by | Feb 9, 2022 | Tax Tips and News
The Internal Revenue Service wants to see a 2021 income tax return from all Americans—including those who haven’t filed in years. The reason is recent legislation—including the American Rescue Plan and other new laws—has put some significant tax benefits in play for those who qualify.
Taxpayers and families can get these expanded tax benefits even if they have little or no income from a job, business or some other source. Claiming the benefits could mean tax refunds for many who file.
The IRS says people can’t claim the benefits if they don’t file a return, so they need to electronically file an accurate return and choose direct deposit for the fastest refund.
Expanded tax credits are available
Most of the expanded tax credits and other benefits are outlined in Fact Sheet 2022-10, which is now available on the IRS website, IRS.gov. But Americans can only reap the rewards if they file a return. The benefits include:
- An expanded Child Tax Credit: Families can claim this credit, even if they received monthly advance payments during the last half of 2021.
- An increased Child and Dependent Care Credit: Families who pay for daycare so they can work or look for work can get a tax credit worth up to $4,000 for one qualifying person and $8,000 for two or more qualifying persons.
- A more generous Earned Income Tax Credit: The American Rescue Plan boosted the EITC for childless workers. There are also changes that can help low- and moderate-income families with children.
- The Recovery Rebate Credit: Those who missed out on last year’s third-round of Economic Impact Payments (EIP3), also known as stimulus payments, may be eligible to claim the RRC. This credit can also help eligible people whose EIP3 was less than the full amount, including those who welcomed a child in 2021.
- A deduction for gifts to charity: The majority of taxpayers who take the standard deduction can deduct eligible cash contributions they made during 2021. Married couples filing jointly can deduct up to $600 in cash donations and individual taxpayers can deduct up to $300 in donations. In addition, itemizers who make large cash donations often qualify to deduct the full amount in 2021.
The IRS wants taxpayers to know that some refunds will be delayed by law. The IRS is prohibited from issuing refunds for the EITC before mid-February, a deadline shift shared by the Additional Child Tax Credit (ACTC).
This year, the ACTC is most often claimed by taxpayers who live overseas and did not have a main home in the U.S. for more than half of the tax year.
The mid-February restriction doesn’t normally apply to the Refundable Child Tax Credit (RCTC), claimed by taxpayers who had a main home in the U.S.—unless they claim the EITC as well.
Taxpayers need to gather all their documents before filing
Taxpayers should have all their year-end tax documents at hand before they file a 2021 return. Besides the obvious W-2s and 1099s, two statements from the IRS—Letter 6419 and Letter 6475—also need to be handy.
Letter 6419 shows the taxpayer’s total advance payments of the Child Tax Credit; Letter 6475 outlines the taxpayer’s total EIP3 payments. This information can also be determined from the taxpayer’s IRS Online Account.
Married couples who received joint payments must each sign into their individual accounts separately to get their respective amounts.
And finally, don’t forget this year’s filing and paying deadline is April 18. For those taxpayers living in Massachusetts and Maine, that deadline is April 19. Taxpayers who live and work outside the U.S. have a June 15 deadline; and if filers ask for an extension of time, they’ll have until October 17 to file.
Remember, however, that payment is not covered by an extension, so any tax due will have to be paid by the regular April 18 deadline.
For more information on filing deadlines or the expanded credits, visit the Tax Time Guide on IRS.gov, or Publication 17, Your Federal Income Tax.
Source: Tax Time Guide: American Rescue Plan changes can boost refunds for many families; people should file even if they haven’t for years
– Story provided by TaxingSubjects.com
by | Feb 5, 2022 | Tax Tips and News
The wait is over; the filing season for 2021 income tax returns has been opened by the IRS. But before taxpayers start sharpening pencils, cranking up the calculator and putting on a pot of coffee, they need to know they’ve got everything together to get the job done right.
The IRS has put together its annual Tax Time Guide that helps taxpayers navigate the trials of taxes and file an accurate return. Here are some tips that can make anyone’s income tax season a lot less daunting.
Wait for it…
As much as some taxpayers want to get started on their taxes early in the game, it’s a better bet not to file prematurely. Unless a taxpayer knows they have all the right documents at hand, they risk making mistakes that could delay or even cost them their refund.
January is usually the month when year-end forms start showing up in taxpayers’ mailboxes, or are sent via email. No matter how they arrive, taxpayers need to carefully look over their forms and contact the payer immediately if a correction is needed or an updated mailing or email address.
