Everyone looks forward to receiving their income tax refund, and many individuals rely on it to help them make ends meet.
According to the results of a study conducted on Tuesday, there is some anxiety mixed in with the excitement this year.
An online poll of almost 2,500 consumers conducted by Bankrate.com revealed that smaller refunds, anticipated IRS processing delays, and lost purchasing power as a result of inflation are the three most common fears among those expecting a cash injection from the government.
• Two-thirds of those who expected refunds expressed reservations.
They are concerned about receiving a lesser payout in their return (29 percent) and that their refund will not provide as much assistance with their finances as they would want because of inflation (29 percent ).
Processing delays were another source of anxiety (24 percent), as was the possibility that rising interest rates would reduce the purchasing power of their refunds.
The bad news is that it’s understandable why folks who participated in the Bankrate.com poll are worried.
There is a possibility of lower refunds.
The 2022 tax season, which began on January 24 and will end on April 18, will be the first since the Internal Revenue Service (IRS) distributed the first half of the expanded child tax credit.
As part of the $1.9 trillion American Recovery and Reinvestment Act, Congress doubled the payment on the credit from $2,000 to $3,600 for households with children under the age of five as part of the plan. They increased the maximum payout from $2,000 to $3,000 per child between the ages of 6 and 17.
The first half of the enhanced credit was paid in monthly installments from July to December, with the second half paid in full in December.
Unless a household has chosen to receive all of their tax credit money at once, they will receive the second half of their tax credit money as part of their tax refund. The difficulty is that one-half of the improved credit, either $1,500 or $1,800, is still less than $2,000, which is a significant difference.
Some tax preparers say they’ve been preparing their clients for smaller refunds as a result of the tax law changes — but it’s still possible for consumers to be disappointed when their refunds are somewhat reduced.
(Keep in mind that lawmakers also boosted the payouts for the Child and Dependent Care Credit for the fiscal year 2021.) As a result, it’s likely that more money in that account will balance fewer lump-sum payments from the Child Tax Credit.)
Ted Rossman, a senior industry analyst at Bankrate.com, said in a statement that “many Americans may receive lesser refunds this year because they already received half of their child tax credit cash in monthly installments during the second half of 2021.”
He went on to note that it was “no surprise” that millennials (37 percent) and parents with children under the age of 18 (37 percent) were the groups most concerned about the size of their refund.
As of Feb. 11, the Internal Revenue Service has issued 8.9 million refunds, each worth an average of $2,323. By the beginning of December, the average refund for last year’s taxes had reached more than $2,800.
Despite the fact that there is a $600 difference, keep in mind that there are still millions of 2021 returns to be completed, which might increase the average payout. This compares to a $1,900 average at a similar period during the previous year’s tax season.
The consequences of inflation
The start of the tax season coincides with a spike in inflation. The Consumer Price Index for January indicated a 0.6 percent increase in prices compared to the previous month and a 7.5 percent increase compared to the same month last year. The 7.5 percent rate is the highest in 40 years.
If the price of oil continues to rise, the refund will be worthless and less over time. If the Federal Reserve raises interest rates, which many expect to happen beginning in March, additional increased borrowing costs will be passed on to the general public, as well.
Higher annual percentage rates (APRs) on credit cards, for example, make it more expensive to carry a balance from month to month, among other things.
In the Bankrate study, 15 percent of respondents expressed concern that their refund not going as far as they expected it to because of rising interest rates.
The fact that several inflation-indexed portions of the tax system, such as income tax rates and the standard deduction, were altered before the rate of inflation exacerbated this began to accelerate significantly in 2021 and 2022.
Another issue is that some tax rules haven’t been updated in several years, which makes things worse.
Tax refunds are being held up.
Another major source of concern, according to the Bankrate.com study, is the possibility of IRS processing delays. Even before the start of tax season, the IRS issued a warning to taxpayers that there could be delays and headaches in processing refunds.
Even if there are no problems or glitches, the IRS claims that it can still issue refunds in less than 21 days if all goes according to plan. Potholes and question marks, on the other hand, can appear in a variety of places.
Suppose the IRS’s assessment of what it has paid taxpayers for the child tax credit does not match the amount the taxpayer claims to have received. This could cause a hold-up in the process. A similar situation arises in the event that the IRS claims it paid a household for its third stimulus check, but taxpayers claim they are owed a different amount.
IRS officials have been reorganizing their workforce and reducing the number of written reminders they send to taxpayers in order to reduce a backlog of tax returns from last year while also dealing with the rush of returns that have arrived recently.
According to Erin Collins, National Taxpayer Advocate, the Internal Revenue Service had 23.5 million tax forms in back inventory, including some from last year and some from this year.
Taxpayers should make extra efforts to ensure that their returns are accurate in order to receive refunds as quickly as feasible.
According to the IRS, they should file their taxes electronically and have their refunds sent to them via direct deposit into their bank accounts, rather than receiving physical checks in the mail.