There aren’t many worse financial feelings than calculating your tax return and realizing you aren’t getting a refund. Whether it’s money you’ve already spent in your head or you just need to cover some expenses, when you count on a refund as part of your income you need to make sure you have your money ducks in a row.
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Here’s a look at all the reasons you may not get a refund deposited into your bank account this year. Though most of them are beyond your control, there are cases where you should follow up directly with the IRS. Let’s explore.
You Received Advanced Child Tax Credit Payments
“Many families will recall that, starting in July 2021, they started receiving monthly deposits (or checks) from the IRS as part of the government’s COVID-relief measures,” said Taylor Hoffman, an investment advisor and director of financial planning. “These payments were unlike the stimulus payments received throughout 2020 and 2021, in that they were actually partial prepayments of the child tax credit that many families receive on their tax return each year (whereas the stimulus payments were more like free money).”
The child tax credit is a dollar-for-dollar write-off on your tax bill, Hoffman explained. “So, in other words, the IRS was paying people up front for a tax credit they would have otherwise received when they filed their taxes.”
However, taxpayers can claim a credit for each “qualifying child,” with phaseouts for taxpayers at certain income levels. For the 2018-2025 tax years (other than 2021), the CTC is $2,000 per qualifying child. After 2025, it is set to drop back down to $1,000 per qualifying child.
“Therefore,” Hoffman said, “when those families go to file their taxes, they will only have half of the credit left to use as a write-off.”
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Your Refund Was Used To Cover Debt
Overdue tax payments can result in the IRS seizing your refund to apply it to existing debts. If you don’t have tax debt, there are still other debts that can automatically redirect your refund, such as defaulted student loans, past-due child support, collected unemployment compensation debt or state income tax obligations.
You Freelanced but Didn’t Pay Estimated Quarterly Taxes
“If you supplemented your lost income by working as a contractor and received 1099s rather than W-2s, we can only hope you set some aside to pay for your self-employment tax rates,” said Ryan McCarty, owner and CEO of McCarty Money Matters. “This is certainly an eye-opener for those that have never dealt with such things.”
As a self-employed individual who freelances or works side gigs, generally you are required to pay estimated taxes quarterly along with filing your annual tax return.
You Didn’t Make Enough Withheld Income
“If you didn’t work the entire year, either due to quitting or layoffs — both extremely relevant — you will find yourself with less tax withheld from your check,” McCarty said. “If you did not adapt your withholding properly along the way via your W-4 with employers, you could be exposed to a vastly different number compared to years past.”
You Traded or Sold Crypto
“Selling cryptocurrency or trading cryptocurrency for another cryptocurrency is considered a sale of property, and any gain is subject to capital gains tax,” said Yvette D. Best, owner of Best Tax Solutions LLC. “Cryptocurrency transactions typically result in short-term gains (tax on profits from the sale of an asset held for a year or less) and the capital gains tax rate is equal to your ordinary income tax rate.”
In other words, if you made money last year selling crypto, you will be taxed significantly on it, which can eat into your potential refund.
You Are the Victim of Identity Theft
“Identity theft is on the rise,” said Steven Jager, CPA and partner at Fineman West. “When someone files a tax return electronically using someone’s Social Security number (illegitimately), and then the ‘real’ tax return is filed legitimately, it is rejected. It must then be filed on paper and manually processed after the identity theft is investigated. It is a lengthy process and refunds can take a VERY long time to be received. We actually had a case where the refund of nearly a million dollars was just finally received on a tax return filed some years ago.”
If you believe you are a victim of identity theft related to your taxes, you should immediately contact the IRS Identity Protection Specialized Unit at (800) 908-4490. You can also look up taxpayer help services for the state you live in and contact them.
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This article originally appeared on GOBankingRates.com: 6 Reasons You Might Not Get a Tax Refund This Year
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