The end of multiple federal stimulus checks in 2022 will deal a strong blow to the generous income tax refunds that households and individuals have benefitted from in the last couple of years. The tax refund shock will mostly affect the low and moderate-income families and individuals who benefitted the most from the multiple stimulus checks from the federal government in the post-pandemic years.
The 2022 tax year will see the expiration or decrease of most pandemic benefits. For instance, while the economic impact payment has totally stopped after the third stimulus check under the American Rescue Plan Act of 2021, the expanded Child Tax Credit will revert to the pre-pandemic level of $2,000 per year instead of between $3,000 and $3,600, dependent on the age of the child.
The stimulus payments profoundly impacted the lives of individuals and families in the US since the start of the pandemic. the first stimulus check was declared immediately after the nationwide shutdown was forced as the pandemic spread rapidly. Initial delay by the Trump administration allowed the pandemic to spread across the US even before any measure was taken to stop it.
The $1,200 stimulus check under the CARES Act helped people pay off their debts and provide food on the table. It prevented people from going homeless even though they had lost all forms of income as the whole country remained shut down.
Some people will still receive some form of stimulus check and refunds but for all, it will be a much smaller tax refund due to the lack of stimulus aid this year. but some Americans can still expect some form of stimulus check with their 2023 income tax returns. Several states have also authorized financial stimulus checks and tax rebates for their residents, based on their financial status. Some of these payments will be going out at the end of this year and the beginning of the next.
The stimulus check initiated by states for their residents is available to just a limited number of residents, unlike the federal stimulus check which was way wider in scope and amount.
The payments sent by states are normally available to only a limited number of residents as only around 20 states have opted to dip into their resources and support residents to cope with the record inflation that has led to prices of every product and service increasing by close to 50%.
Tax Refund Stimulus Checks Will Continue In A Smaller Way For Some Tax Filers
Families may see smaller refunds when they file their income tax returns in the early part of 2023 for the present tax year, according to financial experts. The average tax refund for 2022 for the 2021 tax year was $3,200, a spurt of 14% over the previous years according to data released by the IRS.
But will the lapse of the benefits, that range from the economic impact payments to the expanded Child Tax Credit stimulus checks?
Next year’s tax refund is expected to be in the region of $2,700. That is roughly what the filers got in 2021 against their income tax returns for 2020. But the situation is different for every taxpayer and the refunds are linked to various factors that range from the number of children and dependents in the family, whether the tax filing status is joint or individual, to the tax bracket of the individual or the couple.
Experts say that one rule is that taxpayers should not look at their tax returns from the previous years to arrive at an estimate of the amount they can expect in their 2023 income tax returns. The tax refunds are definitely going to be less, they warn, and it will be a disappointing exercise.
But tax filers can still take steps that will improve their tax situation before the end of the year. for one they can stack away more money into the traditional 401(k) or the IRA account. This will allow filers to take advantage of their pre-tax contribution rules. For every dollar you invest, the taxable income will be lowered proportionately.
The Child Tax Credit Will Continue In A Truncated Form
One of the stimulus checks that has survived 2022 but in a shortened form is the Child Tax Credit stimulus check. the initial $2,000 was expanded to between $3,000 and $3,600 depending on the age of the child.
Historically the federal Child Tax Credit received bipartisan support in Congress. It was established as part of the 1997 Taxpayer Relief Act. Eligible recipients deduct the credit amount from their owed federal income taxes.
The original tax credit was $400 per child under age seventeen and was non-refundable for most families. In 1998 the tax credit was increased by $500 per child under seventeen years. The tax credit amount increased again and was made refundable in 2001 to coordinate with the EITC (Earned Income Tax Credit). the refundable portion is the Additional Child Tax Credit.
By 2009 the income threshold for the Child Tax Credit and EITC were no longer aligned. The American Taxpayer Relief Act, of 2012, increase the federal CTC value to $1,000 and increased the income threshold to correspond with the EITC. The 2017 Tax Cuts and Jobs Act doubled the tax credit amount to $2,000, a figure that stands to this day, except for the expanded CTC for 2020.
There are also limits in place to the refundable amount of up to $1,400 for every child. There is also a phase of threshold and rates for higher-income filers. The act is temporary and set to expire by the end of 2025.
The expanded CTC stimulus check under the American Rescue Plan Act of 2021 was temporary and gave each child between $3,000 ( for children below 6) and $3,600 (for children between 6 and 17). The upper age limit has been increased from the previous limit of the age, which was sixteen.
The size of the expanded benefit diminished gradually for single taxpayers earning above $75,000 and joint filers earning over $150,000. The tax credit was also for the first time made fully refundable under the Rescue Plan. 50% of the credit amount was paid out in monthly stimulus checks between July and December 2021, which is the filing year.