Yes, it’s tax time again. Furthermore, the Internal Revenue Service (IRS) announced that many taxpayers will see a smaller tax refund this year. Dysfunction in Washington and a complex, convoluted tax system will lead to many taxpayers shaking their heads saying “What happened?”
The culprits are two pieces of legislation. The Tax Cuts and Jobs Act (2017) and The American Rescue Plan Act (2021). Many tax credits and deductions in these acts have expired. To make matter worse, provisions in the 2017 act increased the impact inflation has on your taxes and automatically reduced the amount the IRS withholds. Additionally, many taxpayers also adjusted their tax withholding based on their previous year’s taxes. As a result, many taxpayers may have had less tax withheld from their paychecks throughout the year. In other words, a smaller tax refund.
The IRS is encouraging taxpayers to check their withholding and make adjustments. The Tax Withholding Estimator tool on the IRS website is an excellent place to begin. Keep in mind this tool gives a rough estimate in some situations and may cause substantial under-withholding. Check with your tax advisor if you need a better estimate for your withholdings.
To make matters worse, a possible government shutdown may cause delays in processing refunds. The agency operates with limited staff, which could result in longer wait times for refunds. Consequently, You may want to file early this year to avoid this.
In conclusion, many taxpayers will likely see smaller refunds or even owe money to the IRS this year due to the changes in the tax code, and the ongoing government shutdown may cause further delays in processing refunds. It is essential for taxpayers to check their withholding and adjust as needed to avoid any surprises during the tax season.
