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Wednesday, January 25, 2023

Fresh Updates On Stimulus Checks From IRS: Absence Of Federal Stimulus Payments Will Lead To A Shocker

Close to half the number of American states are giving out inflation relief stimulus checks in 2022. The absence of federal stimulus this year will have a negative effect on income tax refunds next year against the 2022 income tax returns.

The IRS has already cautioned that filers should not expect the refunds in 2023 to be on the same level as the refunds in the previous two years following the pandemic. this is expected to lead to a tax refund shock for millions of American filers when they file their 2022 income tax returns by march next year.

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This drastic reduction in federal refunds has been the result of the end of many benefits that had helped citizens survive the tough months following the pandemic and weather the crisis period.

The benefits that fueled refunds have almost lapsed in 2022 that range from the economic impact payments to the expanded Child Tax Credit stimulus check. several tax benefits do survive but have reverted to pre-pandemic levels that are not as generous as they were during the pandemic.

For instance, the expanded Child Tax Credit stimulus check was expanded from $2,000 a year to a generous $3,000 to $3,600 per child depending on the age of the child. Children below six received $3,600 while for a child between 6 and 17, it was $3,000.

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Additionally, 50% of the payments, which are essentially tax credits and were to be adjusted during the 2022 tax season were given as an advance stimulus check in monthly installments between July and December 2021. The rest 50% was adjusted against the 2021 income tax return filed in 2023. Further, for the first time, filers who did not pay any taxes also received benefits under this scheme.

But the benefit has expired leading to the IRS warning in a November news release to tax filers that the stimulus check in 2023 will be leaner.

As a result of the end of stimulus checks, people were severely affected even as inflationary pressure resulted in the rise of prices all around from groceries to gasoline. Many of the tax benefits continue to exist in a smaller form.

Stimulus check
UBI Payments

2021 was the most remarkable year when it comes to tax refunds as the insertion of multiple tax breaks led to healthy refund stimulus checks for tax filers. But jumping ahead just a year has led to a sort of refund shock or refund surprise as many of the schemes have totally expired.

The 2023 Refund Stimulus Checks Will Be A Shock For Most Tax Filers

The typical tax refund in 2023 is likely to be $2,700, way less than what taxpayers received as refunds for their 2020 income tax in 2021. But every filer’s situation is different with the refunds dependent on several factors that range from the Adjusted Gross Income of the individual or joint filer to the number of children and dependents of the taxpayer.

The simple rule of thumb says financial advisers is that tax filers should not look at their previous tax returns to arrive at what they might receive as refunds in 2023 for the tax year 2022. They warn that the actual figure will not be as pleasant an experience as it was for the 2021 tax year and for which they received the income tax refund stimulus check in 2022.

But taxpayers still have the option to improve their tax position before the end of the year. tax filers can still stash away more money into the traditional 401(k) or IRA account and take advantage of their pre-income tax contribution rules. Your tax burden gets lowered from your taxable income for every dollar invested in one of such funds.

And for those tax files who have suffered investment losses in 2022, they have the option to sell one or more of their position as they can deduct up to $3,000 in losses against their gross earnings. this will considerably lower their tax burden.

2022 Tax Changes That Will Negative Impact Your Refund

One of the changes in tax law effected by the IRS that will affect tax filers in the 2022 tax season is the lack of any federal stimulus check in 2022. The third and final economic impact payment authorized in March 2021 under the American Rescue Plan Act, 2021 was the last of the stimulus check coming in from the federal administration.

The Rescue Plan was the most generous of the three economic impact payments and positively affected the finances of taxpayers in multiple ways. The funds from the Rescue Plan that were allotted to state, local, and tribal bodies also helped states support their residents in 2022 even as inflation led to a spike in all-around prices of products and services. Inflation touched record highs, the highest since November 1981.

Stimulus Check
Stimulus Check

Tax filers could rely on their 2021 income tax filing and claim additional stimulus checks and get bigger tax refunds. For example, children who were welcomed into homes in 2021 were not included in the third economic impact payment as their birth or adoption was not recorded through income tax returns.

The IRS relied on the 2020 returns to establish eligibility and determine the amount of the third stimulus check. and thus such children were initially not included by the IRS. But parents were able to claim this amount under the third stimulus check for such children when they filed their income tax return for 2021 earlier this year.

The Supercharged Child Tax Credit Stimulus Check Of 2021

The expanded Child Tax Credit was the biggest gain for parents in 2021 as children under 6 brought in $3,600 and parents of children between the ages of 6 and 17 received $3,000 in total.

But the 2022 child tax credit has reverted to its pre-pandemic level of $2,000, an amount that has stayed constant since it was doubled under the Tax Cuts and Jobs Act of 2017. The size of the expanded benefit gradually diminished for single filers earning more than $75,000 a year and married couples who earned over $150,000 each year. 

The Rescue Plan also resulted in a boost for the Child and Dependent Care Credit, which supports parents with child care funds. The credit was increased to $8,000 per family. But this too has gone back to pre-pandemic levels, which is around $2,100 maximum for the current year.

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