Taxes, without a doubt, can conjure up responses from elation,” Yeah! I get a refund!,” to dread…” Darn, I owe!” The Covid-19 pandemic has prompted another response…What in the heck happened to my 2019- and 2020-income tax return?
While it is quite normal for the Internal Revenue Service (IRS) to face a bit of backlog every year, according to The Washington Post, the IRS closed last year’s tax season with an unprecedented large number of returns unprocessed due to budget cuts and staff issues.
Most recently, IRS Commissioner Chuck Rettig said in a statement, “The pandemic continues to create challenges, but the IRS reminds people there are important steps they can take to help ensure their tax return and refund don’t face processing delays.”
Know that having all the information needed to file an accurate return helps the whole process and helps to avoid delays. The US 2022 (2021 tax year returns) income tax season will:
- Begin on January 24, 2022. This is the day the tax agency will begin accepting and processing 2021 tax year returns.
- The deadline to file 2021 federal taxes for most people is April 18, as April 15, Emancipation Day, is a holiday in Washington, D.C.
- Maine and Massachusetts residents have until April 19 to file their federal returns, as April 18 is Patriot’s Day in those two states.
- The deadline for filers requesting an extension is Oct. 17, 2022.
- The IRS is urging to file your tax return electronically and, if you are due a refund, to choose direct deposit.
- The IRS anticipates that most taxpayers will receive their refund within 21 days if they file electronically and choose direct deposit.
Please, do not be influenced to apply for a tax refund anticipation loan, typically known as an RAL, if you are not in an emergency for the loaned money. An RAL is a loan based on the anticipated amount of your federal income tax refund. Many tax filing services will offer you a RAL if… you file with their service. Know that your loan amount will be based on the value of your anticipated refund minus fees and/or interest charges.
Know, too, that your loan will be deposited directly to the lender once the IRS processes your income tax return. Be VERY careful with refund anticipation loans. An obvious positive attribute of the loan is you get money quickly – before the season even opens. Another benefit is that, once the lender receives your refund, the loan is paid. But what happens if your tax refund is smaller than the anticipated income tax refund? You now will have an outstanding loan that will need to be paid back.
As with many income tax seasons, there are changes to the tax code. Important changes for the 2022 income tax season include:
The standard deduction for taxpayers who do not itemize deductions on Form 1040, Schedule A, has increased. The standard deduction amounts for 2021 are:
- Married Filing Jointly or Qualifying Widow(er) – $25,100 (increase of $300)
- Head of Household – $18,800 (increase of $150)
- Single or Married Filing Separately – $12,550 (increase of $150)
Taxpayers who are 65 and Older or are Blind
For 2021, the additional standard deduction amounts for taxpayers who are 65 and older or blind are:
- Single or Head of Household – $1,700 (increase of $50)
- Married taxpayers or Qualifying Widow(er) – $1,350 (increase of $50)
Earned Income Credit (EIC)
By law, the IRS cannot issue your refund before February 15. This includes your entire refund, not just the part that’s related to the credit you claimed on your tax return. This law change, which took effect in 2017, helps ensure that taxpayers receive the refund they are due by giving the IRS more time to detect and prevent fraud. If you claimed the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC), you can expect to get your refund by the first week of March if:
- You file your return electronically
- You choose to get your refund by direct deposit
- The IRS finds no issues with your return
For 2021 only:
- More taxpayers without qualifying children can qualify for the Earned Income Tax Credit (EITC). The maximum EITC credit is nearly tripled for these taxpayers and, for the first time, is made available to both younger workers and senior citizens.
- EITC is available to both taxpayers without qualifying children and families with qualifying children. (Taxpayers filing married filing separately can claim this credit in 2021.)
- EITC can be figured using 2019 income, as long as it was higher than 2021 income. In some instances, this option will give a larger credit.
For 2021, the maximum EITC credit increased to:
- $6,728 with three or more children
- $5,980 with two children
- $3,618 with one child
- $1,502 with no children
- $51,464 ($57,414 if Married Filing Jointly) with three or more qualifying children
- $47,915 ($53,865 if Married Filing Jointly) with two qualifying children
- $42,158 ($48,108 if Married Filing Jointly) with one qualifying child
- $21,430 ($27,380 if Married Filing Jointly) with no qualifying child
- Taxpayers whose investment income is more than $10,000 cannot claim the EITC.