Some forms—like some Forms 1099, for example—don’t have to be issued until later in the tax filing season.
Here’s a quick list of important forms taxpayers may need to file, but should wait until they have these in hand before they do:
- Forms W-2 from employer(s)
- Forms 1099 from banks, issuing agencies and other payers including unemployment compensation, dividends and distributions from a pension, annuity or retirement plan
- Form 1099-K, 1099-MISC, W-2, or other income statement if they worked in the gig economy
- Form 1099-INT if they received interest payments
- Other income documents and records reporting virtual or crypto currency transactions
- Form 1095-A, Health Insurance Marketplace Statement, to reconcile advance Premium Tax Credits for Marketplace coverage
- Letter 6419, 2021 Total advance Child Tax Credit Payments to reconcile advance Child Tax Credit payments
- Letter 6475, 2021 Economic Impact Payment, to determine eligibility to claim the Recovery Rebate Credit
Report advance payments
This year, there’s a new wrinkle in the form of Letter 6419, Advance Child Tax Credit Reconciliation, which was sent out in January by the IRS. Taxpayers need to use the letter to compare the amount of the Child Tax Credit they received in advance payments in 2021 with the total amount of the credit they should get. If there’s any remaining credit they can claim, they can receive it in the form of a tax refund.
If they were paid more in advance than they qualify for, however, those taxpayers may have to pay extra tax due to make up the difference.
As with all pertinent tax documents, the IRS urges taxpayers to check this information carefully.
Taxpayers who were issued a third Economic Impact Payment won’t have to include anything about it on their income tax return. Those who didn’t qualify for a third payment—or didn’t get the full amount—may be eligible for some of it in the form of the 2021 Recovery Rebate Credit.
To claim the credit, taxpayers need the total amount of their third Economic Impact Payment for inclusion on their return. Taxpayers can get the amount from their Online Account on IRS.gov, or they can wait to receive Letter 6475 in the mail.
The Online Account can be a very powerful tool for filers, providing their tax information securely and quickly.
Using the Online Account when filing returns, taxpayers can see:
- The total amounts of Economic Impact Payments issued for tax year 2021
- The total amount of advance Child Tax Credit payments
- Their adjusted gross income from their last tax return
- The total of any estimated tax payments they made, and refunds applied as a credit
Taxpayers can do more than that, of course. After logging in, taxpayers can make and track their tax payments and manage their communication preferences. They’ll also have the option to go paperless and request email notification for certain notices available online.
Taxpayers who would like to get their IRS tax notices in Braille, large print, audio or electronic formats can download Form 9000, Alternative Media Preference from the IRS website.
Once completed, the form can be mailed in by itself, included along with the taxpayer’s tax return, or taxpayers can call the IRS at 800-829-1040 to choose their preferred format.
Similarly, Spanish speakers—or those who speak one of 20 other languages—can use Schedule LEP, Request for Change in Language Preferences, to get communications in their particular language. Forms 1040 and 1040-SR are now available in Spanish.
e-File and direct deposit are encouraged
Lastly, the IRS strongly encourages taxpayers to file their income tax returns by electronic means, avoiding paper returns, and to choose direct deposit for any refunds. That, they stress, will speed up processing and keep refunds moving quickly – 21 days in most cases.
In addition, taxpayers should take extra steps to ensure they’re filing an accurate return. Mistakes in copying figures, math errors and other lapses can lead to a return being reviewed by an IRS employee, and that takes time. Paper, whether in the form of a paper return or a paper check will take even longer to process this tax season.
Need additional help? See Publication 17, Your Federal Income Tax (For Individuals) on IRS.gov.
Source: IR-2022-23
– Story provided by TaxingSubjects.com
by | Feb 5, 2022 | Tax Tips and News
The Internal Revenue Service is pushing out a new version of its frequently asked questions (FAQs) for the 2020 Recovery Rebate Credit. The updated information is featured in Fact Sheet 2022-08, which carries the latest information pertaining to tracing payments.
While most of the information on the Fact Sheet was updated in December 2021, Question 8 under Topic F: Finding the First and Second Economic Impact Payment Amounts to Calculate the 2020 Recovery Rebate Credit is hot off the presses, being updated February 2 of this year:
QF8. Missing Economic Impact Payment: How do I request a payment trace to track my first and second Economic Impact Payments?
A8. You should only request a payment trace to track your payment if your online account shows a first or second payment was issued to you and you have not received it. Do not request a payment trace to determine if you were eligible for a payment or to confirm the amount of payment you should have received.
