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Certain tax credits have been reduced
One possible reason for a smaller tax refund is the child tax credit and the kid and dependent care tax credit have been reduced for 2022, explained certified financial planner Cecil Staton, president and wealth advisor at Arch Financial Planning in Athens, Georgia.
While each tax credits received a brief boost through the American Rescue Plan of 2021, the improved tax breaks weren’t prolonged to this 12 months. “The large picture is a variety of individuals are going to see less money of their pocket,” Staton said.
In 2021, the kid tax credit offered as much as $3,600 per child under age 6, and as much as $3,000 per child ages 6 through 17, with half available via upfront payments. But for 2022, the tax break reverts to the previous amount — as much as $2,000 per child under age 17.
The kid and dependent care tax credit, which can help offset the associated fee of care for youngsters under age 13 or adult dependents, has also been reduced for 2022.
In 2021, the credit jumped to as much as $8,000 for one qualifying person or $16,000 for 2 or more dependents. Nonetheless, for 2022, those caps returned to $3,000 and $6,000, for one or multiple dependents, respectively.
Chances are you’ll get Form 1099-K for third-party payments
In the event you’ve received payments through apps like Venmo or PayPal in 2022, you could get Form 1099-K in early 2023, which reports income from third-party networks.
The shape applies to business transactions, akin to part-time work, side jobs or selling goods, in keeping with the IRS.
Before 2022, the federal Form 1099-K reporting threshold was for taxpayers with greater than 200 transactions price an aggregate above $20,000. Now, nevertheless, the brink is just $600, and even a single transaction can trigger the shape.
Austin Chau, a CFP and wealth advisor at Menlo Asset Management in Menlo Park, California, said personal transactions like reimbursing your roommate for bills or dinner aren’t taxable.
What’s more, you will only owe taxes on profits, he said. For instance, when you spent $150 on concert tickets in 2022, and sold them for $200, the $50 profit is taxable, Chau said.
While the IRS says you mustn’t receive Form 1099-K for private transfers, experts say it’s possible, and the error may require you to contact the issuer or make adjustments to your tax return.
It’s harder to assert the charitable deduction
Your tax refund may be lower since it’s tougher to claim the charitable deduction in 2022.
Marguerita Cheng, a CFP and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland, said you will not get a charitable tax break in 2022 when you don’t itemize deductions in your return.
Congress gave charities a lift in 2021 by allowing single donors to assert a deduction for as much as $300 for money donations or $600 for married couples filing together, no matter whether you itemize, said Cheng, who also is a component of CNBC’s Financial Advisor Council.
Nonetheless, the tax break wasn’t prolonged for 2022. Now, you will only profit in case your itemized deductions, including the tax break for charitable gifts, exceeds the usual deduction, which is less common. In 2019, almost 90% of taxpayers used the usual deduction, in keeping with the IRS.