For 2021, the following rates are in effect:
- 56 cents per mile for business miles driven
- 16 cents per mile driven for medical or moving purposes
- 14 cents per mile driven in service of charitable organizations (no change)
American Opportunity Tax Credit for 2021 is gradually reduced (phased out) if taxpayers’ MAGI (Modified Adjusted Gross Income) is between $80,000 and $90,000 ($160,000 and $180,000 if Married Filing Jointly). Taxpayers cannot claim a credit if their MAGI is $90,000 or more ($180,000 or more if Married Filing Jointly).
Lifetime Learning Credit for 2021 is gradually reduced (phased out) if taxpayers’ MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if Married Filing Jointly). Taxpayers cannot claim a credit if their MAGI is $90,000 or more ($180,000 or more if Married Filing Jointly).
Student Loan Interest Deduction begins to phase out for taxpayers with MAGI in excess of $70,000 ($140,000 for joint returns) and is completely phased out for taxpayers with MAGI of $85,000 or more ($170,000 or more for joint returns).
The IRS announced that convertible virtual currencies, such as Bitcoin, would be treated as property and not as currency, thus creating immediate tax consequences for those using Bitcoins to pay for goods and services. Taxpayers having transactions in virtual currencies are out of scope for the VITA/TCE programs.
Consider setting up a flexible spending account during your employer’s open enrollment period. Photo credit: Judy Corbus
Fall is open enrollment for health insurance and other employee benefits with many employers. One benefit available through many employers is a flexible spending account, or FSA. A flexible spending account is a special account into which you put money to pay for certain out-of-pocket health care expenses. You select the total amount you wish to contribute for the following year, and your contributions are divided out evenly over your paycheck schedule beginning January 1st.
A real perk to this account is you don’t pay taxes on your contributions – the money is deducted before taxes are calculated so you will save an amount equal to the taxes you would have paid on the money you have set aside.
The FSA funds can be used to pay for certain medical and dental expenses for you, your spouse if you’re married, and your dependents. Typical allowable expenses include:
- Deductibles and co-payments
- Prescription medications and over-the-counter medications with a doctor’s prescription
- Medical supplies and equipment such as crutches, bandages, contact lenses and solution, hearing aid batteries, and blood sugar test kits.
Access to your funds varies by employer – some provide employees with a special debit card linked to their FSA to use to pay for expenses, while others require employees to submit a claim to the FSA for reimbursement.
You may contribute a maximum of $2,750 per year per employer. Your spouse also may contribute up to $2,750 in an FSA with their employer. Bear in mind that FSAs are “use it or lose it.” Funds generally must be used within the plan year; however, employers may offer a couple of options:
- They may provide a “grace period” of up to 2 ½ extra months to use the funds.
- They may allow you to carry over up to $550 per year to use in the following year.
Employers are not required to offer these options so it’s important to know your employer’s policy. If you have not used your money by the end of the plan year or grace period, you lose it so plan carefully.
To calculate how much to contribute, review this year’s medical expenses for routine doctor and dentist visit co-pays and charges, deductibles, prescription and OTC “maintenance” medications, and other medical expenses. If you anticipate an additional expense for the coming year, such as new eyeglasses, factor that in as well. It’s better to underestimate next year’s medical expenses and contribute a smaller amount than to overestimate and risk losing unused funds.
Some employers also offer dependent care flexible spending accounts to cover childcare expenses. They, too, offer tax savings and operate similarly to healthcare FSAs; check with your employer to see if they are available.
Use open enrollment to review your available options and premiums and compare with your current plan(s) to make sure you and your family are enrolled in the plan(s) that will best meet your needs at the most affordable price. Consider enrolling in a flexible spending account to save money on taxes – don’t leave money on the table!
For more information, visit IRS Publication 969 Health Savings Accounts and Other Tax-Favored Health Plans.
Yes, that’s right, the expanded, Advance Child Tax Credit is NOT stimulus money. The Child Tax Credit is an ADVANCE payment of next year’s Child Tax Credit. Taxpayers with qualifying children are entitled to claim qualifying children for an income tax credit.
With that said, there are two types of credit: refundable credit and nonrefundable credit. Although both kinds of credit can reduce your tax liability, only a refundable credit can give you a tax refund even when you do not owe taxes.
