Why is my refund less than last year’s?

Dec 1, 2015

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Why is this year’s refund lower than last year’s refund?

“Where did my refund go?” Perhaps you have asked your accountant this question after receiving a copy of your tax return. Many factors can affect a change on your refund from year to year. Understanding the variables that effect your refund can help you understand a bit more about how much to expect, and why your refund may have gone down since last year.

  • If your total income is above $55,000 for married filing separately (MFS), $110,000 for married filing jointly (MFJ) or $75,000 for head of household (HOH). The child tax credit is reduced by  $50 for every $1000 over these watershed marks.
  • Your refund for the child tax credit is limited to 15% of your earned (salary, tofes 106) income in excess of $3,000.  If your earned income was lower, than your refund could be lower.
  • Earned income that is reduced by the foreign earned income exclusion (form 2555) is not considered for the refundable child tax credit.  If you use the foreign earned income exclusion (form 2555), to reduce your taxable income, your earned income for purpose of calculating the refund will be your total earned income less the excluded amount. If the exclusion was used for all of the earned income then you will not be eligible for a refund.
  • If you are self employed, you will owe social security tax of about 15% on your self employment income. If you are eligible for a child tax credit, the refund will be offset by the social security tax owed.
  • If you pay zero or reduced income tax to Israel (aka mas hachnassa) then you might have tax liability to the IRS.  This tax liability is offset by the child tax credit and therefore the refundable portion will be reduced.
  • If one of your children turned 17 any time during the year then this child will no longer qualify for the child tax credit.  It makes no difference if the child turned 17 on 01-Jan or 31-Dec.  There is no partial credit.  That is, 16 is the maximum eligible age for the child tax credit.

On the bright side, all of these issues can have the reverse effect as well. To increase your additional child tax credit, you might need to earn more salary (or perhaps less), revoke the foreign earned income exclusion, reduce self-employment income, or (best of all) have more children.

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