A small increase in your 2016
income may have reduced – even eliminated – some deductions and credits you got
on your 2015 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.
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.
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 2016, causing you to lose the $1,000 Child Tax Credit;
- Your child
turned 19 in 2016 (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).
