
- The advance child tax credit, paused student loan payments and year-end mutual fund payouts may cause higher taxable income for 2021.
If youre banking on a tax refund, it may be smaller, or you may owe money this season, according to financial experts.
Typically, you get a federal tax refund when youve paid or withheld more than the amount you owe, based on taxable income.
The IRS subtracts the greater of the standard or itemized deductions from adjusted gross income to reach taxable income, and there are a few reasons why it may be higher in 2021.
How To Check Your Refund Status
You can to check on the status of your refund. However, IRS live phone assistance is extremely limited at this time. Wait times to speak with a representative can be long. But you can avoid the wait by using the automated phone system. Follow the message prompts when you call.
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What To Do Once Your Refund Arrives
For many people, their IRS tax refund is the biggest check they receive all year, the IRS says. In anticipation of your windfall, its wise to have a plan for how youre going to use your windfall. Deciding how to spend, save or invest the money in advance can help stop the shopping impulse from getting the best of you.
Your refund is yours to use how you see fit and can be used to help pay for day-to-day expenses or invested for long-term financial stability.
If youre expecting a refund, put it to good use. Looking for inspiration? Bankrate offers five smart ways to invest your tax refund.
How Long It Takes To Get Your Tax Refund
Nine out of 10 tax refunds are issued within 21 days, according to the IRS.
Twenty-four hours after filing your refund online, you can access the IRS Where’s My Refund tool to get daily updates on your tax refund status. Paper filers have to wait six months or more before the tool becomes available.
The tool shows progress in three phases:
Once your refund is approved, you will be given a date to expect your refund on by the IRS.
Those who file their tax return online and sign up for direct deposit get their tax refund fastest, per the IRS.
Most states estimate that state tax refunds are issued within 10 weeks of processing.
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Average Tax Refund By State
Utah residents received the largest average tax return in 2021, getting $1,783 back, while those from Oregon received the smallest average tax refund, getting just $1,543 back.
Returns were down between 15% and 20% in every state in 2021 compared to 2020, according to the IRS.
Most states estimate that state tax refunds are issued within 10 weeks.
If you’d rather see a state-by-state breakdown, here’s a table of the average tax returns in 2021.
What Is A Tax Refund Advance
A tax refund advance is a short-term loan that uses your anticipated tax return as collateral. You can typically borrow between $200 and $4,000 between December and February.
Interest for this type of loan is typically higher than most other loans, with annual percentage rates spanning around 35%. For context, average credit card APRs are around 18%, while personal loan APRs are around 11.08%. Some tax filing services don’t charge interest for this service as long as you agree to file your taxes with them, but that may mean you end up paying a fee to file your taxes.
“This isn’t a standardized product,” said Weiss. “Therefore, fees, requirements and APRs vary drastically from one company to the next.” If you’re considering a tax refund advance, Weiss recommends reading the fine print and comparing different options.
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Undelivered Federal Tax Refund Checks
Refund checks are mailed to your last known address. If you move without notifying the IRS or the U.S. Postal Service , your refund check may be returned to the IRS.
If you were expecting a federal tax refund and did not receive it, check the IRS’Wheres My Refund page. You’ll need to enter your Social Security number, filing status, and the exact whole dollar amount of your refund. You may be prompted to change your address online.
You can also to check on the status of your refund. Wait times to speak with a representative can be long. But you can avoid waiting by using the automated phone system. Follow the message prompts when you call.
How Long Will My Tax Refund Take
The IRS sends over 9 out of 10 refunds to taxpayers in less than three weeks.
Unfortunately, a 21-day delivery of your tax refund isnt guaranteed. There are a number of factors including the choices you make when you file that could impact how long it takes for you to receive your tax refund.
Find out what other factors affect the timing of your refund in 15 minutes or less with our new video series.
You get to choose how you want to receive any refund the IRS owes you. Here are your options:
- Direct deposit into your bank account .
- Paper check sent through the mail.
- Debit card holding the value of the refund.
- Purchase up to $5,000 in U.S. Savings Bonds.
- Split your refund among up to three financial accounts in your name, including a traditional IRA, Roth IRA or SEP-IRA.
