How big will your tax refund be? Changes this year make it harder to guess

This year it could be harder for Americans to gauge how big — or small — their tax refund might be.

With pandemic-era changes gone, many taxpayers might see smaller refunds, especially lower-income families. But an enhanced credit included in last year's Inflation Reduction Act may mean larger ones for a handful. Other developments — such as the expiration of a key tax break for homeowners, crypto investment losses, and life changes — may also affect how big or small a taxpayer's refund could be.

For many Americans, the size of their tax refund is important because it’s often their biggest windfall of the year that they earmark for savings, vacations, debt payments, or even covering basic needs.

“Refunds received at tax time can be an opportunity for many to save, pay down debt, and invest in long-term assets,” Joanna Ain, associate director of policy for nonprofit Prosperity Now, told Yahoo Finance. “They can make up as much as 30% of a low-income family’s annual income.”

American Rescue Plan benefits expired

The average refund last year was $3,176 as of Oct. 28, according to the latest data available from the IRS, up nearly 13% from $2,815 at the end of 2021. The increase was largely due to enhanced credits introduced by the American Rescue Act that have now expired.

Notably, the Child Tax Credit (CTC), Earned Income Tax Credit (EITC), and the Child and Dependent Care Credit have returned to pre-COVID levels.

The enhanced CTC credit was not extended, so taxpayers can receive only $2,000 per child dependent compared with last tax season’s $3,600. Also unlike last year, it’s not refundable, meaning taxpayers won’t receive the full credit if it’s larger than the tax they owe.

“Since the Child Tax Credit will not be refundable in 2022, many families with lower incomes will be cut out of the credit completely,” Ain said. “In other words, the lowest-income families, the families who need it the most, can no longer receive the full credit.”