How the IRS processes a claim
We’ll process your claim for a missing payment in one of two ways:
- If a trace is initiated and the IRS determines that the check wasn’t cashed, the IRS will credit your account for that payment, but the IRS cannot reissue your payment. Instead, you will need to claim the 2020 RecoveryRebate Credit on your 2020 tax return if eligible.
- Note: If you are filing your 2020 tax return before your trace is complete, do not include the payment amount on line 16 or 19 of the Recovery Rebate Credit Worksheet. If you do, you may receive a notice saying your 2020 Recovery Rebate Credit was changed, but an adjustment will be made after the trace is complete and it is determined your payment has not been cashed. You will not need to take any additional action to receive the credit. If you do not request a trace on your payment, you may receive an error when claiming the 2020 Recovery Rebate Credit on your 2020 tax return. Since the payment was issued to you, you may not be eligible for any credit.
- If the check was cashed, the Treasury Department’s Bureau of the Fiscal Service will send you a claim package that includes a copy of the cashed check. Follow the instructions. The Treasury Department’s Bureau of the Fiscal Service will review your claim and the signature on the canceled check before determining whether the payment can be reversed and your Recovery Rebate Credit adjusted.
The Fact Sheet goes on to explain that taxpayers initiating a trace need to complete Form 3911, Taxpayer Statement Regarding Refund, and gives instructions on transmitting the form to the IRS.
Alternatively, they can also call the IRS at 800-919-9535 to start a trace.
Encouraging non-filers to file
Many of the FAQs updated in December concentrate on answering the questions of non-filers who fear they might miss out on the Recovery Rebate Credit.
For example, one question asks if a taxpayer didn’t qualify for a Economic Impact Payment, would they still qualify for the Recovery Rebate Credit?
They IRS’ answers with a maybe. There are changes, the IRS stresses, that could change a taxpayer’s eligibility to the good for the credit. The first and second Economic Impact Payments were based on the taxpayer’s 2018 and 2019 income tax returns. If circumstances changed in 2020, that means eligibility for the Recovery Rebate Credit could’ve changed as well.
Here are some life changes that could open the door to qualifying for the Recovery Rebate Credit for 2020:
- Income change: Your adjusted gross income went down in 2020.
- Qualifying child: You welcomed an eligible child in 2020 who was under the age of 17 at the end of 2020.
- No longer a dependent: You were no longer eligible to be claimed as a dependent on someone else’s tax return in 2020.
- Social Security number: You received a Social Security number valid for employment before the due date of your 2020 return (including extensions).
The IRS reminds that FAQs should not be relied on for official tax law in formal proceedings such as those before the Tax Court, but are meant only to transmit changes to taxpayers quickly. More information on such reliance is available from the IRS.
Visit the IRS website, IRS.gov, for more information on the Recovery Rebate Credit.
Sources: IRS provides revised answer for 2020 Recovery Rebate Credit on tracing payments; Fact Sheet 2022-08
– Story provided by TaxingSubjects.com
by | Feb 2, 2022 | Tax Tips and News
The Internal Revenue Service has posted a new flock of frequently asked questions (FAQs), all aimed at answering taxpayer questions about the 2021 Child Tax Credit.
The new FAQs are published in Fact Sheet 2022-06.
The Child Tax Credit, expanded only for the 2021 tax year, is likely to be one of the big topics of interest to many filers this tax season.
Those taxpayers who got advance payments of the Child Tax Credit have to compare the total they got in advance payments during the tax year with the amount of the credit they can claim on their 2021 tax return.
Ideally, their advance payments could be as much as half of the total credit; they have to file to receive the remainder of the Child Tax Credit as a refund. However, if a taxpayer received more than what they qualify for, they may need to repay some—or all—of the excess paid out.
Expect a letter soon if you received the Advance Child Tax Credit
Letter 6419 has been sent out by the IRS to those who received advance Child Tax Credit payments. It provides these taxpayers with the total amount of advance payments they received during the 2021 tax year. Taxpayers who get this letter are being urged by the IRS to hang onto the document as part of their important tax documents, since they may need it to prepare their returns this season.
The new FAQs help to explain the workings of the Child Tax Credit in a number of scenarios:
Fact Sheet 2022-06 makes it clear, however, that these new FAQs are for the benefit of taxpayers and shouldn’t take the place of the rule of law in deciding tax cases.