The delivery option you choose for your tax refund will affect how quickly you receive your funds. According to the IRS, the fastest way to receive your refund is to combine the direct deposit method with an electronically filed tax return.
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Extension To File Your Tax Return
If you cant file your federal income tax return by the due date, you may be able to get a six-month extension from the Internal Revenue Service . This does not grant you more time to pay your taxes. To avoid possible penalties, estimate and pay the taxes you owe by the tax deadline of April 19, 2022, if you live in Maine or Massachusetts or April 18, 2022, for the rest of the country.
More Time And Few Forms To File
Your Solo 401k retirement plan is tax deferred. Therefore, it doesnt file a tax return. There is often no direct filing requirement for your Solo 401k. Only after the Solo 401k Plan balance exceeds $250,000 in assets , is there a simple filing requirement for IRS form 5500-EZ. Was your Solo 401k balance was less than $250,000 on December 31st of last year? If so, you do not need to IRS Form 5500 EZ .
There are little or no filing requirements for your Solo 401k. However, you still need to understand the implications of being self-employed. One benefit is maximizing the tax-exempt contributions to your small business retirement account.
By the time your financial sophistication reaches this level, you likely have a CPA preparing your taxes. Or you might use a payroll company. But if you enjoy digging into the numbers and knowing that youve maximized your tax deduction, here is what you need to know about claiming both of your Solo 401k contributions on your tax return.
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What People Get Wrong About Tax Refunds
I have a confession to make: I actually love the kooky weirdo financial experts you see on TV or on their online soapbox who lecture you about taxes. Because 99.99% of the time they are DEAD WRONG about money.
One of their favorite go-to buzz phrases:
If youre getting a tax refund, youre giving the government free money!
TRANSLATION: If you get a refund, that means the government took your money and earned interest on it for an entire year!!
Then these experts are typically out of breath because of their own brilliance.
Let me break this down for you.
The average tax refund is about $3,000. Lets assume that money would have been sitting in a savings account with a 1.45% APY .
How much interest did you lose through your tax withholdings? $3.62 a month.
OMG!! The government is stealing the equivalent of a latte each month! Time to dump a bunch of tea in Boston Harbor.
Heres a hard truth: If you had that money, you probably would have spent it. Thats not a slight against you thats just human psychology. We as humans have an incredibly finite amount of willpower. Thats why cost-saving measures like cutting out lattes or lunch at your favorite sandwich spot arent realistic.
And yes, technically, theyre right. You could have been earning interest on the money. I live in a world of reality, however, which means that technically isnt always correct.
Getting Refunds Within 21 Days Of Filing
If all goes well, though, taxpayers who e-file can receive their refunds via direct deposit as quickly as one week after filing based on previous years’ processing time, according to trade publication CPA Advisor.
It’s important to note that processing time typically slows down as the tax season gets underway and the IRS handles more returns, the publication added.
In the meantime, tax experts say there are some steps that taxpayers can take to help ensure a quick tax refund, which is even more important this year given that the IRS is starting with a backlog. National Taxpayer Advocate Erin M. Collins issued a report to Congress in January that warned she is “deeply concerned about the upcoming filing season” given the backlog, among other issues.
“The first thing you know if you are going to cook a meal, you have to have the kitchen cleaned up from the last meal,” said Mark W. Everson, vice chairman at Alliantgroup and former Commissioner of the IRS. “It just snowballs into a terrible situation.”
Delays in processing tax returns count as one of the agency’s most pressing problems, Collins said in her report, which described an agency in crisis.
Americans are hearing the message: Potential IRS processing delays ranked second among the three top concerns of people who are expecting a refund from the IRS this year, according to a Bankrate.com poll of almost 2,500 people released February 22.
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How To Track Your Tax Refund
Many taxpayers prefer to get their tax refund via direct deposit. When you fill out your income tax return youll be prompted to give your bank account details. That way, the IRS can put your refund money right in your account, and you wont have to wait for a check to arrive in the mail.
If you file your taxes early, you dont have to wait until after the tax deadline to get your tax refund. Depending on the complexity of your tax return, you could get your tax refund in just a couple of weeks. To get a timeline for when your refund will arrive, you can go to www.irs.gov/refunds. You can check the status of your refund within 24 hours after the IRS notifies you that it has received your e-filed tax return .
