This year, many Americans are experiencing unexpected surprises in their IRS tax refunds—and not the good kind. Thousands are seeing smaller refund amounts than anticipated, leading to confusion and concern. The reason? A combination of shifting tax credits, pandemic-era support programs ending, and broader IRS enforcement changes. If your 2023 tax refund looks noticeably lighter than previous years, you’re far from alone.
The Internal Revenue Service has implemented several adjustments and phased out key relief programs that were active during the height of the COVID-19 crisis. As a result, even though you may have earned the same income or submitted similar deductions as in previous years, your refund could be significantly reduced. Understanding why this change happened is essential to managing expectations and financial planning for the year ahead.
Below, we break down exactly what has changed, who’s most affected, and what you can do to make sure you are not caught off guard in future tax seasons.
Key changes affecting tax refunds in 2023
| Change | Description |
|---|---|
| End of pandemic-era credits | Major COVID-19 credits like EIP and enhanced Child Tax Credit are no longer available. |
| Reduced Child Tax Credit | The CTC has reverted to pre-pandemic limits—down from $3,600 to $2,000 per child. |
| Lowered EITC thresholds | Income limits were readjusted, reducing eligibility for some lower-income earners. |
| No more above-the-line charitable deductions | Special charitable deductions of up to $600 without itemizing have expired. |
| Repayment of ACA subsidies | Taxpayers may need to repay excess premium credits under the Affordable Care Act. |
| Increase in IRS enforcement | Enhanced data matching and audits may have led to reduced or delayed refunds. |
What changed this year
Several emergency relief programs launched during the COVID-19 pandemic were scaled back or eliminated in 2023. For instance, the enhanced **Child Tax Credit (CTC)**, which offered up to $3,600 per qualifying child in 2021, was reduced back to $2,000. In addition, special above-the-line charitable deductions that let taxpayers deduct up to $600 without itemizing are no longer available.
The **Earned Income Tax Credit (EITC)** also saw a return to pre-pandemic parameters, with reduced income thresholds, making fewer people eligible. Taxpayers who relied on **health insurance premium subsidies through the ACA** may now owe money back if their actual income exceeded estimates. All of these changes create a perfect storm for smaller refunds in 2023.
Who qualifies and why it matters
Households with children, those who used to qualify for expanded EITC, and Americans who took deductions for charitable giving last year are most likely to feel the impact this year. For example, a single parent with two kids who was eligible for the maximum CTC of $7,200 in 2021 might now only receive $4,000—assuming they still qualify under current income limits.
Furthermore, taxpayers who underestimated their annual income during ACA enrollment may face a surprising tax bill. Income verification mechanisms have tightened, and many are now being asked to **repay part or all of their insurance subsidies.** This compounds the impact on total refunds issued.
Even middle-income earners can find themselves affected, especially if they relied on pandemic-era adjustments to maximize refunds. Without those temporary policies, refund amounts may appear drastically lower.
Common reasons for smaller tax refunds
Here are the six most frequent reasons your tax refund may be smaller this year compared to previous returns:
- Smaller Child Tax Credit: The expired expansion means a return to lower credit amounts and qualifications.
- Reduced EITC eligibility: Tighter income thresholds eliminate many low/moderate-income earners from these credits.
- ACA subsidy repayments: If you underestimated your income during insurance enrollment, excess benefits must be paid back.
- No pandemic-era deductions: Special deductions (like above-the-line giving) are out.
- Student loan deferral tax breaks ended: Some tax breaks tied to federal loan deferment are no longer in play.
- IRS enforcement increased: More returns are being flagged, adjusted, or delayed for data mismatches or errors.
Biggest winners and losers in 2023 tax season
| Group | Impact Level | Reason |
|---|---|---|
| Low-income households with children | High negative | Loss of CTC enhancements, reduced EITC, fewer credits overall. |
| Middle-income ACA insured | Moderate negative | Surprise subsidy repayments increasing tax owed. |
| High-income earners | Neutral to positive | Generally unaffected as fewer depended on temporary credits. |
| Itemized return filers | Mixed impact | No special deduction for charitable giving without itemization. |
| IRS itself | Positive | Improved enforcement and fewer overpayments. |
How taxpayers can prepare for next year
To avoid similar surprises when filing your 2024 return, experts recommend planning now. If you receive premium subsidies under the ACA, report any midyear income changes immediately. This ensures you’re not unknowingly accumulating a repayment bill.
Additionally, reevaluate your W-4 withholding to better align with your actual tax burden. Use the IRS Tax Withholding Estimator to determine if adjustments are needed. Lastly, maintain up-to-date records of all tax-deductible expenses and charitable contributions in case you choose to itemize next year.
“People need to take proactive steps now—check your income estimates, reassess your withholdings, and start tracking deductions early. Small actions add up by the time tax season comes around.”
— Janet Phillips, CPA and Tax Specialist
What this means for your finances
With smaller refunds arriving, many families may face tighter cash flows. The average IRS refund is a significant chunk of income for millions—often used to pay down debt, cover expenses, or build emergency funds. A reduced refund requires careful budgeting and financial planning.
Some experts caution that we may be entering a “new normal” where refunds are generally lower than the generous levels experienced during pandemic assistance. That doesn’t mean something is wrong—it means the system is returning to pre-COVID standards. Those used to receiving $3,000 or more may now more regularly see figures under $1,500 or even less.
“You’re not being penalized—you’re just seeing the system reset from pandemic-related boosts.”
— Marco Fernandez, Senior Tax Policy Analyst
Short FAQs on smaller IRS tax refunds
Why is my tax refund lower than last year?
Your refund may be lower due to the rollback of pandemic-related tax credits, such as the enhanced Child Tax Credit and Earned Income Tax Credit.
Can I still claim the Child Tax Credit in 2023?
Yes, but the amount has reverted to $2,000 per child and age limits apply. Income eligibility thresholds have also changed.
Do I have to repay ACA subsidies I received last year?
If your actual income exceeded what you estimated during application, you might need to repay part or all of the subsidy on your tax return.
What happened to the $600 charitable deduction?
This above-the-line deduction available without itemizing expired and is no longer in effect for 2023 returns.
How can I avoid a lower refund next year?
Monitor your income, adjust your W-4 withholding, report changes to health subsidies, and start tracking possible deductible items early.
Will IRS enforcement make my refund late?
Potentially, yes. Tighter enforcement and data matching can delay refunds if discrepancies are found in your return.
Related Posts
