Many words could be used to describe the outlook for the 2022 tax season ranging from milquetoast terms, like challenging or problematic, all the way to more honest forecasts, such as one horrific tax headache on the horizon.
The Internal Revenue Service will begin accepting and processing federal income tax returns on Monday. Theoretically, the earlier you file, the earlier you get any tax refund that you’re owed.
This year, though, it’s essential that parents brush up on some new requirements involving the advance child tax credit and make absolutely sure you have the correct facts and figures to file an accurate return. Plug in the wrong number and you’re going to face ungodly delays.
This tax season, we’re looking at some key differences relating to how jobless benefits will be treated compared with the 2020 returns, the return of the Recovery Rebate Credit, a special break for charitable contributions and more.
The filing deadline remains months away but it’s never too early to gather your paperwork, focus on some of your tax challenges and prepare to get the job done.
►Don’t throw away this letter: Why IRS Letter 6419 is critical to filing your 2021 taxes.
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How can you get more money for the child tax credit?
Those who qualify for the child tax credit need to file a Schedule 8812 to claim any additional credit they could be owed.
Many families will be looking at receiving more money for the child tax credit when they file their 2021 federal income tax return because the advance payments were designed to represent only half of what they’re due.
The advance child tax credit received from July through December last year amounted to up to $1,500 or up to $1,800 for each child, depending on the child’s age.
It’s possible you could be looking at another $1,500 or $1,800 for each qualifying child now for the child tax credit after you file a 2021 federal income tax return.
It’s essential to take extra care to report the money you received in 2021 when completing Schedule 8812 – or else you risk lengthy delays when it comes to receiving your tax refund.
In fact, a married couple filing a joint return won’t just receive one Letter 6419; they’ll actually receive two such letters, according to April Walker, lead manager for tax practice and ethics with the American Institute of CPAs.
Walker said both of those letters will need to be taken into account and reported on Schedule 8812 when filing your return.
Parents who received the advance credit from July through December need to watch their mail for a letter from the IRS called Letter 6419 to reconcile what they received in advance to what they still could be owed when they file a tax return.
The letter gives two key pieces of information: How much you received in total payments in 2021 and the number of qualifying children used to calculate those advance payments.
The IRS notes on Schedule 8812, Line 14f: “If the amount on this line doesn’t match the aggregate amounts reported to you (and your spouse if filing jointly) on your Letter(s) 6419, the processing of your return will be delayed.”
Walker said you want to review the advance payments that you received by looking at your banking records and then comparing the amount you’re seeing on the letter or letters.
Even if you think there’s an incorrect number, she warned, don’t just assume your math is correct and hastily just put your number on the line. Take extra time to review what might have caused the discrepancy – and you might realize at the end of the day the IRS information is accurate.
“If you put a different amount on there, it’s going to flag the return,” Walker warned.
Where will there be tax headaches?
Families who received the monthly advance payments for the child tax credit should plan to take extra time when preparing their own returns or getting the paperwork ready for tax professionals.
The IRS even has posted a special web page called “Understanding Your Letter 6419” at IRS.gov.
About 36 million families received more than $93 billion in monthly child tax credit payments from July through December 2021.
People, of course, have bad habits and throw away letters they don’t understand. IRS letters sometimes don’t arrive early enough for some if you’re in a rush to file a return in late January or early February.
“Make sure you have all of your documents and have received everything rather than rushing off to file,” Walker said.
If you rush, you could run into a similar problem that some experienced when dealing with the stimulus payouts for 2020 on the tax returns filed last year. Mistakes happened and delays mounted.
Last year, the IRS ended up manually processing more than 11 million tax returns because of inconsistencies between what people received for the first and second stimulus payments and what they were claiming for the recovery rebate credit.
The National Taxpayer Advocate predicts the IRS will be faced with the daunting task of reviewing millions of returns by hand this year, too, as tens of millions of individuals claim a recovery rebate credit on 2021 returns and the child tax credit.
