Tax Season 2023, Smaller Refunds, and Student Loans

Tax Policy/News:

Feb 27: The start of Tax Season 2023: By the numbers

By now the word has, hopefully, gotten out to clients: Refunds are smaller this year, thanks to reductions in various COVID-related relief programs.

But in terms of broad process, the season may be running a little ahead of last year, with more returns filed and processed, and more refunds issued, than at the same time in 2022. What's more, the number of professionally prepared returns is up as well.

Getting less back this season: If anything, the gap between last year's average individual refund and this year's is growing, from $238 in the first week of tax season to $396 as of Feb. 17, the most recent data for which IRS data is available.

Overall, the season started with a bang, with over 2 million more returns received in the first week of this tax season than in the first week of the 2022 season. The gap has slowly been closing, though, and was down to less than 1 million by mid-February.

Feb 22: Smaller refunds, and more from the IRS

There are several reasons for this, according to Stephen Mankowski, tax chair at the National Conference of CPA Practitioners.

"The Child Tax Credit has been reduced back down to $2,000 per child, resulting in higher total tax," he said.

Besides the reduction of the CTC from $3,000 to $2,000, Mankowski cited several tax law issues for preparers to bear in mind this tax season: The gift tax annual exclusion for 2023 increases to $17,000; Mortgage insurance is no longer deductible; The $300/$600 deduction for charitable contributions is now only permitted on Schedule A; Preparers should expect more IRS guidance on virtual currency gains and activity; The new Form 1099-k threshold of $600, which was delayed for a year, is now in effect.

Checks! There is an agency-wide priority within the U.S. Treasury to reduce the number of paper checks that are issued, with more than 11 million tax returns requiring paper checks.

"Beginning in 2023, taxpayers are now able to request a direct deposit on electronically filed amended returns for tax years 2021 and 2022." Inflation Reduction Act The IRS is working on a report requested by Treasury Secretary Janet Yellen, which is already over 100 pages, according to Mankowski.

The IRS recently began an initiative, and has been holding meetings to gain input from practitioners and diverse groups for the implementation of the act and product development." EITC Awareness The IRS estimates that four of five eligible taxpayers claim and receive the Earned Income Tax Credit.

"They stress that the EITC, combined with the Child Tax Credit and the Credit for Other Dependents, is a financial boost for working people and local economies," said Mankowski. "The Center on Budget and Policy Priorities estimates that in 2018 the Child Tax Credit and EITC together lifted more children - 5.5 million - above the poverty line than any other economic support program. The American Rescue Plan Act, by making a significant set of changes to the Child Tax Credit, will lift another 4.1 million children above the poverty line, cutting the number of children in poverty by more than 40%." While 31 million tax returns with EITC requests resulted in $54 billion in refunds, 20% of those eligible for the credit don't claim it, according to the service.

Economic News/Policy: 

Feb 26: Economy Week Ahead: U.S. Housing Market in Focus

Monday: The Commerce Department releases January figures on orders of long-lasting goods. Overall new orders for durable goods increased sharply in December from the prior month, driven by a jump in civilian aircraft orders.

The National Association of Realtors reports the number of home sales based on contract signings in January. Pending home sales rose in December from the previous month, ending a string of six consecutive months of declines.

Tuesday: S&P Global releases its S&P CoreLogic Case-Shiller National Home Price Index for December. Home prices fell 0.6% in November compared with the prior month, the fifth consecutive monthly decline.

The Conference Board publishes its February consumer-confidence index, which measures Americans’ attitudes toward the economy and labor market. Consumer confidence eased in January. 

Wednesday: S&P Global and the Institute for Supply Management release February surveys of purchasing managers measuring activity in the U.S. manufacturing sector. Preliminary survey data showed the U.S. manufacturing sector contracting but at a slower pace.

The Commerce Department reports on construction spending in January. Construction spending fell in December from the prior month, with declines in both residential and nonresidential outlays.

Thursday: The European Union’s statistics agency releases February inflation figures for the eurozone. The bloc’s consumer prices were 8.6% higher in January from the same month a year earlier, the third straight month of easing eurozone inflation.

The Labor Department reports the number of workers filing for unemployment benefits, a proxy for layoffs, in the week ended Feb. 25. Initial jobless claims ticked down in the prior week, remaining below the 2019 pre pandemic average.

Friday: S&P Global and the Institute for Supply Management release February surveys of purchasing managers measuring activity in the U.S. services sector.

Student Loan Forgiveness:

Feb 28:  Supreme Court student loan debt relief case: What to know

The Supreme Court is about to hear arguments over President Joe Biden's student debt relief plan, which impacts millions of borrowers who could see their loans wiped away or reduced. The debt forgiveness plan announced in August would cancel $10,000 in federal student loan debt for those making less than $125,000 or households with less than $250,000 in income per year.

A panel of three federal appeals court judges on the U.S. Court of Appeals for the 8th Circuit - all of them appointed by Republican presidents - put the program on hold during an appeal.

A lower court dismissed the lawsuit involving the following states: Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina. The court said the states could not challenge the program because they weren’t harmed by it. But a panel of three federal appeals court judges on the U.S. Court of Appeals for the 8th Circuit — all of them appointed by Republican presidents — put the program on hold during an appeal. The Supreme Court then agreed to weigh in.

The students’ case involves Myra Brown, who is ineligible for debt relief because her loans are commercially held, and Alexander Taylor, who is eligible for just $10,000 and not the full $20,000 because he didn’t receive a Pell grant. They say that the Biden administration didn’t go through the proper process in enacting the plan, among other things.

Texas-based U.S. District Judge Mark Pittman, an appointee of President Donald Trump, sided with the students and ruled to block the program. Pittman ruled that the Biden administration did not have clear authorization from Congress to implement the program. A federal appeals court left Pittman's ruling in place, and the Supreme Court agreed to take up the case along with the states' challenge.

HOW DID BIDEN GET TO CANCEL THE DEBT? To cancel student loan debt, the Biden administration relied on the Higher Education Relief Opportunities for Students Act, commonly known as the HEROES Act.

The Biden administration has said that the end to the national emergency doesn't change the legal argument for student loan debt cancellation because the pandemic affected millions of student borrowers who might have fallen behind on their loans during the emergency.

While federal student loan payments are currently paused, that will end 60 days after the case is resolved.

For Fun: 

Feb 22: Space telescope uncovers massive galaxies near cosmic dawn

Astronomers have discovered what appear to be massive galaxies dating back to within 600 million years of the Big Bang, suggesting the early universe may have had a stellar fast-track that produced these "Monsters."

While the new James Webb Space Telescope has spotted even older galaxies, dating to within a mere 300 million years of the beginning of the universe, it's the size and maturity of these six apparent mega-galaxies that stun scientists.

Lead researcher Ivo Labbe of the Australia's Swinburne University of Technology and his team expected to find little baby galaxies this close to the dawn of the universe - not these whoppers. These galaxies are believed to be extremely compact, squeezing in as many stars as our own Milky Way, but in a relatively tiny slice of space, according to Labbe.

These galaxy observations were among the first data set that came from the $10 billion Webb telescope, launched just over a year ago. NASA and the European Space Agency’s Webb is considered the successor to the Hubble Space Telescope, coming up on the 33rd anniversary of its launch.

Unlike Hubble, the bigger and more powerful Webb can peer through clouds of dust with its infrared vision and discover galaxies previously unseen.

Scientists hope to eventually observe the first stars and galaxies formed following the creation of the universe 13.8 billion years ago. The researchers still are awaiting official confirmation through sensitive spectroscopy, careful to call these candidate massive galaxies for now.