Millions of Americans will be disappointed that they’ll get less money back than last year—or even owe money—as they prepare their federal tax returns for 2022.

“The refunds this year should move back to pre-pandemic levels,” said Matthew Frankel, a certified financial planner based in South Carolina who writes for The Motley Fool. “Some people may be surprised that they actually owe money, when they’re expected to get a few thousand dollars back.”

Listen to audio highlights of the story below:

The average refund for last tax season (for returns that were due in April 2022) was $3,293, which was 14 percent higher than for 2021. A big chunk of that increase was thanks to pandemic-related stimulus payments and expanded tax credits, but these were temporary benefits that expired.

“Throughout the pandemic we saw a huge expansion of tax benefits for families with children, and that has all gone away now,” said Erica York, senior economist with the non-profit Tax Foundation.

The IRS website has detailed info on deductions and credits.

Here are a few key tax law changes that may negatively affect your refund:

• Child Tax Credit: Now $2,000 per child, down from $3,600 per child last year.
• Child and Dependent Care Credit: Now $2,100 per family, down from $8,000 per family.
• Earned Income Tax Credit (for eligible taxpayers with no eligible children): Those who received roughly $1,500 last year will get $560 this year.
• Charitable deductions: Those who take the standard deduction (90 percent of all taxpayers) can no longer deduct charitable contributions. Last year, those who took the standard deduction could still claim charitable deductions for cash contributions of up to $300 for individual filers, $600 for married couples filing joint returns.

One bright note: More people may be eligible for the temporarily expanded Premium Tax Credit, designed to help cover the cost of premiums for health insurance purchased through the Health Insurance Marketplace.

If you purchased a new electric plug-in electric vehicle (EV) in 2022, you might qualify for the Clean Vehicle Credit.

File Early

Many people rely on tax refunds as part of their yearly budget. The Tax Foundation recommends preparing your return as soon as possible this year, so you can modify your budget if your refund is smaller than expected, or if you owe. If you owe, you don’t have to make any payment until the April 18 filing deadline, which may give you time to save up for it. If you can’t afford to pay what you owe by April 18, check if you qualify for an IRS payment plan.

NerdWallet has a 2022-2023 Refund and Tax Estimator.

Two Rates for Business Mileage Deduction  

Because of record-high gas prices last year, the IRS took the unusual step of setting two deduction rates for business mileage driven in 2022: 58.5 cents per mile for trips driven from January through June, and 62.5 cents per mile for trips taken between July through December.

The mileage deduction is often used by self-employed taxpayers who drive for their business in lieu of tracking actual costs of operating the vehicle. It’s also the reimbursement rate many companies use to repay their employees for out-of-pocket mileage expenses.

Note: Under the Tax Cuts and Jobs Act, employees can no longer claim unreimbursed mileage expenses as a deduction. This change in the tax law remains in effect until 2025.

The IRS set the standard mileage rate for business miles driven in 2023 at 65.5 cents per mile.

IRS Is Promising Better Customer Service

In announcing the official start of this year’s tax season, the IRS said it has taken “additional steps” to improve service. The agency used funding from the Inflation Reduction Act, passed in October 2022, to improve training and hire more telephone assistants and in-person staff. Even so, with call volumes at high levels, your best bet may be to use the free resources available on the IRS website.

Filing Deadline

You have more time to file this year: The deadline for most taxpayers is April 18, 2023.

The extra time is due to April 15, the usual deadline, falling on a Saturday and because the District of Columbia celebrates Emancipation Day on Monday, April 17. By federal law, holidays observed in D.C. impact tax deadlines for everyone in the country as if it were a federal holiday.

Filing Tips

Filing electronically with direct deposit is still the fastest and easiest way to file and receive a refund. Paper returns slow down the process. The IRS says “most taxpayers will receive their refund within 21 days” if they file electronically and choose direct deposit and the IRS determines that there are no issues with the return. With direct deposit, you can have your refund sent to a checking or savings account, a prepaid debit card, or a mobile payment app. If you don’t get a refund in a timely manner, check the Where’s My Refund? page on the IRS website.

