Smaller Tax Refunds in 2023 Could Result From No New Stimulus Checks This Year
Over the last two years, stimulus checks have helped millions of Americans fulfill their financial obligations. Tax refunds are expected to have a lesser cash outflow for taxpayers in the following year.
The IRS recently advised people that their tax refunds in 2023 may be less than what they received this year.
Why Tax Refunds May Be Reduced in 2023
Tax refunds are generally available when taxpayers overpaid their taxes or withheld more than they owed. Many taxpayers earned large refunds this year because, in addition to the tax return, they received the stimulus check and the child tax credit.
However, tax refunds in 2023 may be lower than in 2022. This is because no federal stimulus cheques were given in 2022, and the majority of taxpayers had already collected their government benefits.
In a November news release, the IRS stated, “Refunds may be less in 2023.” “Because there were no economic impact payments for 2022, taxpayers will not receive an additional stimulus payment with a 2023 tax refund.”
The IRS reports that the average refund for the 2022 filing season was $3,176 (as of October 28), up from $2,791 in 2021.
Another reason tax refunds in 2023 may be less is that claiming a charitable gift deduction on the 2022 return will be more difficult. Following the COVID-19 epidemic, Congress provided a tax break for cash donations to organizations in 2020.
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The same advantage was extended by lawmakers for 2021 as well. The tax incentive, however, was not extended for 2022. It means that charitable gift benefits are no longer available to taxpayers who take the standard deduction.
Individuals could deduct $300 per person, or up to $600 per family, in charitable gifts in 2021 if they did not itemize other deductions. This benefit is no longer accessible.
Do Taxpayers Need to Worry?
Some taxpayers may be concerned about smaller returns. According to a LendingTree survey, 46% of taxpayers in 2022 plan to use their refund to make a significant purchase, save or invest money, or pay off debt.
Tax experts, on the other hand, argue that consumers shouldn’t be concerned about lesser tax refunds in 2023 because they may still take advantage of a variety of other tax incentives, credits, and deductions that can help them minimize their taxes and, as a result, receive large refunds.
Separately, the IRS cautioned taxpayers not to expect a 2022 tax refund “by a set date.” Some filings may necessitate “extra review,” which may cause the process to be delayed.
Taxpayers who filed their forms electronically can usually expect a quicker refund via direct transfer. However, if there are any problems or errors with the return, the refund may be delayed.
As of November 18, the IRS has around 3.4 million unprocessed individual returns submitted in 2022. 1.7 million of these require error correction, while the remainder are paper filings.