Numerous taxpayers have additional spending money this year as a result of an average tax refund that is more than $300 greater than in 2021. If that sounds like a lot, you can thank federal relief programmes for providing a financial boost to American households last year.
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As previously reported, the average federal income tax refund as of April 8, 2022 is $3,226, up from an average of $2,893 at the same point in 2021. This represents an increase of 11.5 percent — significantly higher than the current rate of inflation. According to some experts, the average refund will decrease once all returns are processed, as late filers typically receive smaller refunds or owe money.
However, this tax season may be an outlier due to the impact of last year’s expanded Child Tax Credits (CTC), USA Today reported.
The credit for children under the age of six increased to $3,600 in 2021, up from $2,000 in 2020. Additionally, parents of children ages 6 to 16 received a raise to $3,000 per child in 2021, up from $2,000 the previous year. Additionally, households will receive up to $3,000 for 17-year-olds in 2021.
What does this mean in terms of increased refunds this year?
Much is contingent upon your receipt of a monthly advance CTC in 2021. Between July and December, advance payments totaling up to $250 per child aged 6 to 17, or $300 per child under the age of 6, were made. Households that received advance payments may claim the credit in its entirety on their 2021 tax returns. This may result in a refund, depending on the amount owed.
Meanwhile, taxpayers who did not receive advance CTC payments can claim the entire credit as a lump sum when they file their taxes, which will increase their refunds in 2022 relative to their refunds in 2021.
Your refund may also have been affected by the Earned Income Tax Credit (EITC), which was expanded in 2021 to include workers without children and non-student dependents 19 and older. Previously, the credit was available only to low-income taxpayers between the ages of 25 and 64 who did not have dependents.
Certain taxpayers may have received larger refunds this year as a result of an American Rescue Plan rule that allows you to use your 2019 income to calculate your EITC payment if it is greater than your 2021 income. According to the IRS, this option may result in a larger refund in some cases.
Simply avoid becoming accustomed to larger refunds in the future. As USA Today noted, tax refunds in 2023 will almost certainly be lower unless Congress extends legislation to strengthen the CTC, EITC, and other COVID-era relief programmes.