Why My Tax Refund Was Lower Despite More Earnings: An Insight into Recent Changes
Many tax filers like myself are facing the reality of lower tax refunds despite working and earning more in the current year. This article aims to clarify the reasons behind this phenomenon, drawing from recent tax changes and highlighting key factors that may affect your refund.
Key Points to Consider
Yearly Earnings Comparison
The first step is to confirm if you earned more during the current tax year compared to the previous year. If your earnings have increased, you should expect a tax refund if you met the other criteria for a refundable tax credit. If your earnings have not increased, then a lower refund is less surprising. However, if you are earning less but still expect a refund, it's crucial to review your tax calculations and claims.
Dependent Claims
Claiming the correct number of dependents also plays a significant role in determining your tax refund. There are strict rules regarding the classification of dependents, which include:
Minors (children under 18 or up to age 24 if they are enrolled in secondary education half-time) Adult children who are over 24 but under 65 and not earning an income sufficient to cover their basic needs Spouses are not permitted to be claimed as dependents, and you cannot claim yourself as a dependent. This rule, imposed by former U.S. President Donald Trump, affects how your income is reported and taxed.Impact of Trump’s Tax Plan
Changes introduced by the Trump administration's tax plan have made it more difficult for individuals to claim tax breaks. These changes were intended to be temporary but have been made permanent for corporations, leading to reduced deductions and credits for individuals. This shift has resulted in an increase in overall tax burden, which might explain the discrepancy in your tax refund. Learn more about the specifics of the Trump tax plan and its impact.
No Refund Ideal for Most
In an ideal scenario, you should have no tax refund as taxes are taken out of your paycheck through regular withholding. Keeping your W-4 form updated can ensure that the right amount of taxes are withheld. If you received a refund, it might be because the withholding was too low, and you are effectively earning interest on unused tax payments.
Side-by-Side Comparison
To better understand why your tax refund has decreased, you can compare your current and previous tax returns. Pay attention to the line items, the amount withheld on your W-2, and any fees charged by the tax preparer. If you earned $20,000, your return should be free, especially if you are not claiming any dependents and your withholding is accurate.
Conclusion
The discrepancy in your tax refund, even if you've earned more, can be attributed to various factors including changes in tax policies, correct claiming of dependents, and the rules around tax preparation. Understanding these factors can help you adjust your tax planning and expectations for upcoming tax years. Stay tuned for future changes in the tax landscape to better prepare for your tax obligations.
Stay Informed: The tax climate is subject to change, so staying informed about new and ongoing tax plans is essential for future tax planning.