With tax filing season underway, the Internal Revenue Service (IRS) is warning taxpayers to brace for smaller refunds without the cushioning of a few COVID-19 tax breaks.
“Almost everything is reverting back to pre-COVID,” CPA Michele Cagan said. “Those bigger credits are all disappearing and or shrinking. It means a lot of people are gonna get smaller refunds or may end up owing when they haven’t in the past couple of years.”
The average tax refund in last year was $3,176, a near 14 percent increase from the previous year. With high inflation, lower refunds this year may hit household budgets even harder. Many people rely on their refunds to make ends meet, pay down debt or make major purchases. A Bankrate survey found last year that nearly 40 percent of Americans consider a refund very important to their overall financial health.
The IRS expects to receive more than 168 million individual tax returns this year — underscoring the importance of filing early and preparing your information carefully. The agency started accepting 2022 tax returns on Jan. 23, and most taxpayers have until April 18 to file — three extra days than usual. While filing sooner means getting a refund sooner if you’re expecting one, experts also caution taxpayers not to rush until they’ve pulled together all the relevant tax forms.
Here’s everything you should know about preparing your return, filing your taxes and getting your refund as quickly as possible.
What to know about the 2023 tax filing season
Experts say to think of 2023 as a year of reset for taxes. Enhanced credit or special deductions put into place for 2020 and 2021 have expired, potentially leading to refund shock for many. But it also means less delays and complications for most taxpayers.
“The past three tax seasons have been seriously tough and difficult, largely because there were so many rule changes,” Cagan said. “I would expect this one to be a little bit better.”
In addition, there are some new tax changes this year. Here’s what you can expect.
Some tax credits return to 2019 levels
Many tax benefits during the pandemic expired and no longer apply this tax filing season, such as the enhanced child tax credit. Parents who received $3,600 per child during the pandemic will now get $2,000, and that’s only available for parents with children under age 17.
During the pandemic, the IRS also expanded the child and dependent care credit to help working parents pay for childcare, but it has now returned to a maximum of $2,100 instead of $8,000 for parents who have multiple children. For this tax season, parents with one child can only claim up to 35 percent of $3,000 in qualifying expenses, equivalent to a maximum amount of $1,050. Fewer filers will be able to qualify for these credits because the income qualification has reverted to what it was before the pandemic, Cagan said. Parents can only receive this credit in full this tax season if they made $15,000 or less, a significant drop from the previous $125,000 income threshold. Households that earn up to $438,000 can still receive partial credit.
Because the government didn’t distribute stimulus checks in 2022, you won’t need to worry about receiving letters from the IRS or claiming a recovery rebate credit.
Charitable deductions must be itemized
During the pandemic, taxpayers could claim an “above-the-line” deduction of up to $600 for charitable donations — even if they took a standard deduction rather than itemizing their deductions. Only those who itemize can now deduct charitable payments, and the adjusted gross income ceiling on charitable cash contributions is back to its usual 60 percent.
Double taxation for remote workers in some states
You may be taxed twice if you’re a remote worker and don’t reside in the same state as your employer. Many temporary relief provisions, which prevented workers from getting taxed by two states, expired for this tax year. Your chances of double taxation go up if your employer is in one of five states — Connecticut, Delaware, Nebraska, New York and Pennsylvania — because of their “convenience rules.” The rule says those states can impose an income tax on wages earned while working for an employer based in one of those states, even if you’re working remotely from another state. An exception to this rule is if your employer requires you to work in another state.
Inflation Reduction Act tax breaks
The Inflation Reduction Act was signed into law in August and provided a few new tax breaks that Americans can take advantage of.
The residential clean energy credit increased, so now you can subtract 30 percent of the installation costs for a home’s solar heating, electricity and other solar products. The credit has no cap or income limitations, and second or vacation homes are also eligible for the credit.
Another change was the electric vehicle (EV) tax credit. If you purchased an EV in 2022, you could qualify for a credit of up to $7,500. Electric cars bought on or after Aug. 16, 2022, qualify for the credit if assembled in North America.
Form 1099-K delay
In 2023, a new tax rule was supposed to go into effect, requiring third-party payment networks like PayPal and Venmo to send taxpayers Form 1099-K if they received payments for goods and services that surpassed $600. After the IRS “heard a number of concerns” from taxpayers and lawmakers about the new rule, it announced in December it would delay the 1099-K changes and maintain the existing threshold for 1099-K reporting at $20,000 until 2024.
“The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements,” Acting IRS Commissioner Doug O’Donnell said in a statement.
When to expect your refund — and how to get it fast
If you submit your tax return electronically and without errors, taxpayers should expect to see their refund within 21 days of when they file, so long as they choose direct deposit. The exact timeline, however, depends on how you file and how you want your refund paid out. Here’s an estimate of what you can expect:
- One to three weeks, for those who e-file with direct deposit;
- Three weeks, for those who paper file with direct deposit; and
- Six to eight weeks, for those who e-file or paper file with a refund check in the mail.
The average tax refund over the last five years, per individual
| Year | Average tax refund |
|---|---|
| 2017 | $2,827 |
| 2018 | $2,778 |
| 2019 | $2,729 |
| 2020 | $2,772 |
| 2021 | $2,827 |
| 2022 | $3,039 |
Source: IRS filing season statistics 2017-2022
2023 tax season calendar: Key dates and deadlines to remember
- January 23: The IRS starts accepting and processing 2022 tax returns.
- April 18: Deadline to file your 2022 tax return or request a six-month extension, though you’ll still need to pay any taxes you owe to avoid penalties or fees.
- April 19: Deadline to file 2022 tax return for taxpayers who live in Maine or Massachusetts.
- May 15: Deadline to file 2022 tax return for storm victims in Alabama, California and Georgia
- October 16: Deadline to file 2022 tax return if you requested a six-month extension.
Check with your state’s tax agency to determine when your state taxes are due.
Tax-filing checklist: Key documents you may need to gather
- Form W-2, which your employer will provide. This form lists how much you were paid in 2022, as well as how much in taxes you withheld.
- Form 1098, which shows how much you paid in interest on a mortgage or student loan.
- Form 1099, which reports income that you made working as an independent contractor or from unemployment benefits. You might also receive Form 1099-INT, which reports savings account interest earnings.
- Records for any stocks or other investments that you sold in 2022, including crypto transactions or other digital assets.
- Form 1098-T, which is a tuition statement for higher education expenses.
Bottom line: File early — but don’t rush
The IRS says that electronically filing an error-free tax return is more important than ever this year, using either software — a tax professional or the agency’s Free File program — which is open to any individual who earns $73,000 or less a year.
“Taxpayers should aim to create the least amount of obstacles for the IRS in reviewing their tax filing,” says Tony Molina, CPA, product evangelist at Wealthfront. “The more complications and obstacles you create for the IRS, the higher chance your return will be delayed. You should absolutely aim to file early, but not at the detriment of causing even more delays through filing errors.”
Once you get all your required documents from financial firms and your employers, consider keeping them all in one place by creating a physical or digital folder, Molina says.
Even if you make less than is required to file a tax return ($12,950 for single filers in 2022), you could be leaving money on the table if you choose not to file. Individuals in this tax bracket will need to submit a return to claim any missing stimulus or child tax credit money.
Work with a tax preparer to make sure that you get your questions answered and avoid calling the IRS directly, as the agency says it handles millions of calls every year with limited resources.
“If you leave this until the last minute, you’ll likely find yourself procrastinating even further and waiting until the last minute to file,” Molina says. “In that case, filing on April 18 will put you at the end of the IRS queue, and that’s the last place you want to be.”