Many Americans look forward to a large refund when filing their federal income tax return each year.
If you are getting less money back in your refund this year, there may be several reasons. Here’s just a few:
- Your employer has out-of-date W-4 information. You need to adjust your W-4 for any of the following reasons:
- You get a raise in income at your job.
- Your filing status changes.
- Your spouse starts working a job, or you work a second job.
- Your dependent will turn 17 by the end of the year.
- Your dependent cannot be claimed as a dependent for any reason by the end of the year.
- Your dependent no longer meets the definition of dependent. This usually happens when a dependent turns age 19 if they are not in college, the dependent finishes college and starts working a career, or the dependent turns 24 while attending college.
- Your dependent child turns 17 at any time during the year (even on the last day of the year). Any time a dependent turns 17, the larger 2,000 child tax credit ceases to be available. The dependent may still qualify for the 500-dollar credit for other dependents.
- Changes in filing status. If your filing status was married filing jointly in one year, and you divorced and became single, or changed your filing status to married filing separate or became head of household in the next year, your standard deduction is less. This can have a large impact on your refund.
- Starting a small business or you are participating in the gig economy. Self-employment income has extra tax implications. Self-employment tax is 15.3 of the net income for your business, and there is income tax for your business. Consider making <HTML link: community article on estimated payments> for this situation.
Losing a deduction or credit on your tax return will impact your refund. Deductions and credits help lower taxable income. Lower taxable income means less tax due. Less tax due generally helps increase your refund.
If you still aren’t sure why your refund is smaller, consider reviewing this article, "How do I compare tax returns?".