The US Internal Revenue Service (IRS) building is seen on the first work day for furloughed federal … [+]
There are several reasons your tax refund could look different in 2023 based on your 2022 tax filing, and the Internal Revenue Service (IRS.gov) laid out a few of them this past November.
For starters, the IRS said taxpayers will not receive an additional stimulus payment within their 2023 tax refund “because there were no Economic Impact Payments for 2022.” Further, taxpayers who don’t itemize (which includes the vast majority of taxpayers) will not be able to deduct charitable donations made in 2022.
Also, many tax credits and deductions that were increased during the pandemic have returned to their pre-pandemic levels. For example, the Child Tax Credit was reduced from a maximum of up to $16,000 to just $6,000 in 2022.
“Refunds may be smaller in 2023,” shared the IRS in a press release. They also noted that taxpayers shouldn’t count on receiving their refund by a certain date, particularly if they’re planning to use it to pay bills or make a major purchase.
This new information from the IRS may leave you wondering how your tax refund will actually look after you file this year. You may also be wondering how you’ll cope if your refund is less than you hoped for — particularly if you planned to use it for a big purchase or to get started on your new year’s money resolutions for 2023.
With that in mind, I asked a few finance experts for their tips and advice for those getting a smaller refund this year.
Check Your Tax Return For Accuracy
If your refund is smaller than you thought it would be and you believe the change isn’t the result of anything outlined by the IRS, the first thing you should do is go over your tax return line by line to check it for accuracy. It may be possible you missed a deduction you normally take, or you may even find actual reporting errors that weren’t caught during processing.
CPA Robert Persichitte of DeLAGify Financial says that, if you think your return has a problem, you should compare your return year over year to see what is different.
“Differences should be easily explained by special rules that expired,” he said, adding that you need to look at more than the bottom line to do a true comparison.
“Look at income, deductions, tax withholdings, and credits,” he says. Meanwhile, double-check boxes 1 and 2 of the W2, which he says is one of the most common areas where consumers discover errors.
If you find an error in your tax return, you should almost certainly take steps to fix it whether the updates will lead to a larger refund or not. Financial advisor Gabriel Lalonde of MDL Financial Group says consumers with a mistake in their tax refund should consider filing an amendment to correct the error so they can claim any missing credits or deductions.
Look For Other Income Streams
Lalonde adds that consumers can look for other sources of income if their tax refund comes in at a much lower amount than they anticipated. Other income streams could include a part-time job, some type of freelance work, or any number of side hustles individuals can participate in today.
To raise money quickly, you could consider driving for rideshare, or even delivering groceries. You could also get into the in-demand food delivery business.
These side hustles all have one thing in common — they require very little in terms of specific skills and they make it easy to start earning money quickly.
Reduce Spending And Check Your Budget
According to senior wealth advisor Brandon Reese of TBS Retirement Planning, consumers can also make up for a tax refund shortfall by cutting their spending.
In fact, he says taxpayers who are struggling this year “may have to reduce spending or put that trip or purchase on hold until they can save up for it in a normal manner.”
Cutting spending may seem impossible right now due to record inflation, but there are always ways to save if you look hard enough. For example, consumers can save money by shopping around for their car insurance and homeowners and switching companies if they find a better deal. They can also look for ways to cut their food spending, which could mean making more meals from scratch and dining out fewer times each month.
Adjust Your Withholding For Next Year
If everything is correct on your tax return and your refund is disappointing, there’s nothing you can legally do to change where you’re at today. However, you can take steps to improve your chances for a beefier tax refund in 2024 (for the 2023 tax year).
Arthur Rosatti, Esq. of Ashley F. Morgan Law says traditional employees who hope to score a larger refund can consider filling out a new W4 with their employer. “Properly filled out, this form can help them have extra money taken out of their normal paycheck and sent to the IRS,” said Rosatti.
That said, the attorney says he never recommends this strategy to individuals who do not have a history of tax issues. This is mostly due to the fact that overpayments on your taxes let the government collect interest on that money throughout the year . However, you don’t get a dime of that interest in your refund when you file your return.
“Having a smaller refund means that you are maximizing your take-home pay each pay period,” he says.
The Bottom Line
At the end of the day, getting back less at tax time doesn’t have to be the end of the world. You can always delay a big purchase you planned to make and start saving up money the old-fashioned way, and you can sleep well at night knowing the government kept less of your money throughout the year.
If you do decide you want a bigger refund again next year, you do have the option to adjust your withholdings through your employer. Just remember that this step will make your take-home paycheck smaller.