“Accordingly, these FAQs may not address any particular taxpayer’s specific facts and circumstances, and they may be updated or modified upon further review,” the Fact Sheet explains.
“Because these FAQs have not been published in the Internal Revenue Bulletin, they will not be relied on or used by the IRS to resolve a case. Similarly, if an FAQ turns out to be an inaccurate statement of the law as applied to a particular taxpayer’s case, the law will control the taxpayer’s tax liability.”
The IRS stresses that FAQs are simply the vehicle the agency uses to get information to taxpayers quickly.
Sources: IR-2022-21; Fact Sheet 2022-06
– Story provided by TaxingSubjects.com
by | Feb 1, 2022 | Tax Tips and News
The gates have been opened just a little bit wider so more taxpayers who don’t have children can take advantage of the Earned Income Tax Credit (EITC).
The EITC is the largest refundable tax credit in the federal tax structure, aimed at low- to moderate-income taxpayers.
If it means qualifying for a larger credit, taxpayers now can actually use their income levels dating back to before the pandemic began to calculate their eligibility.
The news of a larger credit was released to help mark the 16th annual EITC Awareness Day.
“There are important changes to EITC that will help this credit reach more hard-working families this year,” said IRS Commissioner Chuck Rettig.
“We urge people potentially eligible for this valuable credit to review the guidelines; many people each year overlook this and leave money on the table. On this EITC Awareness Day, we want to make sure everyone who qualifies for the credit knows about it and has the information they need to get it.”
The Earned Income Tax Credit was passed back in 1975 as one of the U.S. government’s largest programs to fight poverty. EITC Awareness Day is used to urge people to check the EITC guidelines, to see if they qualify.
Those who don’t normally file a return are also being asked to look at whether they might qualify for the EITC and other credits, such as the Child Tax Credit or the Recovery Rebate Credit.
The expansion is a one-time offer
The expanded EITC is for the 2021 tax year only. It means more childless workers and couples are eligible for the credit, while the maximum credit available has almost tripled for these taxpayers. In addition, the credit is now available to younger workers and senior citizens for the first time.
Other changes help to widen the appeal of the EITC. For 2021, the credit is generally available to those without children who are at least 19 years old. The credit is available to single filers earning up to $21,430 for the year and $27,380 for married couples filing jointly.
For filers without any qualifying children, the maximum credit rises by $538 to $1,502. There are also special exceptions in place for filers who are 18 years old and were formerly in foster care or are homeless.
While there’s no upper age limit to claim the credit if the taxpayer has earned income, full-time students under the age of 24 do not qualify.
Previously, the credit for those with no dependents was limited to taxpayers between the ages of 25 and 64.
The new rules for 2021 also allow taxpayers to calculate the EITC using earned income figures from 2019 if that was higher than that in 2021.
Taxpayers claiming the EITC must have earned income from employment or other sources, and the option could help workers get a larger credit if they actually earned less in 2021 or got unemployment benefits instead of regular wages in 2021.
Line 27-c in the instructions for Form 1040 has more information on this.
Which employed taxpayers qualify?
Workers at risk for overlooking this credit include those taxpayers:
- Without children, including those workers who are at least 19 years old and older than 64
- Living in non-traditional families, such as a grandparent raising a grandchild
- Whose earnings declined or whose marital or parental status changed
- With limited English language skills
- Who are members of the armed forces
- Living in rural areas
- Who are Native Americans
- With disabilities or who provide care for a disabled dependent
The amount of the credit was increased for the 2021 tax year, as well as the phaseout income limits. A married couple, for example, who files jointly with three or more children has a maximum credit amount of $6,728 and can earn up to $57,414 before the credit phases out. In 2020, the same couple with the same earnings would have topped out at $6,660 in credit and phased out at $56,844.
It should be noted that Economic Impact Payments or Child Tax Credit Payments are not taxable and can’t be counted as income to claim the EITC.
Claiming the EITC
Our choice for getting the most out of the Earned Income Tax Credit is to use a trusted tax professional. A trusted tax pro can not only prepare a tax return, but can also provide helpful guidance and advice.
Tips for choosing a return preparer, including certified public accountants, enrolled agents and many others, are available on IRS.gov.
For additional information, visit EITC Central, look over Publication 596, Earned Income Credit (EIC), or visit the Tax Professionals webpage, with valuable EITC resources.
Source: IR-2022-20
– Story provided by TaxingSubjects.com
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