Upcoming tax refunds may not provide much-needed economic relief for Americans who are still reeling from historically high inflation and after the end of COVID-era government assistance programs.
Tax refunds are provided when a taxpayer has overpaid yearly taxes or withheld more than the amount they owe.
According to LendingTree, 46% of taxpayers said they were relying on tax refunds for large purchases, savings, investments, and debt payments in 2022. The IRS has told taxpayers to expect smaller refunds in 2023, impacting future financial situations for millions of Americans.
In a Nov. 22 statement, the IRS warned taxpayers that 2023 tax refunds may be smaller as there were no stimulus payments this year.
“Refunds may be smaller in 2023,” the IRS said in a statement. “Taxpayers will not receive an additional stimulus payment with a 2023 tax refund because there were no economic impact payments for 2022.”
The statement also noted that the 2020 and 2021 exception to charitable donations has not been extended. In past years, individual taxpayers could claim a tax deduction of up to $300 for cash donations to charity. This year, there will no longer be a benefit for charitable gifts in a standard deduction. Charitable donations must be itemized to receive a refund as is standard.
The IRS has listed several ways for consumers to prepare for the upcoming tax season, which typically runs from January to April.
Gathering tax records, utilizing the tax withholding estimator on the IRS website, renewing expiring tax ID numbers, and preparing to provide direct deposit information are all tips that the IRS says will help consumers prepare to file their taxes next year.
A tax change this year includes the 1099-K form, which needs to be completed by anyone who sells $600 or more of services or goods through third-party networks including Venmo, PayPal, and debit or credit cards. This change will impact gig workers and part-time online retailers.
As of Oct. 28, the average refund consumers received in 2020 was $3,176, a 13.8% increase from $2,791 in 2021.
