Higher Refunds, More Gig Workers and Crypto Trading: Trends and Questions from the 2022 Tax Season

With the broader national economy experiencing turbulence amid the rocky recovery from the COVID-19 pandemic, this year’s tax season was the first since pre-pandemic to return to a normal filing schedule, but the policy response to the pandemic and the associated shifts to Americans’ financial situations continued to shape the tax ecosystem in important ways. As policymakers continue to evaluate ways to enhance the tax ecosystem, these insights offer valuable context for how millions of Americans experience tax season. 

Here are three major tax trends we witnessed at Jackson Hewitt during this filing season:

Higher Refunds — And Higher Tax Bills

 The dominant trend of the 2022 tax filing season was refund volatility. In part thanks to the new monthly advance Child Tax Credit and the third round of Economic Impact Payments, many filers saw higher-than-usual refunds. But in part due to changes in the structure of the W-4 withholding form, many filers who owed money on their taxes also had higher-than-usual balances due. According to data from the Internal Revenue Service, as of the tax filing deadline, the average refund had grown from $2,870 to $3,012 from 2020 to 2021, an increase of 4.95 percent.^[1] Overall, amid record-high inflation levels, federal revenues increased by $800 billion (19 percent), the biggest jump in 40 years.^[2]

Americans Take on More Jobs Amid Shifting Labor Market

The labor market’s recovery from the shock of the COVID-19 pandemic was one of the major economic stories of 2021. With the headline unemployment rate falling from 6.4 percent in January 2021 to 4.0 percent in January 2022,^[3] many Americans were able to get back to work over the course of the year, while millions more changed jobs or took on new gigs as part of the Great Resignation.

The growth of independent gig work continues to shape the labor market — and add additional complications at tax filing season. At Jackson Hewitt, we processed significantly more 1099-NEC forms in 2021 compared to 2020. The 1099-NEC form is where filers can report nonemployee compensation, including from gig economy platforms like Uber, Lyft and Grubhub. We also saw an increase in W-2 forms processed per return, indicating that more Americans are working multiple W-2 jobs as well.

Crypto and Day Trading Lead to Unexpected Tax Obligations

The number of Americans investing in cryptocurrencies or day-trading other financial products through apps like Robinhood continues to grow. But many less experienced investors are unfamiliar with the tax obligations from these kinds of investment activities, leading to surprises at tax season. At Jackson Hewitt, our clients this year filed many more returns that included Schedule D forms, indicating filers reported capital gains and losses. As more and more Americans invest in equities, cryptocurrencies and other financial products, it’s critical that consumers are aware of the tax responsibilities that come along with their investments.

Looking Ahead: Lingering Questions From Tax Season

Even as we slowly emerge from the depths of COVID-19, many are wondering whether trends brought on by the pandemic will become part of the new normal. The tax ecosystem is no exception; as we look ahead to next year’s tax season, Jackson Hewitt and our colleagues across the industry are watching closely to see whether certain shifts underway become permanent or start returning to their pre-pandemic status.

These include:

• Tax filing extensions: Individual taxpayer extensions increased significantly this year. The IRS estimated that more than 15.2 million taxpayers would file for an extension using Form 4868 in 2022, up from 11.6 million in 2020.^[4] Will more and more taxpayers continue to request extensions? If so, what challenges will that pose for year-over-year data comparison?

• Continued uncertainty regarding dependents and tax credits: As the temporary tax credits that led to this year’s higher refunds fade away, some filers may experience “refund whiplash” at next year’s tax season. Will expectations carry over from this year and lead to frustration among filers next year? Will we see dependents per return begin to fall back to pre-pandemic levels?

• New technology at the IRS: The IRS continues to roll out new technological solutions in an attempt to streamline the processing of tax returns. While many of these, like the new tech-based Error Resolution System functions, helped increase efficiency and prevent backlogs, the agency continues to work to improve taxpayer identity validation and its processing of paper filings. Can the entire tax ecosystem come together to offer innovative solutions and help make the tax ecosystem better for all?

Visit jacksonhewitt.com/betterforall for more information.

[1] https://www.irs.gov/newsroom/filing-season-statistics-for-week-ending-april-22-2022

[2] https://www.cbo.gov/publication/57950

[3] https://data.bls.gov/timeseries/LNS14000000

[4] https://www.usatoday.com/story/money/taxes/2022/04/15/irs-tax-deadline-april-18/7300524001/

About Jackson Hewitt Tax Service Inc.

Jackson Hewitt Tax Service Inc. is an innovator in the tax industry, with a mission to provide its hard-working clients access to simple, low-cost solutions to manage their taxes and tax refunds. Jackson Hewitt is devoted to helping clients get ahead and stands behind its work with its Maximum Refund Guarantee and Lifetime Accuracy Guarantee® (restrictions apply, see Jackson Hewitt's website for more details). Jackson Hewitt has more than 5,200 franchise and company-owned locations nationwide, including nearly 3,000 in Walmart stores as well as online tax prep services, making it easy and convenient for clients to file their taxes. For more information about products, services, and offers, or to locate a Jackson Hewitt office, visit www.jacksonhewitt.com or call 1 (800) 234-1040.