Child Tax Credit, Stimulus Main Reasons for Increase in Tax Refund

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Many taxpayers have extra spending money this year thanks to an average tax refund that’s more than $300 higher than in 2021. If that sounds like a lot, you can thank the federal assistance programs that gave a financial boost to American households last year.

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As GOBankingRates previously reported, the average federal income tax refund as of April 8, 2022 is $3,226, compared to an average of $2,893 at the same time in 2021, according to the IRS. That’s a gain of 11.5% — even higher than the current rate of inflation. Some experts expect the average refund to decrease once all returns are processed, as late filers typically have smaller refunds or owe money.

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But this tax season could be an outlier due to the impact of expanded child tax credits (CTCs) that were put in place last year, USA Today reported. The credit for 2021 has increased from $2,000 in 2020 to $3,600 per child under six. Parents of children ages 6 to 16 also got an increase to $3,000 per child in 2021 from $2,000 the previous year. Households also received up to $3,000 for 17-year-olds in 2021.

So how does that translate into higher refunds this year?

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It all depends on whether you received a monthly CTC advance in 2021. From July to December, advance payments were sent totaling up to $250 per child aged 6-17, or $300 for each child under 6 . Households who received the advance payments can file for the remainder of the credit on their 2021 tax returns. This could lead to a refund, depending on how much you owe.

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Meanwhile, taxpayers who did not receive advance payments from the CTC can claim the full credit as a lump sum when they file their taxes, which will increase their 2022 refunds over their 2021 refunds. .

Your refund may also have been affected by the Earned Income Tax Credit (EITC), which was extended in 2021 to childless workers and extended to non-student dependents age 19 and older. Previously, the credit was limited to low-income taxpayers aged 25 to 64 with no dependents.

Some taxpayers may have gotten bigger refunds this year because of a US bailout rule that lets you use your 2019 income to calculate your EITC payment if it was more than your 2021 income. In some cases, this option will give taxpayers a larger refund, according to the IRS.

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Don’t get used to bigger repayments in the future. As USA Today noted, tax refunds for 2023 will likely be lower unless Congress expands legislation to improve CTC, EITC payments, or other COVID-era relief programs.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who has previously held positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work has also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal, and Business North Carolina magazine. He holds a BA in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting has earned him awards from the North Carolina Press Association, Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A North Carolina native who also writes fiction, Vance’s short story “Saint Christopher” placed second in the 2019 Writer’s Digest short story competition. Two of her short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. Her first novel, Voodoo Hideaway, is published in 2021 by Atmosphere Press.