Many taxpayers are now starting to file their tax returns as the January 30th IRS processing date is upon us. If you are using a CPA or Enrolled Agent to prepare your return or an online tax software program, you’ll know very soon if you will be receiving a federal and state tax refund, if applicable. If you will be receiving a lower refund as compared to last year, there’s no doubt that you’re going to be asking some questions. What are some of the reasons why your tax refund may be lower this year?
What are some reasons for a lower than expected refund?
First, it is important to understand that there is not one reason why your tax refund may be lower in 2012 as compared to 2011. For one, there wasn’t any one very significant new tax law in 2012 as is the case with 2013, that should impact many filers. In addition, your income level, while important, is not the only factor to consider when trying to identify the reason for a lower than expected tax refund. Any changes to your life and finances can have a significant impact to whether or not you receive a tax refund at the end of the year. By the way, a large tax refund isn’t necessarily a good thing as it generally indicates that you gave the government an interest free loan during the year. Still, what are the most common reasons for a lower than expected refund as compared to last year?
You need to compare your gross income for 2012 with that of 2011. If your income increased, it’s possible that you are in a higher tax bracket and didn’t necessarily have enough taxes withheld from your paycheck. This would certainly have an impact on your tax refund for 2012.
Did you claim too many allowances on your W-4 form when you updated or completed the form? If so, this means that less withholding taxes are being taken out of your paycheck which reduces the likelihood of a large tax refund and you may even owe taxes. As a general rule of thumb, the lower the number of allowances claimed on your Form W-4, the more taxes withheld from your paycheck and thus the larger the likelihood of a tax refund and vice versa.
If you reported your taxes as married filing jointly in 2011, but changed your status to married filing separately or head of household or single in 2012, your tax rate would increase, which would result in a lower refund.
In 2012, lower income parents could claim a tax credit of up to $1,000 for each child, age 16 or younger that was living in their home throughout the year. Did you have a child that turned 17 this year? In addition, if you had a child that turned 19 in 2012 and was not a full-time student, you could have one less dependent on your tax return, and would not be able to claim the $3,800 deduction that was taken in 2011.
If you earned $50,027 or less last year as a joint filer, it is highly likely that you will be eligible for the Earned Income Tax Credit (EITC). But, the income limits vary based on the number of children you have. For an individual or head of household with no children, your 2012 income must be less than $13,980; for married people filing jointly who have no children, income must be less than $19,190 to qualify for the tax credit. Income limits increase based on the number of children you have, topping out at $45,060 for individuals or heads of household who have three or more children, and $50,027 for married people filing jointly who have at least three children. Thus, a change in the number of dependent children would impact the amount of the earned income tax credit you could claim for the year.
More tax questions? Browse answers or ask 2012 tax questions online.
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