You filed your taxes before the tax deadline and were fortunate enough to get a tax refund. But what if the amount the IRS deposited in your account is less than the refund you initially saw when you submitted your tax return? You may be wondering why your tax refund is less than you expected.
There are a few reasons why refunds received from the IRS may be different than expected this tax season:
- The IRS adjusted the recovery rebate credit calculated on your return
- The IRS made adjustments due to differences in what is reported to them or adjustments to certain credits and deductions
- Your refund is offset as part of the Treasury Offset Program
- An adjustment for Federal taxes owed for a previous year
Read on for more details to help you understand why your refund may be different than expected, but know that you don’t need to remember all of this come tax time. For answers to this question and anything else related to your tax situation, TurboTax Live tax experts are available in English and Spanish, year round, and can even review, sign, and file your tax return.
IRS Adjusted the Recovery Rebate Credit Calculated on Your Return
It is possible that your tax refund amount is less than you initially expected because of information regarding your stimulus payments and the Recovery Rebate Credit.
Did you claim a credit to recover missed or partial first and second stimulus checks?
For the 2020 tax year (the taxes you typically file in 2021), many Americans who did not receive the first or second stimulus payment, or the full amount they were otherwise eligible for, may be eligible to claim a Recovery Rebate Credit when they file their taxes.
When completing your tax return TurboTax has proactive guidance regarding the Economic Impact Payments, also known as the stimulus checks, and will ask you if you received full or partial payments and the amount you received.
If you answered that you haven’t received the first or second stimulus checks, a recovery rebate credit is calculated increasing your refund, but if the IRS did issue them to you, the IRS will adjust your refund amount accordingly. This lowers the refund amount that was initially calculated for you when your tax return was filed.
Or it’s possible that you may have entered a different amount of stimulus than the IRS actually sent to you when preparing your taxes, and the IRS made the adjustments. When processing your tax return, the IRS will cross-reference the information on your tax return with the information they have on file for you. So if the information regarding your stimulus checks doesn’t match IRS records, the IRS will automatically adjust your tax refund amount based on the actual stimulus payments they sent out and the information reported on Notice 1444 and Notice 1444-B.
The IRS has announced that if there’s a mistake with the stimulus credit amount, the IRS will calculate the correct amount and make the correction and continue to process the tax return. If a correction is needed, this will cause a delay in processing the tax return and the IRS will send the taxpayer a letter or notice explaining any change.
Some common possible reasons why the Recovery Rebate Credit amount was corrected by the IRS are:
- The taxpayer was claimed as a dependent on someone else’s 2020 tax return
- The taxpayer did not provide a social security number that is valid for employment purposes
- The qualifying child was age 17 or older on January 1, 2020
- A math error relating to the calculating adjusted gross income and any stimulus check amounts already received
If there’s a mistake with the Recovery Rebate Credit on the 2020 tax return, the IRS will calculate the correct amount and make the correction and continue to process the tax return. If a correction is needed, this will cause a delay in processing the tax return and the IRS will send the taxpayer a letter or notice explaining any change.
Other IRS Adjustments
While your tax return is being processed, the IRS cross-references the information on your tax return with the information they have on file for you similar to the Recovery Rebate Credit situation mentioned above. The IRS will correct any differences there may be. It is possible that amounts reported to the IRS from other sources and what’s reported on your tax return is different.
Some common errors that result in adjustments by the IRS include:
- Missed income, like small interest reported on a 1099-INT or a missing W2
- Numbers that were transposed
- Adjustments to certain deductions or credits
Some of these mistakes occur when you wait until the last minute to file. However, another common issue that results in lowing a tax refund are adjustments to credits or deductions as a result of someone else claiming your dependent on their tax return. If you provide over half of the support for your dependent and you are eligible to claim them, make sure no one else is claiming them and you have accurate information for who you can claim as a dependent. Always have a discussion with your child’s other parent (if possible) about who can claim them as a dependent if you are no longer together.
If the IRS makes adjustments to your tax return, they will send you an adjustment letter regarding the adjustments they made.
Treasury Offset Adjustment
It’s possible that your tax refund may have been reduced by the Treasury Offset Program. The Treasury Offset Program oversees the collection of overdue bills owed to federal and state agencies. Different federal and state agencies, such as the Department of Education and child support, submit delinquent debts that need to be collected. These bills are then taken from tax refunds which lowers the tax refund amount deposited.
However, not all bills are subject to a tax offset. Bills from private lenders like a late car payment or missed cell phone bill will not reduce your tax refund. Learn more about some common bills that can offset a tax refund.
Typically the IRS will mail you out a notice if your tax refund is different than the amount you claimed on your tax return. The notice will include information on the refund you were eligible for, the amount your tax refund was reduced by, what agency the money was sent to, and contact information for that agency.
Adjustment for Federal Taxes Owed for a Previous Year
Similar to reductions caused by the Treasury Offset Program, it is possible that your tax refund was reduced or eliminated based on federal taxes owed for a previous year.
If you owe taxes to the IRS from a previous tax year, those taxes will be reduced from any eligible tax refund for the current year. The IRS will actually take payments for owed federal taxes from a previous year before any other federal or state agency under the Treasury Offset Program.
We’ve Got You Covered
Get started on your taxes today. TurboTax will ask you simple questions about you and give you the tax deductions and credits you are eligible for based on your entries. If you have questions, you can connect live via a one-way video to a TurboTax Live tax expert with an average 12 years experience to get your tax questions answered. You can even connect virtually with a dedicated tax expert who will prepare and file your tax return in entirety with TurboTax Live Full Service. TurboTax Live tax experts are available in Spanish and English, year round and can even review, sign, and file your tax return.