And, yes, making a mistake when reporting your advance payments for the child tax credit could delay your tax refund.
► The IRS is still buried in 2021 paperwork: Why it matters for 2022 tax season
Will some need to repay the advance child tax credit?
It’s possible that some might need to do so.
“If you do not qualify for repayment protection” the IRS notes, “you will need to report the entire excess amount on your 2021 tax return as additional income tax. This additional income tax will reduce the amount of your tax refund or increase your total tax due for 2021.”
A group of people could qualify for a safe harbor that protects them from repaying the entire advance payment back.
You could qualify for full repayment protection, for example, based on your 2021 modified adjusted gross income. That applies if you are single and your income is at or below $40,000. For the head of household, the income needs to be at or below $50,000. And for married couples filing jointly, the income would need to be at or below $60,000.
The IRS issued a 21-page fact sheet in January to address frequently asked questions about the child tax credit.
For more information about the 2021 Child Tax Credit, visit IRS.gov/advctc.
► Taxes 2022: Will you have to repay child tax credit money?
What is Letter 6475?
In late January, the IRS said will begin issuing letters to people who received a third payment a year ago.
The letter says, “Your Third Economic Impact Payment” near the top and “Letter 6475” on the bottom.
Most people received their full stimulus payments in early 2021. You’d refer to the letter, though, to determine if you should claim the recovery rebate credit on the 2021 tax return. Again, if you just wing it and make up a number, you’re going to face delays.
► Child tax credit money: No payments in January; look out for IRS letter instead
A tax filer also can go to “Your Online Account” at IRS.gov to view your Economic Impact Payment amounts. Again, you want to handle this carefully because making a mistake will trigger delays.
Walker notes that you won’t need to repay any part of the third stimulus.
If you received the advance child tax credit payments and a stimulus payment in 2021, as many families did, you’re going to need to hold onto two types of different letters from the IRS – Letter 6419 for the child tax credit and Letter 6475 for the third stimulus payment.
Do you have to claim unemployment on your taxes?
Unlike last year, a special tax break doesn’t exist for up to $10,200 of unemployment benefits. The temporary tax break applied only for those with modified adjusted gross incomes of less than $150,000 in 2020 and those who also received unemployment benefits last year.
This year, jobless benefits received in 2021 will be taxable on the 2021 federal income tax return. If you didn’t have taxes withheld, and most people don’t, you could be looking at a bigger tax bill than you’d expect.
What’s the deadline to file taxes?
This year, 2021 federal income tax returns are due April 18. (Those who live in Maine or Massachusetts have until April 19 because of the Patriots Day holiday in those states.)
The April 18 deadline this year also applies to the state of Michigan income tax returns, as well as the city of Detroit individual income tax returns.
Where can you get free tax help?
Free online tax software is available at IRS.gov through the Free File program if your adjusted gross income is $73,000 or less.
You’d need to research at IRS.gov which tax software participant is offering free help to someone in your income group and tax situation. You can only file your current year tax or 2021 federal return now using IRS Free File.
This year’s participants are: TaxAct, Free 1040 Tax Return, FileYourTaxes.com, OnLine Taxes, 1040NOW, FreeTaxUSA, TaxSlayer and ezTaxReturn.com.
TurboTax is no longer participating in the Free File program but has some of its own options online for free tax filing; H&R Block exited Free File in October 2020.
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Families and individuals in metro Detroit with incomes up to $57,000 may be eligible for free tax help through the Accounting Aid Society, such as in-person help with an appointment, a “drop and go” program where the filer visits a location to conduct an intake interview and have their document scanned for tax prep. In addition, the program offers a service where the filer receives a phone call from a certified tax preparer that involves an interview and sending a secure link to upload tax documents for tax prep.
To schedule an appointment with the volunteers at the Accounting Aid Society, see AccountingAidSociety.org or call 313-556-1920 from 9 a.m. to 4 p.m. on weekdays.
