5 Reasons Your Tax Refund Might Be Smaller This Year

The average tax refund was close to $3,200 last tax season, but it stands to be considerably smaller this season.

Continued loan payment pauses for some taxpayers amid the COVID-19 pandemic could mean they made less or no tax-deductible interest payments during the 2022 tax year, the one for which their return is due this April. That could translate to a smaller refund, or possibly a bigger tax bill, this federal income tax season.

Similarly, numerous tax deductions and credits that were available in 2021, also due to pandemic relief legislation, were not extended for the 2022 tax year or were less valuable. This could mean a considerably smaller refund or bigger tax bill this season for affected taxpayers.

Following are some reasons your federal tax refund might be a little smaller — or your tax bill a little larger — this tax season.

Paused student loan payments

A federal law established in March 2020 — the Coronavirus Aid, Relief, and Economic Security (CARES) Act — allowed borrowers with federally owned student loans to defer their payments. Eligible borrowers could put both principal and interest on hold through September 2020 without being assessed a penalty.

The pause has been extended couple of times since then, most recently into 2023. All of this sounds like great news, and it certainly is for millions of borrowers. But student loan interest is tax-deductible, whether you itemize your deductions or take the standard deduction.

That means borrowers who typically deduct their student loan interest will not have much — if any — interest to deduct on their taxes this spring if they were not making payments in 2022. And that in turn could mean a slightly smaller refund or slightly larger bill from Uncle Sam.

Paused mortgage payments

The same CARES Act that paused student loan payments also gave many homeowners the option of mortgage forbearance. As with the student loan effort, the mortgage pause was extended, until as late as 2022 in some cases.

Normally, mortgage interest generally is deductible only if you itemize your tax deductions — which only a sliver of taxpayers have done since the Tax Cuts and Jobs Act of 2017 roughly doubled the standard deduction. Still, some folks do indeed continue to itemize, and if they skipped mortgage payments in 2022, they will have less interest to deduct on their next tax return.

So, this is another instance in which some taxpayers might face a slightly smaller refund or larger tax bill than they were expecting.

Some pandemic-era tax breaks are no more

In addition to pausing loan payments, Congress made numerous temporary changes to the tax code to help ease the financial sting of the pandemic.

For example, for the 2020 and 2021 tax years, they created a tax deduction for charitable donations available to all taxpayers, and a tax credit known as the recovery rebate credit for people who didn’t receive their pandemic-related stimulus payments on time, as we detail in “19 Ways Your Income Taxes Will Be Different This Tax Season.”

Starting with the 2022 tax year, however, those two tax breaks are no more, which could mean a smaller refund, or bigger tax bill, for folks who benefitted from them last tax season.

Fewer people will qualify for the earned income credit

One of the most valuable federal income tax breaks available is the earned income tax credit, which can be worth thousands of dollars for the workers who qualify for it.

In 2021, that was a lot more people than usual: A federal law created in early 2021, the American Rescue Plan Act, made the credit available to people age 65 and older and some people under age 25 who otherwise qualified for it that year.

But that was a one-time relaxing of the rules during the pandemic. For the 2022 tax year, the qualifying ages for the earned income credit go back to “normal,” meaning the credit will be available only to people ages 25 to 64 who otherwise qualify for it. And that will means a smaller refund, or bigger tax bill, for many people who got the credit last tax season but don’t qualify for it this season.

Several tax credits will be a lot less valuable

The American Rescue Plan Act of 2021 also made the earned income tax credit — as well as the child tax credit, the additional child tax credit, and the child and dependence care credit — considerably more valuable than usual for the 2021 tax year. But those boosts were not extended, so parents who received these credits for the 2021 tax year should expect them to be smaller for 2022. And that likely could translate to a smaller refund or bigger tax bill this season.

For a look at the nitty-gritty of what has changed with these tax credits, check out the “What’s New” section in IRS Publication 17.