Last year, when filing your 2022 tax returns, there were many changes that adversely affected your return. Many clients saw a much lower refund than the previous year. Here are just a couple of reasons why:
The Child Tax Credit
On your 2021 return, you received $3600 for children under the age of 6, $3000 for children under the age of 18, and the credit was fully refundable regardless of income.
On your 2022 return, you only received $2000 per child under the age of 17 with no additional amount for children under the age of 6. Also, the credit was no longer fully refundable. This was determined by income. It sounds crazy, but if your income was too LOW, you may not have received full credit.
Therefore, if in 2021 you had a 5-year old, a 12-year old, and a 17-year old, you received a total of $9600 in your pocket thanks to the Child Tax Credit.
With the same children in 2022, you received a maximum of $4500 and that’s if you had enough income to qualify for the maximum. So you may have lost $5100 minimum due to this change.
Child Care Credit
On your 2021 return, you paid $8000 to care for your 2 youngest children ($4000 each). The calculated credit amount, which was a refundable credit, was 50% or $4000 in your pocket.
On your 2022 return, the credit was no longer 50% AND it was no longer a refundable credit. The credit was now anywhere from 20% to 35% and only reduced your tax liability. If you had NO tax liability, your 2022 child care credit was $0. If you had a good amount of income, the credit was 20% of only $6000, or $1200 maximum.
Once again, this may have cost you another $2800 minimum from the previous year. With the maximum amount of child care allowed between 2021 and 2022, a person could have actually lost up to $8000, or more.
Earned Income Credit
On your 2021 return, due to the COVID tax breaks given, we were allowed to choose between the earned income on your 2019 return or your 2021 earned income, whichever created the larger EIC. So if on your 2019 return, you were entitled to a $6000 EIC, but in 2021 your earnings were much less (or much more) and you were only entitled to a $3000 EIC, we were allowed to use your 2019 earned income and you received a $6000 EIC.
On your 2022 return, we no longer had this option. If your 2022 earned income generated only a $3000 EIC, that was it. So once again, you lost another $3000 from the previous year.
Overall, if you fell into all these areas, it’s conceivable that a person could have lost over $10,000 in credits/refunds between 2021 and 2022. I can tell you this DID happen to many of our clients.
This year, when filing your 2023 taxes, our main focus is going to be on educating you for the future. More often than not, in past years, taxpayers enjoyed using their tax refunds/withholdings as a “forced savings plan.” With the advent of the new IRS W-4 form, as well as other gov’t trickery, they have attempted, and succeeded, in completely screwing you out of nice refunds. Don’t worry. We can still counteract their sneaky ploy.
As for the Beneficial Changes for 2023 Taxes, here’s a Comprehensive List:
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You see it correctly. There’s nothing of consequence to help us. The standard deduction is increasing slightly. The tax brackets are improving slightly. But with that, the withholding charts have also changed slightly to offset these items. Slightly less withholding to reflect slightly lower taxes. It’s a wash at best.
Once again, education and proper planning are the key factors to ensure the future refunds you are looking for. That and opening a small “business.” Ask us for details.
