For many people, tax season can be exciting as they look forward to receiving a tax refund. However, this year some taxpayers may be receiving a smaller refund than usual. There are several reasons why this might be the case, so let’s explore three of them.
#1 – Advanced Child Tax Credit
One reason you may be receiving a smaller tax refund this year is the Advanced Child Tax Credit. The Child Tax Credit is a tax credit that provides financial assistance to families with children. This year, the IRS allowed families to receive half of the credit in advance payments, which started in July 2021. These advanced payments may have reduced the amount of your refund, as you have already received a portion of the credit.
#2 – Unemployment
Another reason you may be receiving a smaller tax refund this year is due to unemployment benefits. If you received unemployment benefits in 2021, you may owe taxes on that income. However, many people did not have taxes withheld from their unemployment benefits, which means they may owe taxes on that income when they file their tax returns. This could result in a smaller refund or even a tax bill.
#3 – W-4 Withholdings on Multiple Jobs
If you have multiple jobs or your spouse also works, your W-4 withholdings may not be accurate. The W-4 is a form that you fill out to tell your employer how much tax to withhold from your paycheck. If you have more than one job or your spouse also works, it can be challenging to determine the correct withholdings. If your withholdings are too low, you may owe taxes at the end of the year, resulting in a smaller refund or a tax bill.
In conclusion, there are several reasons why you may be receiving a smaller tax refund this year. The Advanced Child Tax Credit, unemployment benefits, and incorrect W-4 withholdings on multiple jobs are just a few examples. It’s important to understand the factors that can affect your tax refund and to plan accordingly. If you have any questions about your tax situation, consult a tax professional to ensure that you are properly prepared.