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Navigating Factors That Affect Your Tax Refund

Taxes can be a headache, but getting a refund can be a sweet reward for all the effort put into filing taxes. However, several factors can affect your tax refund, from changes in tax laws to unpaid debts like student loans.

In this article, we will discuss the main factors that affect your tax refund and what you can do if you’re afraid of a smaller refund or larger tax bill. So, let’s dive in!

Factors That Could Affect Your Tax Refund

Collecting the Advance Child Tax Credit Payments

If you have a child, you may be eligible for the child tax credit (CTC), which reduces your tax liability. However, the CTC became more complicated in 2021 when the government started sending advance CTC payments to eligible families.

While receiving the monthly CTC payments may be helpful in the short term, it could reduce your tax refund or even increase your tax bill next year. If you choose to receive the monthly CTC payments, you will have to reconcile the payments on your tax return next year.

If the total amount of advance payments you received is more than the amount that you qualify for based on your tax return, you will have to repay the excess amount. On the other hand, if you qualify for more than you received, you will get an additional payment as part of your refund.

Holding Federal Student Loans with No Interest

If you have federal student loans and have taken advantage of the 0% interest rate and payment suspension that has been in place since March 2020, you may be wondering how it affects your taxes. Fortunately, the interest you would have paid on your loans is still deductible on your taxes, even if you didn’t actually pay it.

However, if you have any remaining student loan debt when the payment suspension ends, you will have to resume payments in October 2021. With the resumption of student loan payments, the amount of your monthly payments will increase, which could affect your tax refund.

If you’re struggling to make payments, you could consider switching to an income-driven repayment plan, which could lower your monthly payment. Keep in mind that these plans could extend your payment term, which will increase the total interest you’ll pay over time.

Student Loan Defaults

If you have defaulted on your federal student loans, there will be consequences that could affect your tax refund and other aspects of your financial life. The government could seize your tax refund to apply it to your unpaid student loan debt.

They could also report your default to credit bureaus, which would damage your credit score and make it difficult to get approved for credit cards, loans, or even a lease. To avoid these consequences, you could consider different repayment options or work with a debt relief company to negotiate with your lender.

There are various programs that can help you get back on track with your payments, such as rehabilitation, consolidation, or loan forgiveness. Contact your loan servicer or a financial professional to explore your options.

What To Do If You Are Afraid of a Smaller Refund or Larger Tax Bill

Opting Out of CTC Payments

If you’re worried that collecting the monthly CTC payments could reduce your refund or increase your tax bill next year, you could opt-out of the payments using the CTC Update Portal. By opting out, you’ll receive the full CTC amount on your tax return instead of in monthly installments.

However, keep in mind that opting out will reduce your monthly cash flow, so weigh the pros and cons carefully.

Consulting with a Tax Professional

If you’re uncertain about how changes in tax laws or your financial situation could affect your refund or tax bill, it’s always wise to consult with a tax professional. They can help you understand your options and optimize your tax strategy to maximize your refund or minimize your tax liability.

They can also keep you up-to-date with any changes in tax laws that could affect you.


Taxes can be intimidating, but understanding the factors that could affect your refund could provide certainty and peace of mind. By knowing how the advance CTC payments, federal student loans, and loan defaults could affect your refund, you can make informed decisions that align with your financial goals.

And if you’re unsure about anything, don’t hesitate to consult with a tax professional to get the guidance you need. In conclusion, understanding the factors that could affect your tax refund is crucial to avoid unpleasant surprises.

The advance child tax credit payments, federal student loans with no interest, and loan defaults could all affect your refund or even increase your tax bill. However, opting-out of CTC payments and consulting with a tax professional are strategies that could help mitigate the impact of these factors.

Remember, being informed and proactive can lead to more financial clarity and security.

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