Why do tax refunds decrease every year?
Tax-Refund decrease every year!
As short as 7 to 8 years ago, as long as 12 to 3 years ago, the biggest boom in the beauty industry was from the end of January to the end of March every year, called the ‘tax season’, and the industry enjoyed a significant boom in that season come. However, in the last few years, many beauty wholesalers and retailers have said, ‘There is no tax season anymore’ or ‘It seems that there are only two or three weeks’. As the amount of tax refund is significantly reduced compared to before, everyone complains that they cannot afford to open their wallets. So let’s analyze why the tax refund amount decreases every year.
The Internal Revenue Service (IRS) has warned that many Americans will receive fewer tax refunds this year due to the pandemic relief tax deductions returning to pre-pandemic levels. Tax filing was due on April 18 last year, and some citizens have already received reduced tax refunds compared to the previous year.
Due to recent changes in tax policy, experts say now is a good time for taxpayers to understand their financial situation and refund eligibility or why they may need to pay additional money to the IRS. Last year (2022), the average tax refund amount was $3,039, an increase of 7.5% from the previous year in 2021. This was due to government tax deductions for children, dependent family protection, charitable deductions, and more generous income tax deductions. However, statistics show that tax refunds have decreased roughly 9.8% this year.
There may be many reasons, but some taxpayers are dissatisfied when they are reduced in this pandemic era. This year’s tax refund has been reduced to almost 10% of the 2020 level. A Credit Karma survey found that about a third of Americans depend on tax refunds to meet ends. According to the study, the MZ generation has used tax refunds to pay off student loans and various debts, so the sense of loss has increased.
The additional burden on taxpayers
According to IRS statistics, eligible taxpayers without children receiving about $1,500 in 2021 and received $560 less in tax refunds this year. This refundable credit was created in 1975 to help low-income workers offset Social Security payroll taxes and rising food and energy prices. Still, it was permanently established as the ‘Poverty Eradication Program’ and an alternative to welfare in 1978.
Another change this year is the end of the tax deduction for charitable donations of up to $600, even if taxpayers received a standard deduction (a fixed amount that reduces taxable income) on their tax forms. As a result, only those who reported various tax deductions in detail were eligible for the charitable donation deduction. In addition, taxpayers feel that their refund amounts have decreased even more this year because the COVID-19 relief stimulus payments, last sent out in March 2021, have ended.
Furthermore, because retirement payments are subject to taxation, workers laid off in large numbers in 2021 as part of a restructuring effort had to face a higher tax rate as if they had received a one-time bonus. Due to these various changes and reasons, many taxpayers received a minor tax refund in 40 years amidst the highest inflation.
Other ways to increase tax refunds
So, what will change in tax policy next year, and how can taxpayers get more tax refunds even a little?
First, people who purchased electric vehicles in 2022 received a $7,500 tax deduction due to the inflation reduction law. Still, next year, there is expected to be an additional tax deduction (applicable only to vehicles assembled in North America after August 16, 2022). So, if you plan to purchase a car this year, consider putting an electric vehicle on your shopping list and comparing prices.
Second, if each state’s budget is in surplus this year, for example, if more taxes are collected than expected from property taxes, gas, utilities, and real estate taxes, elected governors will try to return the extra taxes to the residents for the next election. In addition, tax reduction and refund policies, such as child subsidies, support for multi-child families, and tax reductions on groceries, will also be implemented to return some of the taxes to the residents. Georgia, for example, returned an additional $250 to individuals and $500 to joints who filed taxes for the 2021 and 2022 tax years by July 1st and provided a further $500 property tax reduction to homeowners. This year, 12 states, including New York, New Jersey, Maine, Massachusetts, Pennsylvania, Virginia, Georgia, Florida, and California, provided additional tax reductions.
Third, another way is to pay into an individual retirement account (IRA) by April 18 of the current year. The annual limit for the payment is $6,000 ($7,000 for those over 50 years old), and if paid into a traditional IRA, additional deductions can be received. Again, there may be slight differences in contributions, depending on the modified adjusted gross income and whether the employer sponsors a retirement plan at work, but additional deductions can be received (up to $3,650 for individual coverage or up to $7,300 for family coverage).
Finally, experts advise that if you want to receive tax refunds as soon as possible, it is better to use electronic filing rather than filing a paper return.
Tax Refund Processing Time Depending on Submission Method
√ Electronic Submissions: Up to 2 weeks
√ Paper Submissions: Up to 8 weeks
√ Submissions sent by certified mail: Additional 3 weeks may be required
The ‘Where’s my Refund’ application on the IRS website shows the status of the refund process. Once all documents have been processed, the application will display the date the refund will be deposited into the bank account registered by the taxpayer. (However, tax refunds may vary slightly depending on the individual.)”
Compared to paper filing, electronic filing can shorten the general refund processing time by up to 6 weeks. However, an additional 3 weeks may be required if sent by mail. Therefore, check the submission method of the documents and try to reduce the damages caused by processing delays next year.
*TIP* How can I get a bigger tax refund?
-To potentially get a bigger tax refund next year, follow these 5 tips-
- Try itemizing your deductions
- Double-check your filing status
- Make a retirement contribution
- Claim tax credits
- Contribute to your health savings account