Here are 3 key things to know before filing your taxes
- There are roughly six weeks until the April 18 federal tax deadline for most Americans.
- If you haven't filed your tax return yet, there are some key things to know, according to tax experts.
- “Every tax season has its own unique challenges,” said Mark Jaeger, vice president of tax operations at TaxAct.
Roughly six weeks into the tax filing season, IRS improvements are underway with more staffing and technology upgrades as the agency begins deploying its nearly $80 billion in funding.
While processing may be faster this year, experts say there are some key things to know before filing your return.
"Every tax season has its own unique challenges," said Mark Jaeger, vice president of tax operations at TaxAct.
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There are about six weeks until this year's federal tax deadline of April 18 for most Americans. Here's what to know if you still need to file.
1. Tax refunds may be 'somewhat lower' this season
While this year's tax season kicked off with a flood of returns, early filings have slowed, according to Jaeger.
He believes the change in refunds is the reason why early returns have tapered off. "What we're seeing is refunds are going down and more people have a balance due," he said.
The average refund was $3,079 as of Feb. 24, compared to $3,473 one year prior — about an 11% decline, according to the IRS. Of course, the average may change with millions of returns still to come.
Typically, you receive a federal refund when you overpay the year's taxes or withhold more than what you owe. The IRS warned in January that refunds this year may be "somewhat lower" than last year due to expiring pandemic relief that delivered tax breaks in 2021.
In 2021, many families got a boost from the enhanced child tax credit, worth up to $3,600 per child, and child and dependent care tax credit of up to $4,000 per dependent. But those tax breaks, among others, have reverted to previous levels.
"Now you're seeing this drop-off because you have people who are either less sure because they maybe getting a smaller refund," Jaeger said. "Or they actually owe the IRS money ... nobody really wants to pay that balance due until April 18."
2. Avoid refund delays with a complete, accurate return
One of the best ways to avoid refund delays is by filing a complete and accurate return, according to the IRS. Typically, the agency issues refunds within 21 days for error-free, electronically filed returns with direct deposit for the payment.
However, experts say it's critical to have all your tax forms ready before sending your return. Employers and financial institutions send tax forms every year, with a copy going to taxpayers and the IRS.
"If anything is furnished on a tax statement, the IRS knows it's coming," said Nicole DeRosa, senior tax manager at accounting firm Wiss, noting the missing information may trigger a tax notice from the agency, along with possible penalties and interest.
You can make a checklist of the forms you may need by reviewing last year's tax return, experts suggest. If you're still not ready by April 18, you can file for an extension, Jaeger said. But you still must pay your balance due by the tax deadline to avoid racking up penalties and interest.
3. There's a one-year delay for 1099-K reporting
Whether you're a gig economy worker, online seller or transfer money between family and friends, payments from apps like Venmo or PayPal have become a confusing tax topic.
Although business income has always been taxable, individuals and the IRS shouldn't receive Form 1099-K unless 2022 payments crossed a threshold of more than 200 transactions worth an aggregate above $20,000.
If you receive the form by mistake, the IRS says to contact the issuer immediately. But tax professionals say to include the form's details on your return to avoid a mismatch at the agency. "If you did get one, you want to report it," Jaeger said.
Originally, the threshold for 1099-K reporting was set to change for 2022, dropping to $600 for even a single transaction. This means many more filers would have received Form 1099-K this season — but the IRS delayed the reporting change until 2023.
However, even if you don't receive the form for 2022 business payments, you still need to include that income on your tax return, DeRosa said.