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Why is My Tax Refund So Low

Why is my tax refund so low?

Why is My 2022 Tax Refund So Low?

Many taxpayers may be surprised that the amount of their 2022 tax return is lower this filing season, leaving them to wonder, “Why is my tax refund so low?” This may be due to certain tax credits reverting to the rules in effect prior to 2021 and the expiration of the Recovery Rebate Credit.

Changes to Tax Credits Resulting in Lower Tax Refunds

These are the reasons some tax refunds may be lower for taxpayers that claimed these credits in 2021 and will claim them again in 2022:

Child Tax Credit Changes

The Child Tax Credit has reverted to the rules that were in effect in 2020 as follows:

  • The credit amount has been reduced to $2,000 for each qualifying child.
    • $1,500 of the credit for each qualifying child is eligible to be refundable.
    •  A qualifying child is a child under the age of 17.
    • For a taxpayer to qualify for the refundable portion of the credit, they must have earned income over $2,500.
    • The Advance Child Tax Credit did not apply to 2022.

Child and Dependent Care Credit Changes

  • This credit is non-refundable for Tax Year 2022.
    • Maximum of qualifying childcare expenses are:
      • $3,000 for one qualifying person – Maximum credit is $1,050
      • $6,000 for two or more qualifying persons – Maximum credit is $2,100
    • The maximum credit percentage rate is 35% for taxpayers with AGI of $15,000 or less.
    • Credit percentage gradually decreases for AGI between $15,000 and $43,000 until it reaches 20%.

The Recovery Rebate Credit is No Longer Applicable

Since the federal government did not distribute any Economic Impact Payments (stimulus payments) in 2022, the Recovery Rebate Credit does not apply to 2022.

See the full list of federal Tax Changes for 2022, as well as Critical State Income Tax Changes for 2022 for more information on changes that could result in lower tax refunds for 2022.

Other Reasons Your Tax Refund May be Lower This Year

There may be other reasons that a taxpayer’s refund may be lower this year, such as a change in the number of dependents being claimed, change in filing status, change in employment, increase in self-employment income, or other factors that occur during 2022 that did not occur in earlier years. However, for taxpayers that claim the child tax credit and/or the child and dependent care credit for 2022, the changes listed above are most likely the reason why their tax refund may be lower.

CrossLink Professional Tax Software

CrossLink Professional Tax Software

CrossLink is the industry’s leading professional tax software solution for high-volume tax businesses. Built based on the needs of busy tax offices and mobile tax preparers that specialize in providing their taxpayer clients with fast and accurate tax returns, CrossLink has been a trusted software solution since 1989. CrossLink’s in-depth tax calculations, advanced technological features, and paperless solutions allow you to prepare the most complicated tax returns with confidence and ease while providing your customers an unparalleled experience.

Mark Castro, CPA

Mark Castro, CPA

Mark has been with CrossLink Professional Tax Solutions (CPTS) since 2008, but has been in the tax industry since 1990. As the government/tax industry liaison for CPTS, Mark has been very active in working with the IRS, States, and other tax industry members to help improve communications, promote standardization, and simplification of eFile systems. Mark has also been active with industry associations as a board member of the National Association of Computerized Processors (NACTP) and the Council of Electronic Revenue Communication Advancement (CERCA) for many years. These two associations work with the IRS and States to help solve key eFile and electronic tax system issues and work to improve the operations of the State and IRS eFile systems.
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