The deadline for filing 2021 taxes looms around the corner, and once again the COVID-19 pandemic is causing some complications. In addition to the well-publicized IRS backlog, filers this year will need to account for economic stimulus payments and reconcile any advance payments of the Child Tax Credit.
We’ve compiled a list of seven things to bear in mind as you prepare to file your 2021 tax return.
1. Know your 2022 tax season dates
- January 24, 2022: The IRS began accepting 2021 individual income-tax returns
- April 18, 2022: Tax deadline for individual returns or extensions
Mid-April is the traditional tax deadline slot, although it was delayed in the past two years due to the IRS closing its offices during the pandemic. This year, the deadline has been postponed from the usual April 15 slot due to the April 16, 2022, Emancipation Day holiday in D.C. You are responsible for filing your 2021 tax return or extension by April 18, 2022.
- October 17, 2022: Tax deadline if you requested a six-month extension
Note that if you file an extension, you still must pay all tax due for 2021 by the April 18, 2022, deadline.
2. Expect ongoing IRS delays
Experts are warning taxpayers to brace for yet another year of IRS delays and complications, as scaled-up Child Tax Credit payments and stimulus checks are creating extra work for IRS officials. Meanwhile, a backlog of unprocessed paper returns numbering in the millions and widespread staffing shortages have led to a “cascade of customer service problems.” We know that many of our clients are frustrated by the delays; unfortunately, there doesn’t seem to be a quick fix.
The IRS backlog has highlighted the importance of ensuring you report accurate numbers on your tax return. Even innocent mistakes when filing 2021 taxes can lead to months of delays with wide-ranging consequences.
3. Account for Child Tax Credits
The Expanded Child Tax Credit was introduced as part of the American Rescue Plan as a way to support families by reducing federal taxes based on the number of qualifying dependents in the household. The most significant changes introduced by the expansion were to eliminate the minimum income threshold and allow more low-income families to take advantage of the credit.
From July to December 2021, eligible families who did not opt out of the advance payments received monthly Child Tax Credits in advance. These payment amounts were based on the taxpayer’s 2020 return, the parents’ income, and the number and age of the children or eligible dependents.
At the time of writing, the expanded Child Tax Credit will not continue in 2022. However, parents will still be able to claim the original credit when they file their 2021 tax returns.
|How much are Child Tax Credits? |
Eligibility is based on income thresholds:
– Single filers: earnings below $75,000
– Heads of household: earnings below $112,500
– Married filing jointly: earnings below $150,000
Taxpayers whose income fell below those thresholds in 2021 are eligible for the following credits per child:
– Children under the age of six: $3,600
– Children aged 6-17: $3,000
The credit then falls by $50 per child for every $1,000 over the income threshold.
The IRS is sending letters to taxpayers showing how much money they were sent in advance. Letter 6419 shows the total amount of advance payments each parent received, as well as the number of qualifying children used to calculate payments. These letters are intended to help taxpayers reconcile their prepayments on their tax returns and ensure that they receive all of the Child Tax Credit to which they are entitled. All of this information is also available on the IRS Child Tax Credit Update Portal. Note that some taxpayers have found errors on Letter 6419; be sure to check yours against your own records of payments received.
If you are owed more than you received in advance payments, you will claim that amount on your 2021 tax return as follows:
- Taxpayers who opted for monthly credits can expect to receive their remaining balance on their 2021 tax return
- Taxpayers who opted out of the advance payments will be able to claim the full Child Tax Credit on their 2021 tax return
- Families who had a baby or adopted a child in 2021 will be able to claim any additional Child Tax Credit money that they haven’t received yet
If your circumstances have changed, you will need to reconcile any overpayments when you file your 2021 tax return. Examples include a change in filing status, income situation, or number of dependents. Recall that the payments were estimated based on your most recent return (in most cases 2020, but for some taxpayers the IRS used 2019 data). If your income changed enough to push you over the eligibility threshold, you may owe some of the advanced payments back to the Treasury.
4. Reconcile economic stimulus payments
Congress approved $1,400-per-person stimulus payments in March 2021, based on prior years’ tax returns.
Those eligible for the full $1,400 credit included:
- Single filers with an AGI below $75,000
- Married filers who earn less than $150,000
- Heads of households who earn below $112,500
The IRS is sending letters (“Letter 6475”) with the details of stimulus payments in 2021.
You will need to reconcile and report any discrepancies or changes in circumstances. For example, a change in the number of dependents or a change in your income could make you eligible for additional stimulus money.
This recovery rebate credit will not be automatically calculated by the IRS, meaning it’s up to you to make sure that you don’t leave any money behind. If you didn’t receive a payment and believe you’re eligible, you’ll have the opportunity to claim the credit on your 2021 tax return.
5. Include unemployment benefits
In 2021, millions of Americans applied for jobless benefits. In addition, state unemployment agencies paid out an extra $300 each week until September 2021. Unlike in 2020, when Congress exempted up to $10,200 of unemployment compensation from income taxes, all 2021 unemployment payments count as taxable income for 2021.
For those who had already filed their 2020 returns and paid taxes on all unemployment benefits, the IRS has been issuing refunds or applying the credit to other amounts owed.
6. File 2021 taxes electronically
Using electronic tax filing and direct deposits means that your return can be filed more efficiently. If you file your tax return electronically without discrepancies or errors, you can generally expect a refund within 21 days.
However, anything that requires paper or human attention will slow your return. If you need to talk to someone at the IRS, you’re encouraged to communicate via electronic channels:
- Detailed resources are available on the IRS website for general questions
- Taxpayers can set up an online IRS account for queries
- Download the IRS mobile app
- Visit the IRS YouTube channel and social media accounts for up-to-date information
Note that filing early and electronically locks your tax record for the year, meaning that a bad actor can’t file another tax return for 2021 in your name once you have already done so. Always be cautious and protect yourself from fraud when dealing with sensitive tax data when filing 2021 taxes.
7. Seek professional help
In 2021, we experienced another year of tax changes that have the potential to affect both your personal and business taxes. The IRS says that filing an error-free tax return electronically is more important than ever this year to receive a faster refund.
Working with a tax professional can help you understand your eligibility for deductions and credits, reconcile your information, and submit an accurate tax return that is likely to result in a quicker refund. Contact us for assistance filing 2021 taxes.