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Why did my refund go down compared to last year's?

SOLVEDby TurboTax1813Updated 3 weeks ago

If your refund is lower than expected this year, you’re not alone. A lot of people experienced financial hardships in 2021 that could have an impact on their refund. But don’t worry, TurboTax looks for every possible deduction and credit to maximize your refund.

The situations below are some of the most common reasons why you might be getting less money than you expected. For example, did you:

  • Receive advance Child Tax Credit payments
  • Adjust your withholding to maximize your take home pay
  • Receive unemployment benefits, but didn’t have taxes withheld
  • Earn little or no income, and didn’t qualify for the Earned Income Credit (unfortunately, unemployment doesn't count as earned income)
  • Complete a W-4, which more closely matches your tax liability
  • Sell stock
  • Take an early withdrawal from your retirement account
  • Pay less tuition due to school closures, so you can’t deduct as much
  • Claim the Recovery Rebate Credit, but overestimated the amount or didn't qualify

To maximize your refund next year, invest, and/or pay taxes you might owe, consider some of these options:

  • Amend your W-4 to increase the amount of withholdings for a higher refund next year; or
  • Instead of withholding more, put that same amount into a savings account, an IRA, or other tax-sheltered vehicle 
  • If you can’t pay taxes you owe for unemployment benefits in full, the IRS offers alternate payment options. If you’ve already filed, you can complete an Online Payment Agreement application or request a payment plan by phone at 800-829-1040
  • If your refund is wildly off, double check the amounts you input (a dollar amount mistype can have a big impact on your refund)

Here are some other possible reasons for a year-over-year refund decrease:

Life events can change your refund amount. Common examples include:

Strange as it sounds, sometimes an income decrease can reduce your refund. One example is losing the Earned Income Credit (EIC) because you didn't have any earned income in 2021.

One big change since tax year 2018 is a cap, or limit, on the SALT deduction (state and local property, income, and sales taxes). For couples filing separately, the SALT deduction is capped at $5,000, and for everyone else it's $10,000. If you own property or live in a state with higher income taxes and property values, such as New York or California, your 2021 SALT deduction may not be as big as it was in prior years, when there was no cap.

In addition to the new cap on the SALT deduction, here are other commonly-lost credits and deductions if you:

  • Have a child who turned 17 in 2021 (or has an ITIN) and is no longer eligible for the Child Tax Credit (however, in its place you may be getting the new $500 Credit for Other Dependents)
  • Have older dependents, and this year's higher standard deduction and/or $500 Credit for Other Dependents is giving you a lower tax benefit than last year's personal and dependent exemptions (read more here)
  • Paid off your mortgage and can no longer deduct mortgage interest
  • Didn't qualify for the Earned Income Credit this year
  • Paid off your student loan and can no longer deduct the interest
  • Are no longer eligible for certain education credits (or you took a different credit this year)
  • Didn't contribute to a Traditional IRA, or you weren't able to get the full deduction because your income was too high

If you started selling stocks or picked up side jobs this year, you may have done so without making estimated tax payments or adjusting your W-4. When you have a wage-earning job, your employer pays your income taxes for you throughout the year with every paycheck you get, based on the W-4 you completed when you were hired.

When you sell stock or earn self-employed income, there's no employer paying those income taxes for you. So when you file your return, you'll have to pay taxes on that income, which can reduce your refund or cause you to owe for the first time.


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