File Your Taxes Securely
While the vast majority of Americans file their taxes online or through a trusted tax professional, there is still a subset that sends in their taxes by mail each year. Not only do you run the risk of your personal information being lost or stolen in-transit, the IRS states on its website that “due to staffing issues, processing paper tax returns could take several weeks longer. Taxpayers and tax professionals are encouraged to file electronically.”
Why Did My Refund Change So Much This Year
If any of the numbers above differ significantly from what youve come to expect from previous years’ filings, there may be good reasons. As mentioned above, the American Rescue Plan Act introduced a few potential wrinkles.
In 2021, Congress increased the child tax credit to $3,600 for each child under age 6 and $3,000 per qualifying child between the ages of 6 to 17 years old, from $2,000 the year before. In addition, Congress authorized advance monthly payments for up to 50% of the credit from July through December last year. Eligibility for these payments was based on taxpayers’ 2020 or 2019 filings and started to phase out at incomes above $150,000 for married couples filing jointly .
This change could affect your filing in a few ways. For example, if youre accustomed to claiming the full child tax credit when you file but received advance payments in 2021, its possible your refund will be smaller than in previous years simply because you received part of the credit in advance, despite Congress having raised the size of the credit.
However, if your income in 2021 was significantly higher than in your prior tax return, it’s possible you might have received advance payments for which you were no longer eligible. Depending on your income, you could end up having to repay some or all the advance credit you received.
Their Taxable Income Has Been Blown Out By A Second Job
This is the case the majority of the time when an individual works under their own ABN as a sole trader or has taken up a side job in the sharing economy through a platform such as Uber, Deliveroo, Airbnb, or Airtasker. In both of these cases, the individual is considered to be a single trader.
People who are accustomed to working under standard employment arrangements, in which taxes are withheld from their wages on a regular basis, may not be aware that they need to set some money aside in order to pay taxes on their second job as well. This is because taxes are withheld from their wages on a regular basis under standard employment arrangements.
In addition, the larger income may push them into a higher tax band, which means that they will be obliged to pay a greater percentage of their total earnings as tax. This is due to the fact that they will be earning more money overall. In addition to this, in general, they will receive an increase in the amount of money that is coming in.
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Will We Get A Tax Refund In 2021
In general, delays within the IRS last from weeks to months. Even though the IRS states that most refunds should be processed within 21 days, tax experts are warning that delays can be expected even as the IRS completes tax returns for 2020. According to Collins, the IRS only answered around 15 percent of calls during fiscal year 2021.
How Do I Calculate My State Tax Refund
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Irs Adjusted The Recovery Rebate Credit Calculated On Your Return
It is possible that your tax refund amount is less than you initially expected because of information regarding your stimulus payments and the Recovery Rebate Credit.
Did you claim a credit to recover missed or partial third stimulus checks?
For the 2021 tax year , many Americans who did not receive the third stimulus payment, or the full amount they were otherwise eligible for, may be eligible to claim a Recovery Rebate Credit when they file their taxes.
When completing your tax return, TurboTax has proactive guidance regarding the Economic Impact Payments, also known as the stimulus checks, and will ask you if you received a full or partial payment and the amount you received.
If you answered that you havent received the third stimulus checks, a recovery rebate credit is calculated increasing your refund, but if the IRS did issue it to you, the IRS will adjust your refund amount accordingly. This lowers the refund amount that was initially calculated for you when your tax return was filed.
The IRS has announced that if theres a mistake with the stimulus credit amount, the IRS will calculate the correct amount and make the correction and continue to process the tax return. If a correction is needed, this will cause a delay in processing the tax return and the IRS will send the taxpayer a letter or notice explaining any change.
Some common possible reasons why the Recovery Rebate Credit amount was corrected by the IRS are:
How Do Tax Refunds Work In Australia
Each year, around 14 million people in Australia fill out their tax returns. Of those who are eligible for a refund, approximately two-thirds receive one, and the average amount they receive is little more than $4,000.
This results in a total refund of more than $3 billion. Therefore, it is in your best interest to ensure that you are doing everything in your power to obtain the largest possible return.
You have until October 31 to file your tax return in order to avoid penalties .
The processing of the return will take roughly two weeks however, your agent can keep you updated on the status of your return at any time.