The expanded, Advance Child Tax Credit is a refundable credit for the 2021 income tax year. This refundable tax credit is being given in ADVANCE to taxpayers with qualifying children. The amount of the expanded, Advance Child Tax Credit payments that you receive during 2021 is based on the IRS’s estimate of the Child Tax Credit amount that you appropriately would be allowed for the 2021 tax year. The law requires this estimate to be based on two primary sources of information:
- Your 2020 tax year return or, if that return is not available, your 2019 tax year return
- Any updated information you provide to the IRS in 2021, including information provided through the Child Tax Credit Update Portal (CTC UP), which will allow you to update with the IRS your Child Tax Credit information throughout 2021, including any changes in the number of your qualifying children, changes in your income, and changes in your filing status.
In fact, the IRS began paying the Advance Child Tax Credit on July 15, 2021. The Internal Revenue Service will issue half the total credit amount, in advance, the middle of every month, from July 15 to December 15, 2021. You will claim the other half when you file your 2021 income tax return in 2022. As of now, these tax law changes apply to tax year 2021 only.
The maximum credit is available to taxpayers with a modified adjusted gross income of:
- $75,000 or less for single filers and married persons filing separate returns
- $112,500 or less for heads of household
- $150,000 or less for married couples filing a joint return and qualifying widows and widowers.
For tax year 2021, qualifying families claiming the Child Tax Credit will receive:
- Up to $3,000 per qualifying child between the ages of 6 and 17 at the end of 2021
- Up to $3,600 per qualifying child under age 6 at the end of 2021
The Child Tax Credit begins to be reduced to $2,000 per child if your modified AGI in 2021 exceeds the amounts listed above:
- Phase One: Reduces the Child Tax Credit by $50 for each $1,000 (or fraction thereof) by which your modified AGI exceeds the income threshold described above that is applicable to you.
- Phase Two: The Child Tax Credit will not begin to be reduced below $2,000 per child until your modified AGI in 2021 exceeds:
- $400,000 if married and filing a joint return OR
- $200,000 for all other filing statuses
The second phase reduces the Child Tax Credit by $50 for each $1,000 (or fraction thereof) by which your modified AGI exceeds the income threshold described above that is applicable to you.
The IRS has an eligibility assistance site to help you check if you might be eligible for advance payments of the Advanced Child Tax Credit https://www.irs.gov/credits-deductions/advance-child-tax-credit-eligibility-assistant
For the 2021 income tax filing season, a qualifying child is under age 18 at the end of 2021. This differs from the 2020 income tax filing season as a qualifying child was under age 17 at the end of 2020. Other general rules from income tax year 2020 in regards to the Child Tax Credit do not apply in 2021.
American Rescue Plan: Enhanced Child Tax Credit – While millions of American families view the expanded, Advance Child Tax Credit (money) as a lifeline needed to pay basic expenses, others view it as a windfall. Do you need to take the Advance Child Tax Credit? That is entirely up to you. However, it is important to think ahead. Do you have a plan for spending or not spending the money? (You have an opportunity every month through December to unenroll before the next payment lands. The deadline is three days before the first Thursday of every month)
If you feel certain you will not owe money come income tax time AND spend the Advanced Child Tax Credit (money) responsibly … why not? The premise of the expanded, Advance Child Tax Credit, as part of the American Rescue Plan Act of 2021, is to help families and to help stimulate the economy. But that does not mean the advanced credit (money) should be spent thoughtlessly. Being sensible and responsible can help set you up for future success for years to come.
Financial literacy is an understanding of the skills and knowledge that allows an individual to make informed and effective decisions with all their financial resources, including taxes! Make time to learn about the expanded, Advanced Child Tax Credit. Strong financial knowledge and decision-making skills help people weigh their options and make informed choices for their financial situations, such as deciding how and when to save and spend, comparing costs before a big purchase, and planning for retirement or other long-term savings. Be prepared, research your options, and have a plan. You will be glad you did!
The IRS doesn’t initiate contact with people by email, text messages or social media channels to request personal or financial information. People should watch out for websites and social media attempts that request money or personal information and for schemes tied to Advance Child Tax Credit payments, Economic Impact Payments, or other tax topics. Be careful of SCAMS. Report these scams to the IRS.