In a given tax year, you may want to know how big your refund will be so you can plan what to do with it. You may want to use it to boost your emergency fund, save for retirement or make an extra student loan or mortgage payment.
Why You Get A State And Federal Tax Refund
There are different reasons why taxpayers get refunds, and in other cases owe money to the government. If you work for an employer, you were required to fill out a W-4 form when you were hired. On that form, you indicated the amount of taxes that needed to be withheld from each paycheck.
Taxpayers receive a refund at the end of the year when they have too much money withheld. If youre self-employed, you get a tax refund when you overpay your estimated taxes. While you might consider this extra income to be free money, its actually more like a loan that you made to the IRS without charging interest. Conversely, you will owe the government money if you underestimate the amount to taxes.
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Earned Income Tax Credit
Another tax credit that is less generous this year is the Earned Income Tax Credit, or EITC, which is aimed at low- and moderate-income workers.
During the pandemic, the EITC was increased for a group of workers who typically don’t benefit much from it: Adults without kids. In 2021, low-income workers without children were eligible to receive a credit worth up to $1,500.
This year, the tax credit is reverting to a lower amount for this group $560 in 2022.
Low-income parents who qualify for the EITC will actually receive slightly higher amounts in 2022, as that figure is adjusted annually for inflation. For instance, this year eligible parents with two children can receive an EITC of $6,164, compared with $5,980 in 2021.
Americans Could Get A Tax Refund Shock Next Year
Millions of U.S. taxpayers could receive a tax refund shock when they file their 2022 returns due to the expiration of many pandemic benefits that lawmakers had designed to help Americans weather the crisis.
That means families may see smaller refunds when they file their taxes in early 2023 for the current tax year, said Mark Steber, chief tax information officer at Jackson Hewitt. The average tax refund in 2022 was almost $3,200, a 14% jump from the prior year, according to IRS data.
But the benefits that juiced refunds this year have largely lapsed, ranging from federal stimulus checks to the expanded Child Tax Credit , Steber noted.
Even the IRS is warning taxpayers that checks may be stingier next year. The tax agency cautioned in a November news release: “Refunds may be smaller in 2023.”
Many of the tax benefits still exist, but under current tax law they have reverted to their smaller, pre-pandemic levels, such as in the case of the CTC, which is credited with lifting millions of children out of poverty. The CTC is reverting to its prior level of $2,000 per child, compared with a pandemic credit that was high as $3,600 per kid.
The year 2021 “was quite a remarkable year with the insertion of all those new tax breaks,” Steber noted. “But jump ahead to this year, and a lot of the increases expired, hence the term ‘refund shock’ or ‘refund surprise.'”
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File Your Tax Return Electronically
Combining direct deposit and electronic filing can greatly speed up your tax refund. Since filing electronically requires a tax software program, it can flag errors that may cause processing delays by the IRS. These errors can include incorrect Social Security numbers, dependents dates of birth, and misspelling of names.
You can electronically file your tax return for free using the IRS Free File Program if your adjusted gross income is less than $73,000. Most simple tax returns can also generally be filed for free with commercial tax software providers, although you may be charged to file your state taxes.
If your tax situation is more complicatedif you sold property, paid business expenses or earned investment or business income, for exampleyou should consider hiring a tax professional. Having a knowledgeable tax professional, such as an enrolled agent, certified public accountant , or other tax professional, can help review your tax return and identify any mistakes that may slow down the processing of your tax refund.
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Income Tax Return Filing Dates
- 25 October 2022 Filing Season 2022 for non-provisional taxpayers is now closedThank you for submitting your income tax return on time. Filing Season for non-provisional taxpayers is now closed. The deadline for Provisional taxpayers is 23 January 2023. Not sure if you are a provisional taxpayer? See the provisional tax definition here.
- 1 July 2022 to 24 October 2022
- Taxpayers who file online
- Taxpayers who cannot file online can do so at a SARS branch
If you are being auto-assessed, see all the info you need to know on our How does the Auto-Assessment work webpage. If you are not in the auto-assessment group and need to submit a return, see our info for provisional and non-provisional taxpayers on the 2022 Tax Filing Season media release.
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