With the start of the New Year, many Americans may be looking forward to their tax refunds hitting their bank accounts. But they may need to prepare for disappointment. Financial experts warn tax refunds this year may be smaller due to several factors.
Unfortunately, not only may your tax return be smaller, you might actually owe money. Numerous factors contribute to this possibility, such as the advance child tax credit payments recently issued, paused student loan payments, and mutual fund distributions. Typically, you receive a federal tax refund when you’ve paid or withheld more than the amount you owe. However, thanks to the mentioned allowances and advances, you might be paying them back with your tax refund, CNBC reports.
The advance child tax credit payments came from the American Rescue Plan President Joe Biden signed in March 2021. It boosted the 2021 child tax credit from $2,000 to $3,000. The increase came in monthly installments, as well as half of it being paid upfront. Tommy Lucus, a certified financial planner, said the jump “could be the difference between someone getting a small refund and owing a lot.”
The next one is relevant to many Americans. The paused student loan payments have been nice for many, but taking advantage of it means you can’t use it as a write-off for student loan interest.
Finally, mutual fund investors may owe more in 2021 due to higher year-end payouts. Many people this year managed mutual funds, which proved to have a strong showing. As you may have guessed though, making more means paying more in taxes.
Overall, your tax refund may be completely unaffected, but it’s a good idea to consider the alternative.
Nearly 524k Homes Receive $581 Tax Refund Checks
It’s a bit depressing to learn our annual tax refunds may not be as high as they typically are. If you live in Minnesota though, you may be getting an unexpected treat. The Minnesota Department of Revenue announced $581 tax refund checks for nearly 524,000 homes.
Specifically, the MDR said it issued surprise checks for taxpayers who paid state tax on unemployment benefits. Though the bill enacting it was signed in March, millions of taxpayers already filed their returns by then and paid any tax due on them. A spokesperson told The Sun the department processed roughly 524,000 returns on December 28, 2021, out of 542,000 in total.
Department of Revenue commissioner Robert Doty issued a statement last September about the initiative. “We know these refunds are important to those taxpayers who have experienced hardships over the last year and a half. We made the decision to adjust nearly all of these returns on our end so that impacted taxpayers would not need to take the time and resources to file an amended return, which would further delay the refund they’re due.”