American Rescue Plan: Enhanced Child Tax Credit
It is not often (or ever) that working families receive a windfall. Nevertheless, that is exactly what the enhanced, Child Tax Credit as part of the American Rescue Plan is. Moreover, it is a significant chunk of money for many families to receive on a monthly basis. If you qualify for the payments start thinking now about what to do with the money. Without a plan for spending, this money might be spent before you realize it!
The credit amount will be made through advance payment starting July1, 2021 ending December 31, 2021. This tax law change can be a boon to struggling families. Families can receive financial assistance now, rather than waiting until the 2022 tax filing season to receive the Child Tax Credit benefits. Please try to be mindful of this money. Start with a plan. A spending plan, also called a budget, is simply a strategy you create that helps you meet expenses. A good spending plan can keep you from spending money without thinking.
The credit is now extended to Puerto Rico and the U.S. Territories. For the first time, families residing in Puerto Rico and the U.S. Territories will receive this vital financial assistance to better support their children’s development and health and educational attainment
Leon County Child Tax Credit Infographic
April is designated as National Financial Literacy Month to increase awareness about financial literacy, especially with the Coronavirus (COVID-19) causing economic worry for families across the United States. When it comes to financial literacy, knowledge is power!
Consumer debt has become a major challenge for families. If you owe money to multiple creditors, managing this debt can be overwhelming. Many Americans have more debt than they can afford to pay. Developing strategies for overcoming this challenge is essential. These strategies should include building financial knowledge, developing a budget, and setting savings goals to improve your financial outlook.
Financial literacy means understanding how to save, borrow, invest, and care for your money, leading to greater financial well-being. Research has shown that our physical health and well-being are directly linked to our financial health and well-being.
Florida Saves is a statewide initiative that helps inspire Florida families to set savings goals, lower debt, and build personal wealth. The Florida Saves pledge, located on the Florida Saves website, can help us establish personal financial goals. With this pledge, you’re making a commitment to work toward a savings goal, such as college tuition, an emergency fund, or down payment on your first home. Visit the Florida Saves Initiative website to learn more about financial literacy.
Whatever your savings goals are, becoming financially literate can help you achieve those goals. For more information about financial literacy and management, please contact your local UF/IFAS Extension Agent.
Extension classes are open to everyone regardless of race, creed, color, religion, age, disability, sex, sexual orientation, marital status, national origin, political opinions, or affiliations.
Do you quality for the Earned Income Tax Credit (EITC), or Earned Income Credit (EIC)?
The Earned Income Tax Credit (EITC), or Earned Income Credit (EIC), is a refundable tax credit targeted to working people with low to moderate income.
EIC is a refundable credit. You can take advantage of the credit even if you do not owe any taxes. (https://www.irs.gov/pub/irs-prior/p596–2020.pdf)
Plus, there is a new feature… the LOOKBACK rule for Earned Income Credit (EIC).
As part of the Consolidated Appropriations Act of 2021, passed in December of 2020, you can use your 2019 earned income to determine your EIC and the Additional Child Tax Credit if your 2020 earned income is lower than your 2019 earned income. This is an especially important rule. You can use whichever income gets you the larger credit.
To qualify for the EIC:
- You must have at least $1 of earned income: wages, salary, tips, net self-employment earnings (income less expenses), or disability benefits up to a certain threshold
- You file a federal income tax return for the tax year even if you do not owe any tax or are not required to file a tax return
- Taxpayer (and spouse) and any qualifying child must each have a valid Social Security number issued before the due date of your return
- Taxpayer must be a U.S. citizen or resident alien for the entire year
- Filing status can be married filing jointly, head of household, qualifying widow(er), or single. (You can’t claim the EITC if your filing status is married filing separately)
- Your tax year investment income must be $3,650 or less for the year
- Cannot file form 2555 relating to foreign earned income
- Rules for qualifying children:
- Child(ren) must be under age 19—age 18 or younger—at the end of the tax year and younger than you or your spouse (if you file jointly) OR under age 24 and a full-time student and younger than you or your spouse (if you file jointly) OR any age if permanently and totally disabled
- The child must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of these individuals, which includes your grandchild, niece, or nephew
- The child must have lived with you for more than half of the tax year (some exceptions apply)
- Only one person can claim the same child for the same tax year
The EIC may be disallowed if the taxpayer incorrectly files for the credit but does not meet these requirements.