There can be any
number of reasons but it generally
happens because income was greater, withholding was less, or credits were smaller
than other years. Filling out a tax return is a process of reconciliation for a
particular year. It is almost impossible to have the same return from one year
to the next. Filing status may change, you may lose a dependent, or you the
withholding tables from the IRS may have been updated.
The surest way to
see is to compare your last year return with the current year, line by line.
Here are some things to compare:
- Line 7: Wages
- Lines 8-21: Other types of
income may have increased.
- Line 40: Your itemized
deductions may have decreased.
- Lines 50-53: You may have
lost a credit.
- Lines 57-62: You may have
been assessed other taxes based on other tax forms.
- Line 64: Your withholding may
have gone down.
- Line 66: As you income
increases, your earned income credit may have decreased.
You may in the
process discover that you made a mistake and can now correct it or just see how
things change from one year to the next.
A small increase in
your 2017 income may have reduced – even eliminated – some deductions and
credits you got on your 2016 return, not to mention putting you in a higher tax
bracket.
Strangely enough, an
income decrease can sometimes reduce your refund. One example is
losing the Earned
Income Credit (EIC) because you didn't have any earned income this
year, which you need to qualify for the EIC.
Without examining
your return, it's impossible to say exactly what caused your refund to
decrease. However, there's a high probability that at least one reason is
listed below.
If your refund is
wildly off, you may want to check for a typo. An extra digit here, a missing
number there, or something as insignificant as a misplaced decimal point can
affect your refund.
Here are some other
that may or may not apply to your situation:
Changes in your
income or tax rate
-
You (or your spouse) took on
an additional job (especially non-wage income which is taxed at the
higher self-employment tax rate);
-
Your salary or wages
increased but your W-4 stayed the same;
- You sold investments but
didn't take out any taxes from the sale;
- Your filing status changed
from last year;
-
You started receiving Social Security benefits or Roth IRA
distributions;
- You received
taxable unemployment income;
-
You had gambling winnings;
-
You're paying a penalty for not having health
insurance coverage in 2016.
Loss of credits or
deductions
- Your child turned 17 in 2017,
causing you to lose the $1,000 Child Tax Credit;
- Your child turned 19 in 2017
(or 24, if a full-time student) and no longer qualifies as a dependent;
- You paid off your mortgage
and can no longer deduct mortgage interest;
- You took the itemized
deduction last year (for example because of high medical bills) but got
the standard deduction this year;
- You didn't qualify for
the Earned Income Credit this year;
- You paid off your student loan and can no longer
deduct the interest;
- You're no longer eligible for
certain education credits (or you took a
different credit this year)
- You didn't contribute to a
Traditional IRA (or couldn't take the full deduction because your income
was too high).
