Don’t Worry – Here’s Why Your Tax Refund Could Be Smaller Than Last Year

If you’re expecting money back from the taxes you paid last year, you might not get as much money back as you did before. Plus, even though prices for goods and services have gone up (we call that inflation), the refund won’t buy as many things because its buying power is weaker now than it was a year ago.

More than 100 million taxpayers have had their returns processed by April 7th and their refunds were on average 9.3% less than last year’s refunds, due to ending pandemic relief programs. The deadline for filing taxes is Tuesday but eight US states (California, Alabama, Georgia, New York, Tennessee, Arkansas, Mississippi and Indiana) affected by severe weather may have an extended filing date.

The money people get back from the IRS after filing taxes is called a refund. This year, the average refund is $2,878 which is less than last year when it was around $3,175 – that’s almost $300 less.

H&R Block says that for many homes, especially those with two working parents, the tax refund they get might be the biggest financial boost of the whole year.

She said that families with children who have jobs usually don’t have a lot of money. During the time of the COVID pandemic, extra tax money was given to these families through the Earned Income Tax Credit and Child Tax Credit programs to help them out.

The child tax credit will go back to $2,000 for each kid, while the pandemic credit was as high as $3,600 per kid. The tax no-charge available to parents and family members that take care of kids while they work used to be up to $8,000 in 2021 and is now capped at $2,100. According to Pickering, this has a huge impact on people’s taxes.

Rachel Zhou (who’s 20 years old and in college in Boston) usually gets refunds from her family’s big one-time payments, like when they have to repair their house. During the pandemic, they got a refund that helped them fix their heating , air conditioning and ventilation system.

Zhou had started her work since she was young. This year, she received only $1 as a tax refund. But the last two years she got more than that, “hundreds” of dollars in total. It made it difficult for her budget to work without this refund money at the end of the year which is why it’s nice to have that extra cash from taxes sometimes.

Zhou has done different jobs like being a receptionist, working at a grill and an ice cream shop. For her Dad, taxes recently have taken more money out of his 1099 forms from DoorDash and other delivery work.

Pickering said that during and since the pandemic, more Americans started doing extra jobs such as gigs and freelance work. This means they may have to pay a self-employment tax without the help of withholding. On the other hand, for those who have traditional employers that provide them with W2s, their employer will withhold taxes from each paycheck, so they don’t need to worry about a big surprise at the end of the year.

Ted Rossman, an expert with Bankrate.com, said that many people who get cash back use it “wisely” – to pay off debts and save money. He also mentioned that there are other expenses that have gone up such as food, rent, and gas prices; all of which can make it tough for those who depend on the annual refund.

A person named Alaina, aged 32 and living in Florida, said that she will use the money that she is getting back on her taxes to fix up her house and pay off her debts. Even though this money isn’t as much as the stimulus money people got during the pandemic, it may still have a big effect on peoples’ confidence because it feels like one extra thing.

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Alaina, who sells her work online, spoke about how she has too much debt from credit cards and had to borrow money from people. She wishes she could use money for fun stuff but the situation is really tight now and this year she hasn’t filed taxes yet. Last year when they both filed jointly with her unemployed husband they got $3600 back.

This year, the amount of tax refunds are lower than usual. This might cause people to spent less money and help slow down inflation. The Fed (the Federal Reserve) is trying to reduce inflation by making it more expensive for people to borrow money, which in turn will make people slow down their spending and help slow down the whole economy.

Bad news for households that already used up their savings and are now living off of credit cards, because the interest rates went up and are now usually over 20%.

“It can be hard to fix that problem,” Rossman said. When talking about money and interest rates, we do not have very good solutions. Too much inflation is bad for everyone and it will especially hurt the people with the lowest wages.

Big Big News recently got help from the Charles Schwab Foundation. This foundation helps with educating people and explaining things better so that everyone has a better understanding of finances. The Charles Schwab Foundation is different from the company named Charles Schwab & Co Inc. All of the news related to this topic is totally managed by the Associated Press (AP).