The pandemic has taken a financial toll on the United States over the last two years, and tax season may be no different.
Americans have struggled and stimulus checks have given relief to many. Tax refunds are usually a nice relief as well, but Americans may not be getting what they’re expecting.
Tax refunds averaged $2,775 last year for Americans, which was an 11% increase from the year prior according to the IRS.
Related: Parents be warned, you may need to pay back all child tax credit payments depending on your child’s birthday
Tax refunds are given as a result of overpayment on your taxes, so you’re getting back money that’s already yours.
There may be different reasons for owing tax money than just underpaying, unlike refunds being due to overpayment.
There have been a lot of policy changes in 2021, and there may be reasons you’re unaware of for why you owe or get a smaller refund next year.
Why will my refund be smaller or why might I owe taxes?
Child tax credits may be a reason you end up owing the IRS.
Related: The Child Tax Credit is fully refundable, here’s what that means
In March, President Joe Biden passed the American Rescue Act which expanded child tax credits to $3,600 per child under age 6 and $3,000 per child ages 6-17.
Before this, children under 6 were $2,000.
Every month since July parents have been sent up to $300 per month and will get the final payment Dec. 15. This makes up the first half of the credit, $1,800.
The change made 24 million more children eligible, but was based on 2020 and 2019 tax returns.
If you’ve had an increase in income or change in filing status, you may not have been entitled to the payments, or as high of payments, and end up owing the money back.
To qualify, married couples income must be under $150,000 and head of household income must be under $112,500.
If you make over that and did not opt out, you’ll probably have to pay the money back.
Another reason you may owe is because of student loan deductions.
Many people haven’t needed to make a payment on their student loans due to the pandemic, which means they can’t make a deduction. They didn’t pay anything in interest in 2021.
Related: I never got my stimulus check from the IRS, how do I track it?
Normally student borrowers can get a deduction of $2,500.
Once you start making more money, the deduction is phased out or ends up no longer applying.
Phase out starts for single filers at $70,000 and phases out completely at $85,000.
For married couples phase out starts at $140,000 and entirely phases out at $170,000.
Student loans are set to begin payments again in February, and if you’re in default, you may not get a refund at all.
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