Why is My Tax Refund Lower Than Expected?

Tax Refund

If you have filed your tax returns with the IRS well before the deadline, you would not be anticipating a tax refund. At times, you may not get the same refund that you were expecting or that you initially saw while submitting your returns. If you are wondering why your tax refunds are much less than you expected, this guide is for you.

Reasons why your tax refund is less than what you expected

Discrepancies in the Tax Return

After receiving the tax return Form, the IRS will review the information entered by the citizen and will review it against their database. If it finds any discrepancies, they will make the adjustments accordingly and will send the refund after deducting money. Common errors that attract a reduction in the refund amount are incorrect entries concerning child tax credits, stimulus payment amounts, etc. IRS will surely send a letter explaining the adjustment, but it takes a few weeks to arrive. Citizens can also check the IRS website to learn the adjustments made and how it has influenced the tax refund.

Offsetting the Refund

If you owe money to either the state or a federal agency, then the IRS will use part or all of the tax refund to repay the debt. This is one of the most important reasons why your tax refund was lower than what you expected. This is also referred to as tax refund offset. If your tax refund is lower than what you calculated, it might also be due to an unpaid debt such as child support.

Changes in the American Rescue Plan

The American Rescue Plan’s changes to tax provisions significantly impact tax refunds during tax season. Most tax credits under this plan, including the Child Tax Credit, Earned Income Tax Credit, and Child and Dependent Care Tax Credit, have reverted to their pre-American Rescue Plan terms. Some credits have even been eliminated entirely.

  • The child tax credit has changed from $3,600 in the year 2021, back to $2000.
  • Credit for child and dependent care changed from $8,000 for two or more kids to  $2,100.
  • Citizens who qualified for earned income tax credit with no kids, may not qualify for the same if they are under 25 or over 65 in 2023.
  • The credits for self-employed sick and family leave expire after the tax year 2021.
  • COVID relief was extended throughout the tax year 2021 and allowed citizens to deduct up to $300 in cash donations. They will no longer be able to claim such standard deductions.

Other Factors

Other contributing reasons for lower tax refunds are as follows.

  • The IRS made adjustments toward the federal taxes that the taxpayer owes for the previous year.
  • The IRS has also made many announcements that the refunds could be smaller than expected for the tax filers. They will not be able to claim any of the tax benefits that they claimed in 2021 during this tax season.
  • The American Rescue Plan’s tax benefits for taxpayers have either reverted or lapsed for the current tax year

We cannot do anything to reduce tax refunds owing to a change in the policy of the IRS. However, we can mitigate refund reduction by filling out the tax Form promptly and without any errors. A credible e-filing service provider can also handle your tax filing. They will thoroughly check your tax form for errors before submitting it to the IRS.