There are a number of reasons why taxpayers might receive smaller refunds than they expected this season, Stephen Mankowski, tax chair at the National Conference of CPA Practitioners, told Accounting Today.

Noting that the Child Tax Credit has been reduced from $3,000 to $2,000 per child, resulting in higher total tax, Mankowski pointed out that the new withholding Form W-4 results in taxpayers withholding less than in prior years. The new form also does away with "allowances," whose value was tied to the amount of the personal exemption, which can no longer be claimed on the Form 1040.

In addition to the Child Tax Credit, Mankowski highlighted other issues for this tax season, including the following:

● The gift tax annual exclusion for 2023 increases to $17,000;

● Mortgage insurance (on Schedule A) 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. For transactions in 2023, there is a $600 threshold and no transaction limit. Furthermore, there is no aggregation of transactions (this typically applies to ticket sales); and,

● Proposed regulations for inherited IRAs include a 50 percent penalty for failure to withdraw, with a 10-year time to liquidate; and this also applies to Roth IRAs.

Mankowski also said that the IRS is prioritizing a reduction in the number of paper checks issued—more than 11 million tax returns still require them—with the goal of making 99 percent of payments electronic by 2030.

He said that there are currently 10 million Treasury checks that have not been cashed, a large portion of which are for less than $50. 

"The IRS is asking preparers to help promote direct deposit of refunds and to ask taxpayers to have their banking information available," he said. "Beginning in 2023, taxpayers are now able to request direct deposit on electronically filed amended returns for tax years 2021 and 2022."

“Electronic deposit is not only faster, but also safer for initially filed returns,” he said. “[P]aper checks are more likely to be manipulated or compromised." 

Citing an IRS estimate that only four out of five taxpayers eligible to claim the Earned Income Tax Credit (EITC) actually do so, Mankowski urged tax preparers to “take a few minutes to see if someone would be eligible this year or, going back to 2020, including those without filing requirements. The earned income limit for Married Filing Jointly taxpayers with three children is nearly $60,000. Those families would get nearly $7,000 of EITC."