Why is my refund smaller this year compared to last year?

If your federal income tax refund is smaller this year compared to last year, then take note that this could be due to several changes, including COVID pandemic-era provisions that have now expired. Below are a few potential reasons for the difference.

Less Overpayment

Did you file a new W-4 with your employer to lower the amount of tax withholding from your paycheck? Or if you make quarterly estimated tax payments, did you send in less than was calculated? If so, less money paid throughout the year will result in a lower refund.

Changes to the Child Tax Credit

If you have children and were previously eligible for the Child Tax Credit, then it will be less in 2022. In 2021, the child tax credit was $3,000 for each child ages 6 to 17 and $3,600 for each child 5 years old and younger. In 2022, this credit is only worth $2,000 per child. Also, children aged 17 and older no longer qualify.

Reduced Child and Dependent Care Tax Credit

Anyone who pays for child or dependent care will likely notice a significant reduction.

In 2021, this credit was worth as much as 50 percent of $8,000 in one child/dependent's expenses or $16,000 for two children/dependents resulting in a maximum credit of $4,000 or $8,000 for one or more children/dependents respectively. 

For 2022, this credit is now limited to as much as 35 percent of $3,000 in one child/dependent's expenses or $6,000 for two children/dependents resulting in a maximum credit of $1,050 or $2,100 respectively.

Furthermore, the child and dependent care tax credit is no longer refundable in 2022 as it was in 2021.

No More Charitable Donation Deduction

During the COVID pandemic, the government encouraged charitable giving by allowing 2021 taxpayers to claim a deduction of $300 (or $600 for those who file jointly) without having to itemize. In 2022, this duction is no longer available.

Smaller Premium Tax Credit

Some people who bought private healthcare through the federal Health Insurance Marketplace may have qualified for a more generous premium tax credit in 2021 than they did in 2022.