Tax credits, deductions returning to pre-COVID levels could impact refunds

Published: Jan. 31, 2023 at 4:11 PM CST|Updated: Jan. 31, 2023 at 6:29 PM CST
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LUBBOCK, Texas (KCBD) - The 2023 tax season may seem more like those before the COVID-19 pandemic. Certain tax credits and deductions will return to 2019 levels, changing the refund amount for eligible taxpayers.

“We’re back to pre-2020, pre-COVID era credits and deductions,” Kevin Dunagan with Dunagan, White & Associates said. “We don’t have any of the special stimulus payments or the Advanced Child Tax Credit payments or any of that this year.”

The IRS advises those changes include amounts for the Child Tax Credit (CTC), the Earned Income Tax Credit (EITC), and the Child and Dependent Care Credit. All will revert to the following pre-COVID levels:

  • Those who got $3,600 per dependent in 2021 for the CTC will, if eligible, get $2,000 for the 2022 tax year.
  • For the EITC, eligible taxpayers with no children who received roughly $1,500 in 2021 will now get $560 for the 2022 tax year.
  • The Child and Dependent Care Credit return to a maximum of $2,100 in 2022 instead of $8,000 in 2021.

According to the IRS, taxpayers will likely receive a significantly smaller refund compared with the previous tax year, if they were able to benefit from those credits. That’s sometimes referred to as “refund shock.”

“Sometimes when you have some of these credits that we got for a couple of years of things being boosted to where they’re trying to help families out and boost the economy and now they take them away, you can see that maybe your refund could be less,” Dunagan said. “Therefore, a lot of people might be shocked by that, if they were planning on it.”

Dunagan encourages all taxpayers to ensure they have the necessary documents and information prepared before filing. January 31 is the deadline for employers to send out W2s to employees and have them filed with the government, as well as 1099s for folks like independent contractors or service providers.

“When you sit down to do your return or to provide your information, make sure that you have it all together,” Dunagan said. “Use last year as a guide and go back through last year’s return and make sure you’ve at least got all those documents. Then, if there’s anything that changed, have that in there as well. Get it in as soon as you can to give everybody an opportunity to get it prepared and filed as quickly as possible.”

Dunagan tells KCBD the biggest error he sees is folks having missed income reporting or documents.

“Make sure you comb back through your stuff and make sure that you’re reporting everything that you’re supposed to, especially those items, W2s and 1099s that might be filed with the government,” Dunagan said. “They’re looking for it when you file your return and trying to match that up.”

This year the deadline for individuals to file their tax returns is April 18, which is a few days later due to Emancipation Day in the District of Columbia.

“If you’re not going to file by the due date, getting an extension is important,” Dunagan said. “It is also important to understand that it’s an extension of time to file not time to pay.”

For more information about changes to this year’s tax season, click here.