Why Is My Tax Refund So Small This Year?
Americans are preparing for the 2021 tax season with many finding out their tax refunds are going to be smaller than in previous years. While everyone is asking why is my tax refund so small this year, the answers include a change in deductions and credits, unemployment income, receipt of stimulus checks, and pulling money from retirement accounts.
This Is Why Your Tax Refund Is So Small
Experts attribute smaller refunds to 2020 economic events including lockdowns, closed businesses, more unemployment, government-issued stimulus checks, and people using money from protected accounts.
The Internal Revenue Service (IRS) warns refunds are going to be more complicated. Below are some of the common reasons answering the question of why is my tax refund so small this year?
Deductions And Credits
Changes in deductions and credits affect your refund. Deductions lower your income so less is taxed while tax credits lower the actual tax bill you pay. Typical deductions include:
- Charitable deductions
- Medical deductions
- Business deductions
Common tax credits include the earned income tax credit that helps families earning less than $56,844 annually and the child tax credit where families can claim up to $2,000 per child.
Many people don't realize it but receiving unemployment income in 2020 is reportable on taxes. The IRS considers it as income, so it is taxed. Those who took the option of withholding taxes when they signed up for unemployment will have a better chance of getting a refund.
Those who opted to get all the money without withholding tax will owe money when they file taxes. That will amount to either a refund reduction or a payment due to Uncle Sam.
Stimulus checks come with both good and bad news. The good news is the IRS doesn't consider those U.S. Treasury checks handed out in 2020 as income, so they won't be taxed. The bad news is they are considered as a refund advance, so they will be deducted from your overall refund.
That reduces the money you get back and answers the question of why is my tax refund so small this year?
One possible answer to why is my tax refund so small this year is that you took money out of your retirement account. There are heavy tax penalties. The government allows distribution of the withdrawal over three years to spread the penalties out rather than pay all at once.
However, that increases your yearly income and reduces any refund.
Those who work gig or temporary jobs are taxed on their earnings if their income is more than $400 in 2020. You must keep track of your earnings. Keep a detailed account of how much you make and where all of it came from. The more details you include, the easier it’ll become tax season.
Refunds Will Also Be Delayed
The IRS said tax filers should expect delays as the filing season opens. In-person help is limited and heavy call volume from people is expected as well as processing delays. Even those who file early will likely see a delay in getting their refund, according to the IRS.
Title Loans for When You Need Extra Cash
Some people wonder if loans are why my tax refund is so small this year. In most cases, loans have nothing to do with taxes as the IRS doesn't consider loans as earned income. Likewise, interest on loans isn't deductible. Some may consider taking out a loan to offset bills that a reduced refund won't cover – especially when you have an emergency you cannot handle on your own.
One of the fastest loans to obtain is a title loan. An online title loan is money borrowed with a title, such as a vehicle title, as collateral. We here at Fast Auto Loans, Inc. offer a quick and easy application process with applications available both online and in the store.
Approval can take as little as 30 minutes, which makes it perfect for paying for emergencies. A title loan is meant to be used for things that are unexpected such as a car or home repairs or medical expenses.
Fast Auto Loans, Inc. welcomes all types of credit from good credit, bad credit, and even non-existent. To get through the title loan process, you will need your driver's license or state-issued identification along with a clean, lien-free vehicle title in your name. From there the process is quick and easy.
It is also expected for you to bring your vehicle for an inspection to either a location of your choosing or to the nearest fast title loans location, but don’t worry, because we allow you to keep your vehicle while repaying the title loan. Your car will be inspected to determine how much you qualify, and your other items will be evaluated for approval. You can receive your loan money either the same day or the next day after approval.
The pending question of why is my tax refund so small this year will be one many will be talking about as their refunds drop into their bank accounts. While it's disappointing for 2021 filers, taxpayers can do some things to protect themselves like repay their retirement funds and allow a larger withholding for next year.
Note: The content provided in this article is only for informational purposes, and you should contact your financial advisor about your specific financial situation.