A tax refund is the difference between the amount you paid in taxes throughout the year and what you owe when you file your return. Here's an example: If you have $10,250 withheld from your paychecks in 2022 and end up owing $8,500 in taxes for the year, you'll get a refund of $1,750.
According to the IRS, the average refund dropped from $3,536 in 2022 to $3,140 for the first half of the 2023 tax filing season, largely due to pandemic tax credits coming to an end. If your refund looks a little smaller this year, try double checking your return for common credits and deductions. These six tips may help you lower your tax bill and increase your tax refund.
1. Try Itemizing Your Deductions
Although most taxpayers use standard deductions based on their filing status, you may benefit from itemizing your deductions if you have large expenses like mortgage interest, medical bills and charity donations to deduct. It's only worth itemizing if your total deductions add up to more than what your standard deduction would be.
| Standard Deductions for 2022 Tax Year | |
|---|---|
| Filing Status | Standard Deduction Amount |
| Single or married filing separately | $12,950 |
| Head of household | $19,400 |
| Married filing jointly | $25,900 |
2. Double Check Your Filing Status
Although you can't file as married if you're single, or vice versa, you may want to consider your options if you're single with qualifying dependents or married filing either separately or jointly.
Head of household filers are unmarried with qualifying children or other dependents (such as elderly parents) who live with them at least six months out of the year and receive more than half of their support from the taxpayer. Head of household filers get a bigger standard deduction than single filers ($19,400 versus $12,950 in 2022) and they have more generous tax brackets as well.
Married couples may consider filing separately if one spouse makes significantly less than the other and would qualify for credits, such as the child tax credit, if their income were considered alone. Filing separately disqualifies you from taking some other deductions and credits, however, so you may want to calculate your taxes both ways to determine which filing status saves you the most money.
3. Make a Retirement Contribution
Contributions to a traditional 401(k), 403(b) or other employer-sponsored plan, or to a traditional IRA, are tax deductible in the year the contribution is made. Typically, IRA contributions must be made by the tax filing deadline, excluding extensions. In 2023, the deadline (for filing your 2022 taxes) is April 18.
For the 2022 tax year, you can contribute up to $20,500 to an employer-sponsored retirement plan such as a 401(k) or 403(b), with a catch-up contribution of $6,500 if you're 50 or older. Additionally, you can contribute up to $6,000 to an IRA with a $1,000 catch-up contribution if you're 50 or older. Deductions for IRA contributions may phase out if you have an employer-sponsored plan at work and exceed certain income levels.
Contributions to a Roth IRA or Roth 401(k) are not tax deductible, though if you have one, you'll enjoy tax-free qualified withdrawals from a Roth account when you retire.
4. Claim Tax Credits
Tax credits that were expanded during the COVID-19 pandemic may have expired, but many credits that lower your tax bill dollar for dollar are still available to taxpayers who qualify. Among the most common tax credits for the 2022 tax year:
Child Tax Credit
You can claim a $2,000 child tax credit for each qualifying child under 17 in your household. Alas, the $3,000 expanded child tax credits of 2021 have expired. For 2022, the child tax credit is partially refundable, meaning you may receive part of the credit as a refund if your tax credit is larger than your tax bill. The child tax credit begins phasing out at a marginal adjusted gross income (AGI) of $400,000 for married couples filing jointly and $200,000 for all other tax filing statuses.
Child and Dependent Care Credit
The child and dependent care credit allows you to claim 20% to 35% of your care expenses up to a maximum of $3,000 for one dependent or $6,000 for two or more dependents if you needed care so you could work or look for work. Qualifying dependents include children 12 and younger, a spouse who needs care or another dependent claimed on your tax return who lives with you at least half the year and is unable to care for themselves.
Earned Income Tax Credit
The earned income tax credit helps low- and moderate-income taxpayers lower their tax bills with a refundable credit that pays you a refund if the credit exceeds your taxes owed. The rules to qualify are a bit complicated but worth exploring. The IRS offers an interactive tax assistant that helps you determine your eligibility.
Energy-Efficient Home Improvements
A $500 lifetime energy efficient home improvement credit is available if you made qualifying upgrades to your home in 2022. Additionally, 30% of your qualified expenditures for improving residential energy efficiency may be eligible for the residential clean energy property credit.
Electric Vehicle Credit
The rules for claiming a tax credit if you purchased an electric, plug-in hybrid or other clean energy vehicle became more complicated in 2022. Some vehicle manufacturers, including Toyota and Tesla, were phased out of tax credits after meeting manufacturer quotas. Additional requirements went into effect in August 2022 that disqualified cars that did not undergo final assembly in North America. Still, if you purchased a clean energy car in 2022 it's worth checking to see whether your vehicle qualifies you for a tax credit at both the state and federal levels.
Recent changes to this tax credit with the implementation of the Inflation Reduction Act of 2022 may change whether you're eligible when purchasing an electric vehicle in 2023. Check with a tax professional if you're planning to buy a new vehicle this year to maximize your eligibility for this tax credit.
5. Contribute to Your Health Savings Account
Contributions to your health savings account (HSA) are tax-deductible. Individual taxpayers can contribute up to $3,650 to an HSA for 2022 with an additional $1,000 contribution if you're age 55 or older. Families can contribute up to $7,300.
To qualify for an HSA, you must have a high-deductible health plan, which the IRS defines as a health plan with a minimum annual deductible of $1,400 or higher for individuals and $2,800 or higher for families.
6. Work With a Tax Professional
Knowing the ins and outs of the U.S. Tax Code is literally a full-time job. A qualified tax professional can help you find all of your available credits and deductions, make decisions about your filing status and eligible dependents, and plan for the tax year to come. If you have investment income, a side business, inherited money or anything else that may complicate your tax return, the expertise of a tax professional can be priceless.
The Bottom Line
One way to increase next year's refund is to adjust your withholding. By contributing more toward your tax bill with each paycheck, you'll increase the amount you pay in during the year—and thereby increase your chances of getting a bigger refund. However, be forewarned that most tax experts advise against planning for a really big refund. When you do this, you're essentially loaning the federal government money for free—money you could be saving and investing on your own.
On the other hand, many taxpayers enjoy getting a refund at tax time. It's a simple, automatic way to save money and it can feel like a reward for doing your taxes. Once tax time arrives, focus on getting the biggest refund you can: The bigger the refund, the better.