Many taxpayers are surprised and frustrated when their tax refund turns out to be much lower than expected If you are only getting $200 back when you were expecting thousands, there are several potential reasons for this
Your Income Increased
If your income increased significantly from the prior year, you may have moved into a higher tax bracket. This means a higher percentage of your income is now being taxed So even though you made more money, a bigger portion went to taxes, resulting in a lower refund.
Review your current and prior year tax returns to see the difference in your gross income and tax bracket. If your income jumped up a bracket, this is likely the reason for the smaller refund.
Withholding Changes
Another common reason is that your tax withholding decreased, meaning less tax was taken out of each paycheck. So by the time you file your return, you have already received most of your money rather than getting it in a big refund.
Check your most recent pay stubs and compare federal withholding to the same period last year. If your withholding amount dropped, this could explain the lower refund.
You may have changed your W-4 withholding allowances or your employer changed withholding calculations. In either case, less tax withheld per check means a smaller refund.
Loss of Deductions and Credits
Recent tax law changes eliminated or reduced some popular deductions, like unreimbursed employee expenses. Limits were also placed on other deductions like state and local taxes. Popular credits like education credits were also modified.
Compare your itemized deductions from this year to last year – if the total decreased significantly, it will lower your refund amount.
Also look at any tax credits you claimed last year and see if the rules changed to reduce your eligible amount this year.
Stimulus Payment Offsets
If you received stimulus payments in the past year that you were not actually eligible for, the IRS can take those amounts out of your refund to recoup the money.
Any advanced Child Tax Credit payments that exceed the amount you qualify based on your return may also be recouped via your refund.
Check your IRS account transcript to see if these offsets were applied to your refund amount.
Non-IRS Debt Offsets
Debts owed to other government agencies, like child support or state taxes, can also lead to your refund being reduced.
The Treasury Offset Program allows debts like these to be paid back using your federal refund. The Bureau of Fiscal Service will send you a notice explaining any non-IRS offsets.
Smaller Refunds Expected
Finally, with no stimulus payments or expanded credits in the past year, many filers are simply getting smaller refunds as a result. Average refunds are dropping back to typical pre-pandemic levels.
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Hey, last year I got almost $2,000 dollars in federal refund but this year I’m only getting like 200 dollars!! WHY? WHAT HAPPENED?
Short story—lots of tax laws changed.
We cannot see your screen, your return or your account. Have you entered ALL of your 2022 information? All your income, etc.? Many tax documents that you need do not arrive until late January or even February, so maybe you do not have it all there yet.
Lots of tax laws changed. Those changes are resulting in lower refunds for lots of people.
There is no recovery rebate credit (stimulus $) for 2022. The childcare credit is less and is not refundable. The child tax credit is different and it is less. And for some people, earned income credit is different because there is no “lookback” to an earlier year. Those are some of the reasons your refund may be less.
There are a lot of variables that affect your refund or tax due including how much you earned, how much tax you had withheld, your filing status, the number of dependents you claim, your deductions and credits, etc. You may have lost Earned Income Credit or the Child Tax Credit— did a child turn 17? If you received the EIC last year, remember that changes in the amount you earn have a big effect on the amount of EIC you can get. (Sometimes earning more money means less EIC) Are you 65 or older ? If so, your standard deduction is higher. Everyone has a higher standard deduction now so it is harder to use itemized deductions.
And…..the child tax credit is very different for 2022 For 2021 you could get $3600 for a child under 6 or $3000 for a child between 6 and 17 even if you had no income/did not work. That is NOT the way it will work for your 2022 tax return. The “old” rules are back. The maximum amount of the child tax credit is now $2000; the refundable “additional child tax credit” amount is $1500. In order to get that credit, you have to have income from working. The credit is calculated based on the amount you earned above $2500 multiplied by 15%, up to the full $1500. If your child is older than 16 at the end of 2022, you do not get the CTC. But you may still get the non-refundable $500 credit for other dependents instead.
And of course,always check your own data entries, looking for errors such as misplaced decimals or extra zeros.
Print out 2021 and 2022 and compare them side by side to see what is different. **Disclaimer: Every effort has been made to offer the most correct information possible. The poster disclaims any legal responsibility for the accuracy of the information that is contained in this post.**
I Owe the IRS $55,000 in Back Taxes
FAQ
Why am I getting so little on my tax refund?
The most likely reason for the lower refund with higher income is your tax bracket changed. The more money you make the higher your tax bracket in most cases unless you have new qualifying deductions. You can read some of this information on the IRS website. A very informative publication is Business Insider.
Why am I getting taxed so little?
Why is my return less than usual when I’ve made more than usual? Usually more income = more tax = less refund. Your withholding didn’t increase enough to cover the tax due. Or some credits you got are reduced because you made more income.
Why am I not getting my full refund?
Examples that could decrease your refund include: Math errors or mistakes; Delinquent federal taxes; State income taxes, child support, student loans or other delinquent federal nontax obligations; and.
Why am I only getting $100 back in taxes?
There are lots of reasons why this might happen. In most cases, the IRS takes part of your refund to pay for outstanding government debts you might owe. These include: Overdue federal tax debts.