These dates will not change, nor will the regular method for submitting your tax return be altered by COVID-19. Due to the Low and Middle-Income Tax Offset, which is available to a large number of taxpayers, it is possible that you will receive a greater tax refund this year.
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Will Calling You Help Me Get My Refund Any Faster Or Give Me More Information
IRS representatives can research the status of your return only if:
- It’s been more than 21 days since you received your e-file acceptance notification,
- It’s been more than 6 months since you mailed your paper return, or
- The Where’s My Refund? tool says we can provide more information to you over the phone.
How To Get The Most Money Back On Your Tax Return
Michelle P. Scott is a New York attorney with extensive experience in tax, corporate, financial, and nonprofit law, and public policy. As General Counsel, private practitioner, and Congressional counsel, she has advised financial institutions, businesses, charities, individuals, and public officials, and written and lectured extensively.
Most taxpayers either hope to pay as little income tax as is legally possible or try to receive the most money back as a refund after filing their income tax return. However, come tax season, taxpayers who have not researched how to minimize their income taxes may end up paying more in taxes than the Internal Revenue Service requires of them.
To reduce your taxable income or receive a larger refund, it’s important to consider if you’re eligible for tax deductions and tax credits and whether you should itemize when you file your income tax return. We look at each of these ways to reduce your tax bill in detail below.
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Tax Credits For Education Expenses
Two types of tax credits, the Lifetime Learning Credit and the American Opportunity Tax Credit, provide tax benefits for qualified educational expenses for postsecondary education. The rules for these credits differ. The IRS provides a comparison chart online. It also provides an extensive list of FAQs to help you determine which credit to claim.
Advance Child Tax Credit Payments
If you claim dependents on your taxes, one of the main reasons your tax refund is smaller this year might be due to the advance child tax credit payments. The child tax credit in years prior to 2021 was claimed on your tax refund with the full credit being provided for in your refund. The difference in 2021 was the American Rescue Plan provided for advance monthly payments on half of the credit, unless you opted out of the monthly payments. Monthly payments were disbursed July through December 2021 and were based on information from your 2020 or 2019 tax returns. If you received the monthly payments this means there is only half of the credit to claim on your tax return, possibly causing a smaller tax refund than previous years.
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Simple Tax Return Mistakes
The Australian Taxation Office will typically make the necessary adjustments to your tax return in the event that you forget to include a PAYG or some bank interest. This indicates that the estimate of your tax refund that you receive when you file your return may not always be accurate. Here’s a simple example:
John had a taxable income of $10,150 after having a taxable income of $49,990 during the year. When he sends in his return, the estimated amount of his tax refund is $1606.60.
When the ATO processes John’s return, they discover that he failed to report earning $742 worth of bank interest on his return, despite the fact that he earned that money.
When the ATO factors in John’s bank interest, his tax refund, which was original $1339.48, is now just $1339.48, a $267.12 decrease. Everything stems from that one basic error.
How to avoid this the following year: By following this advice, you can spare yourself the agony of wondering “why has my tax refund decreased?” Check to see if there are any additional forms of income that are not included on your return. The following are the items that people most frequently forget to include on their tax return by mistake:
- bank interest
- an extra PAYG â did you have more than one job during the year?
Pause In Student Loan Payments
Federal student loan payments have been paused since March 13, 2020. Many student loan borrowers have taken advantage of this relief including through all of 2021. Although this may have come as welcome relief during the pandemic to reduce your expenses, it can potentially lower your tax refund. Since payments are not being made, no interest is being paid on student loans. Student loan interest can be taken as a deduction on tax refunds that can reduce your taxable income up to $2,500, thereby causing less taxes to be owed. With no deduction to reduce your income, more taxes will be owed which may result in a smaller tax refund than years when you were paying student loan payments.
Why Is My Tax Return Less
One of the more common reasons why your tax refund may be less is because you earned more money last year than you remember, as compared to 2020 most people worked more hours, while some could have either got a pay rise or changed jobs, which could have seen an improvement in your salary.
Another reason why some people have received a smaller tax refund than they were expecting is because of the expanded Child Tax Credit program, as families received half of the 3,000 or 3,600 dollar amount in the second half of 2021.