If your return includes the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC), the IRS won’t process it before mid-February. Congress mandated the delay to prevent criminals from submitting fraudulent returns trying to claim these credits. By law, the IRS must hold the entire refund, even the portion not associated with the EITC or ACTC. The IRS expects most of these refunds to be available starting Feb. 28 to those who use direct deposit and if the IRS doesn’t find any issues with their returns.

Check if You Can File for Free

Individuals or families who earned $73,000 or less in 2022 can prepare and file their returns for free using the Free File program, available on the IRS website.

This year, seven commercial tax preparation companies are taking part in the program. DO NOT just search for “file my taxes for free”—you could end up on the website of a scammer. Instead, use the links provided by the IRS on its Free File page.

Each tax prep company participating in the program sets its own eligibility rules, based on age, income, and state residency. If you meet a company’s requirements, the provider cannot charge for preparing and filing your federal tax return.

Some IRS Free File providers do charge a fee to prepare state income tax returns. Any state tax preparation or non-qualifying fees must be disclosed upfront on the provider’s IRS Free File landing page.

Unfortunately, few people take advantage of this free service. During the 2021 filing season, (which covered earnings for the 2020 tax year), only four percent of eligible taxpayers used the program, according to a GAO report. While seven out of 10 taxpayers were eligible to use the service, many used a commercial website outside the program, which may have charged them, the report noted.

Unless they obtain your informed and voluntary consent, IRS Free File providers are prohibited from disclosing or using your information for purposes other than preparing your tax return.

The IRS also offers free basic tax return preparation to qualified individuals through its Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs. These programs are for those who make $60,000 or less, are 60 years and older, have disabilities, or speak limited English.

MilTax is a free tax resource available for the military community, offered through the Department of Defense. It includes tax preparation and electronic filing software, and personalized support from tax consultants. MilTax is designed to assist with issues involving deployments, combat and training pay, housing, and multi-state filings. Eligible service members and their families can use MilTax to electronically file a federal tax return and up to three state returns for free.

Looking Ahead: Quarterly Payments

Gig workers and others who earn income that is not subject to withholding this year must make estimated tax payments to the IRS. Typically, that’s done quarterly. The due dates for 2023 for those quarterly payments are April 18, June 15, Sept. 15, and Jan. 16, 2024.

Need Help?

You’ll find a variety of online tools at IRS.gov, as well as information on how to get ready to prepare your tax return.

Its Interactive Tax Assistant provides answers to many common tax questions, such as types of income that are taxable, what expenses can be deducted, and qualifications for tax credits. 

Create an IRS Online Account and you can securely access personal tax account information, including balance, payments, and tax records including adjusted gross income. 

Changes Ahead for Next Year

To account for inflation, the IRS has adjusted the income thresholds for federal tax brackets for 2023 by about seven percent. As a result, many Americans who earn more will stay in the same tax bracket; some could have a lower tax bill next year. The standard deduction will also increase by $1,800 for married couples, $1,400 for heads of households, and $900 for single filers and those married who file separately.

Update: Important Information for Taxpayers in 21 States

The IRS recently determined that taxpayers who received special pandemic and disaster relief payments from their states last year do not need to report these payments as income on their 2022 tax returns.

Twenty-one states made such types of payments to taxpayers: Alaska, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania, and Rhode Island. This IRS chart shows the specific payments that do not need to be reported for each state.

In addition, the IRS said many taxpayers living in Georgia, Massachusetts, South Carolina, and Virginia should not report certain state payments for federal income tax purposes. For these individuals, state payments will not be included for federal tax purposes if the payment is a refund of state taxes paid and either the recipient claimed the standard deduction or itemized their deductions, but did not receive a tax benefit.

More info is here: IRS issues guidance on state tax payments to help taxpayers.