You therefore filed your taxes this year with the hope of receiving a sizable refund. Then, crickets. For many taxpayers, getting nothing in return is fairly typical.
In actuality, your tax refund amount may vary from year to year depending on a number of factors. Because of a number of factors, it actually can vary quite a bit. We'll break down the most frequent causes so you can understand why your refund might not have been as substantial as you'd hoped. We'll also go over how you can ensure that the refund you receive the following year is the biggest and best one yet!
Higher Standard Deduction
You might have noticed that this year's tax refund wasn't as large as previous ones. The increase in the standard deduction could be a significant factor in that. For individuals in 2018 and married couples filing jointly, the standard deduction increased from $6,500 to $12,000 and from $13,000 to $24,000, respectively. This means that less of your expenses will be deducted from your taxable income if you don't have any additional deductions above the standard deduction. Therefore, even though you received a raise or bonus this year, if none of it exceeded the new standard deduction rate, it won't be considered in determining how much of your taxable income is reduced.
Don't give up, though; there are still strategies you can use to maximize your tax refund. You might be able to get a bigger refund come tax time if you itemize deductions on your return rather than using the larger standard deduction and total all of your allowable expenses (such as medical costs and student loan interest payments).
Child and dependent tax credits changes
Changes to the Dependent and Child Tax Credits are to blame if, when filing your taxes, you anticipated receiving a larger refund than you actually did. These credits, which enable taxpayers to receive refundable tax credits for each eligible child or dependent, were altered in a way that significantly decreased their value for many individuals in 2017.
In particular, the Child Tax Credit was raised from $1,000 to $2,000 per dependent, and the Dependent Care Credit was decreased from $1,000 to $500 per dependent. Additionally, the age range for claiming dependents was increased to include those between the ages of 18 and 24. In other words, if you were accustomed to receiving sizable tax credits in the past because of family members who were dependents, this may have contributed to your refund being lower than anticipated this year.
Tax breaks might have been suspender
The fact that some of the tax breaks you relied on in prior years were suspended in 2019 is another factor that may have contributed to your tax refund this year being less than you anticipated. Based on the state of the economy, tax breaks might only last for a year or two. Therefore, even if you had anticipated the same deductions and credits for 2019 as you did for 2018, they might not have been accessible.
The deduction for state and local taxes (SALT), for instance, is a popular tax strategy among Americans. For many taxpayers, this deduction was extremely helpful because it allowed them to deduct up to $10,000 of their admissible state and local taxes from their federal income tax, lowering their taxable income. Sadly, changes made by Congress in the Tax Cuts and Jobs Act of 2017 caused the SALT deduction to be suspended for the 2019 tax season.
Also no longer available for 2019 filings are a few other well-known deductions like moving costs and employee business expenses. Your tax refund may not have been as large as you anticipated this year due to the elimination or suspension of these deductions, which add up quickly over time.
Shortfall in PAYG Withholding
Ah, PAYG withholding—you know, that thing where your employer deducts money from your paycheck and pays it straight to the Australian Taxation Office (ATO)—it might have contributed to your smaller tax refund (or surprise tax bill!) this year.
What does this entail, then?
Why is there a PAYG Withholding Shortfall?
When payroll deductions from your paycheck were insufficient to cover the amount you were required to pay the ATO, this occurs. Therefore, you won't be able to maximize your tax refund if your employer withholds too little from your paycheck throughout the year.
Why did it take place?
There are a few potential causes for your PAYG shortfall, including:.
You began working only halfway through the fiscal year, which resulted in insufficient tax deductions.
Your withholding at one or more of these jobs was not updated as a result of a change in employment during the year.
Throughout the year, your pay changed, and once more, you neglected to update your withholding.
Whatever the reason, if there was a discrepancy between what was taxed and what was owed to the ATO at tax time, that will affect how much of a refund (if any) you get, which means that your refund may be less than anticipated this year.
Reduction in charitable donations
A decrease in charitable donations is another reason your refund might be less this year. Although many taxpayers may not have been able to contribute as much as they would have liked to the causes they care about due to the economic downturn, they still do so.Since charitable contributions are tax-deductible at a fixed rate, this decline in donations has an impact on taxpayers who itemize deductions. The difference ($2000) between a taxpayer's usual annual contribution of $5000 and their contribution of $3000 this year will be deducted from their refund.
It's critical to keep in mind that even if you don't itemize your tax deductions, you can still donate to charity and claim a deduction for it. Through the IRA Charitable Rollover Program or directly from your IRA account, you are able to donate up to 50% of your adjusted gross income (AGI) in cash withoutpaying any taxes on the earnings.
Even if you are unable to give significant sums of money, there are many other ways you can support regional charities, such as volunteering or donating used goods. The smallest amount is helpful!
Other Factors Why Your Refund Was Less
Your refund might have been less this year due to additional events that happened. For instance, the pandemic prevented some tax credits from being offered.Earned Income Tax Credit is referred to as EITC.
The Earned Income Tax Credit (EITC), which is intended to assist low- and moderate-income taxpayers during tax season, was drastically reduced this year due to the pandemic. There were also changes made to some of the income thresholds for eligibility, which resulted in fewer people being eligible, which means that many people will receive smaller refunds.
Children's Tax Credit (CTC)
In a similar manner, the pandemic also had an impact on the Child Tax Credit (CTC). Using the CTC, families with children under the age of 17 can lessen their overall tax liability and increase their refund. However, for those making under specific income thresholds, the usual $2,000 credit per eligible child was reduced to $1,400. Again, this year's refunds for many families were reduced.Your refund might not have been as large as you had anticipated if you had gone through any of these changes when filing your taxes this past year—or any other changes. Understanding why things changed from prior years and what you can do to ensure you receive your full refund the following year can be made easier by being aware of these causes.
Conclusion
In conclusion, the new laws and regulations may be to blame if you feel a little short-changed during tax season. You might owe more money in taxes as a result of the new changes, and your refund might be less. Even though a smaller tax refund can be disappointing, keep in mind that it might mean you're paying less taxes than usual.In the end, being proactive and keeping track of your taxes throughout the year is the best way to prevent being shocked by a smaller tax refund. In this manner, you can be certain that you aren't paying too much and won't receive a smaller refund than you anticipated.
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