“Most of the people that I’m seeing are getting slightly lower refunds, but it’s mainly due to the advance child tax payments received,” said Antonio Brown, a CPA in Flint and member of the Michigan Board of Accountancy.
“If the taxpayer received half of the full tax credit in advance, that means the rest of the credit will appear on the tax return as a 1,500 or 1,800 dollar refundable tax credit.”
As Brown explains, his clients’ tax refunds are about 19 percent or so less compared to last year, but he has stressed that they might actually be better off now than then.
“I have to remind the client that they received half of the credit in advance, so actually, in most scenarios, they came out better,” Brown stated.
Why Did I Not Receive A State Tax Refund
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The Impact Of Lower Refunds
In contrast to the widespread belief, a tax return does not constitute free money. Instead, it refers to income that was earned but was not initially collected.
Despite this, a significant portion of households in Australia rely on tax returns to cover significant expenditures, eliminate debt, or take care of expenses they have been putting off, such as medical treatment.
A tax refund that is far lower than what was anticipated may present significant challenges for these families.
Again, in theory, a smaller refund should not be viewed as a negative development because it indicates that you provided the government with a smaller interest-free loan and that you instead collected a larger portion of your income as you earned them.
However, if you are basing your financial plans on a particular refund amount and it turns out to be less than you expected, your plans could be derailed entirely.
Why Is My Federal Refund So Low
Taxes are complicated, so there are plenty of potential reasons why your refund didn’t meet your expectations.
- Your income changed. If your income went up or down, you may have landed in a different tax bracket. If you got a raise last year, you may have earned more money, but the amount you owe in taxes may have gone up even more.
- Your deductions changed. A tax refund means that the government took more out of your paycheck than you actually owed. You have some measure of control over how much comes out of each paycheck, however, and changes to your deductions could lead to a smaller refund .
- Tax laws changed. Even if your income didn’t change, the laws that determine how much you owe in taxes may have changed, leading to a bigger tax bill .
Ultimately, a small refund just means that you didn’t overpay on your taxes by very much, while a tax bill means that you underpaid on your taxes.
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American Opportunity Tax Credit
The American Opportunity Tax Credit is a credit for qualified education expenses paid by an eligible student who is the taxpayer, the taxpayer’s spouse, or the taxpayer’s dependent. The maximum annual credit is $2,500 per eligible student. To qualify, the student must be enrolled at an eligible educational institution at least half time for at least one academic term for the given tax year. In some cases, this credit may be partially refundable. If the credit reduces the tax liability to zero, an additional 40% of the unused otherwise allowable credit, up to $1000, is refundable to the taxpayer.The amount of the American Opportunity Tax Credit is phased out if your MAGI exceeds $80,000 if single . You can’t claim an American Opportunity Tax Credit if your MAGI is $90,000 or more if single .
If you are eligible for any of these tax credits, they can substantially reduce or even eliminate the amount of taxes that you owe. They may also increase the amount of your tax refund. In some cases, taxpayers may be eligible for a refund even if there were no taxes withheld from their income for the year due to these tax provisions.
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Moreover, you may have to return part of the advance tax credit if 2021 adjusted gross income exceeds certain limits.
The phase-out begins for single parents over $75,000 or joint filers above $150,000. Families lose eligibility for the enhanced tax credit amounts over $95,000 for single filers and $170,000 for married couples filing together.
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What’s Missing For Student Loans
When it comes to student loans, many borrowers often can get some tax relief through the student loan interest deduction. But if you took advantage of the pandemic-related payment pause and didn’t make student loan payments in 2021, you can’t deduct interest.
Borrowers are able to deduct the amount of interest paid in 2021 on a qualified student loan. You can reduce your income that’s subject to tax by up to $2,500 in interest if you meet certain income limits.
For 2021, the amount of your student loan interest deduction is gradually phased out if your modified adjust gross income is between $70,000 and $85,000 if single and $140,000 and $170,000 if you file a joint return).
You cant claim the deduction if your modified adjusted gross income is $85,000 or more and $170,000 or more if you file a joint return.
Also you cannot deduct as interest on a student loan any interest paid by your employer after March 27, 2000, and before January 1, 2026, under an educational assistance program.