- If you’re expecting a tax refund in 2023, it may be smaller than this year’s payment, according to the IRS.
- Typically, you get a federal refund when you’ve overpaid yearly taxes or withheld more than the amount you owe.
- You may receive a lower refund because there was no stimulus payment in 2022, and there’s a less generous tax deduction for charitable gifts, the IRS said.
If you’re expecting a tax refund in 2023, it may be smaller than this year’s payment, according to the IRS.
Typically, you get a federal refund when you’ve overpaid yearly taxes or withheld more than the amount you owe.
Your annual balance is based on taxable income, calculated by subtracting the greater of the standard or itemized deductions from adjusted gross income.
“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 agency issued the third round of stimulus payments worth $1,400 per person in 2021, and eligible Americans could claim unpaid funds on their tax return this year.
The average refund for the 2022 filing season was $3,176 as of Oct. 28, according to the IRS, up nearly 14% from $2,791 in 2021.
Charitable deduction for 2022 is ‘not as robust’ as 2021
Additionally, it will be more difficult to claim a deduction for charitable gifts on your 2022 return, the IRS said.
The reason: “Deductions for charitable donations in 2022 are not as robust as 2021,” said certified financial planner Marguerita Cheng, CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland.
In response to the Covid-19 pandemic, Congress gave charities a boost in 2020 by offering a tax incentive for cash gifts, and lawmakers extended the tax break for 2021.
With a higher standard deduction since 2018, it’s become more difficult to itemize deductions, including the tax break for charitable gifts. Filers choose either the standard deduction or itemized deductions, whichever is greater.
But for 2021, you could claim up to $300 for cash donations or $600 for married couples filing together, regardless of whether you itemize.
The tax break was not extended for 2022, however, meaning there’s no longer a benefit for charitable gifts if you take the standard deduction, the IRS said.
When to expect your tax refund
The IRS has warned taxpayers not to count on receiving a 2022 tax refund “by a certain date,” as some filings may require “additional review,” which may delay the process.
Generally, you can expect a faster refund by electronically filing an error-free return and receiving payment via direct deposit. However, mistakes and other issues, such as identity theft, may hold up your refund, the agency said.
Filers claiming the earned income tax credit or the child tax credit won’t receive refunds before mid-February, the IRS said.
As of Nov. 18, there were 3.4 million unprocessed individual returns received in 2022, including filings for previous tax years, the IRS reported. These pending returns are 1.7 million requiring error correction or other special handling, and 1.7 million paper filings.
The agency has hired more workers to prepare for the upcoming tax season, with plans to add more, aiming to clear the backlog and improve customer service. With nearly $80 billion in IRS funding over the next decade, these efforts are part of a broader plan for agency improvements.
Source: Business - cnbc.com
