Why is my tax return so low?
Your tax refund is a big deal. If you’re like many people, tax season is a time to look forward to getting extra cash. But, is it possible that you’d have a smaller tax refund than you anticipated?
If you‘re questioning “Why is my tax refund so low in 2021?” There’s a reason for it. It’s the combination of several changes that will affect your overall outcome, including the tax impacts of the coronavirus pandemic. Read on and we’ll discuss the potential reasons why your tax refund may be so low in 2020 (and 2021).
“Why is my tax refund so low in 2021?”
If you’re questioning “why is my tax refund so low in 2021?” you’re not the only one… Many of taxpayers filing their 2020 returns are wondering the same thing. So, if your tax refund is less than expected in 2021, it could be due to a few reasons:
- You didn’t withhold your unemployment income: The unemployment rate skyrocketed in the U.S. with millions of Americans filing for unemployment benefits. Many people don’t realize that unemployment income is taxable, and they don’t withhold enough (or anything) from their unemployment checks. The new American Rescue Plan Act provides an exclusion of $10,200 for unemployment income received in 2020. If you received unemployment, you may find the exclusion will reduce your taxable income and may provide you with an increased refund. If you filed your tax return before this change, check with your tax professional for more information.
- You worked fewer hours or you have some employment gaps: While you may not have been laid off in 2020, many businesses chose to reduce hours. This could affect your refund between tax years, even if you work the same job. If this is the case, you have less income tax withholding, so less to get back as a refund in 2021.
- No estimated taxes with gig income: Gig employment is on the rise due to more independent contracting opportunities. But not all gig workers know they need to pay estimated taxes for this type of income. Missing this step could mean an unexpected tax bill or a low refund in 2021. Check out our tax guide for gig workers for the essentials.
- Not accounting for withholding across multiple jobs: Each job you have will result in you having to fill out a separate W-4 Form. If you didn’t account for each job across your W-4s, you may not have withheld enough, so your tax refund could be less than expected in 2021.
- Not factoring eligibility changes for tax credits and deductions: There may be other impacts on your refund due to the credits you can take. For example, if you took advantage of rules that allowed for suspended student loan payments, it may have resulted in a lower student loan interest deduction, Or, if you didn’t pay childcare due to your children staying at home during coronavirus, your eligibility for the full Child Care Credit may have changed.
Bonus tip: Learn how to better manage your withholdings through our W-4 calculator.
“Why is my tax refund so low in 2020?”
If you’re wondering, “Why is my tax refund so low in 2020,” there may be different causes for 2019 returns filed in 2020. For some, new withholding tables that were in place for 12 months in 2019, but only 10 months in 2018, may have been the reason why their tax refund was less than expected for 2020.
While each taxpayer’s situation is different, it’s important to remember the role that withholding can have on what you get back. For this reason, it’s important to learn how to fill out a W-4.
What to do if your tax refund is less than expected in 2020 or 2021?
If you’re surprised by a tax refund that is less than expected in 2020 or 2021, not sure why your tax refund was reduced, or the complexity around taxes has got you stressed, H&R Block is here to help. We can help you file your taxes, check your withholding and understand your lower tax refund.
What triggers the IRS to audit a tax return? Learn how common tax mistakes and errors can be a red flag and affect your chances of being audited by the IRS.
Find the current percentages for federal income tax rates, capital gains tax rates, Social Security tax rates and more from the tax experts at H&R Block.
The key to understanding your w-2 form is decoding the boxes and numbers. Learn how to read your w-2 form with this box-by-box infographic from H&R Block.
The tax experts at H&R Block outline how students and parents can file Form 8863 and document qualified expenses. Read about Form 8863 here.