AARP Foundation Tax-Aide helps all tax filers with a focus on taxpayers who are over 50 and have low to moderate income. There are no eligibility requirements.
There are some limits that exclude returns with complicated situations, such as any virtual currency investment or transaction.
For the 2022 tax season, Tax-Aide will offer in-person, online, or low contact sessions, which allow taxpayers to drop off their papers (or have them scanned) and return to review. AARP is also offering taxpayers free access to software so they can prepare their own taxes, and if needed get help from a Tax-Aide IRS-certified counselor.
Beginning Feb. 1 through April 18, those in need of tax services can visit aarpfoundation.org/taxaide, e-mail taxaide@aarp.org, or call toll-free 888-227-7669 to find a site and make an appointment.
Don’t skip taking a charitable deduction
Typically, most people aren’t able to get a tax break when they donate money to a charity if they’re claiming the standard deduction on their federal income tax returns.
And nearly 9 out of 10 taxpayers are taking that standard deduction these days.
But those who do not itemize are looking at a special, and easy, tax break for money that they donated in 2021.
“Not clothing to Goodwill, that doesn’t count,” Walker said.
► Tax deduction 2021: Charitable donations offer a special way to save
On 2021 returns, a married couple taking the standard deduction is allowed to claim up to $600 for cash contributions made to qualifying charities in 2021, if filing a joint return.
A single individual, including married individuals filing separate returns, can claim a deduction of up to $300 for cash contributions.
See Line 12b on the front of the 1040 form for 2021 for those who take the standard deduction.
How did your financial life change in 2021?
Karen Orosco, president, global consumer tax and service delivery at H&R Block, said those who joined the gig economy or started a business are going to need to figure out how to handle their taxes.
Other big events could also influence your 2021 tax return: Did you have a baby in 2021? You could qualify for the child tax credit based on income. Did you buy a new home and now need to deduct mortgage interest and property taxes? Did you sell stock – or cryptocurrency? All can those changes can trigger important tax situations and require more research.
Orosco said even do-it-yourselfers might need extra professional help on key issues, and H&R Block is marketing such services to those who want extra help.
Should you wait to file your 2020 return is caught in an IRS backlog?
Many people are wondering what to do if their tax returns from last year are held up somewhere in the IRS system. Should you then wait to file a 2021 tax return this year?
It sounds like an odd question until you realize that millions of returns are buried in an IRS backlog.
As of mid-December, the IRS had a backlog of 6.2 million unprocessed 1040 individual returns and 2.4 million unprocessed amended individual returns, Form 1040-X, according to a report by the National Taxpayer Advocate.
“While much of the processing delay is related to tax year 2020 paper returns, some taxpayers are still waiting for resolution of their electronically filed 2020 tax returns, amended returns, and correspondence replying to IRS notices,” according to the advocate’s report.
► IRS: 2022 tax season set to begin 2 weeks early on Jan. 24
So do you need to wait? No.
The IRS says: “Taxpayers generally will not need to wait for their 2020 return to be fully processed to file their 2021 tax returns and can file when they are ready.”
The IRS also offered another tip to help with e-filing a 2021 tax return if you’re still waiting for a 2020 return to be processed.
“In order to validate and successfully submit an electronically filed tax return to the IRS, taxpayers need their Adjusted Gross Income, or AGI, from their most recent tax return,” the IRS said.
“For those waiting on their 2020 tax return to be processed, here’s a special tip to ensure the tax return is accepted by the IRS for processing. Make sure to enter $0 (zero dollars) for last year’s AGI on the 2021 tax return,” according to the IRS.
“For those who used a non-filer tool in 2021 to register for an advance child tax credit or third economic impact payment in 2021, they should enter $1 as their prior-year AGI,” the IRS said.
But remember, everyone else should enter their prior year’s AGI from last year’s return.
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