COVID Tax Season #3 Opens
As we start the third tax season of the COVID era, be forewarned: It’s going to be another confusing year. Americans must try to reconcile special stimulus measures on their tax forms, while scrambling to recoup missing funds from the past two years. Here’s a handy Q&A that addresses the biggest issues this year.
Q: When are taxes due?
A: Unlike the past two years, where the IRS delayed tax filing due to the pandemic, we are back to April, with a caveat. Instead of the customary April 15, the tax filing deadline is April 18, because of Emancipation Day in the District of Columbia. April 18 is also the due date to file for an extension, which gives you until October 17.
Q: What’s the deal with the Child Tax Credit (CTC)?
A: Pay attention to this one. When Congress passed the American Rescue Plan in 2021, it created an Enhanced Child Tax Credit. Under the old system, families who met certain income thresholds, nabbed the credit when they filed taxes. The amount was increased through ARP and the payment plan was changed. Eligible Americans received half of the increased amount in six monthly payments. To get the OTHER half, you must claim it on your 2021 tax returns.
If you received the CTC last year, you should have received (or will soon receive) a letter from the IRS, that details the amount of CTC payments sent to you in 2021 and provides specific instructions about how to claim the rest of the money. You can also check the amount of the payments you received by using the CTC Update Portal on IRS.gov.
If you did not receive CTC payments but believe that you are entitled to them based on your 2021 income (to get the full credit, income must be less than $150,000 for MFJ, $75,000 single, a partial credit is available subject to phaseouts) and the size of your family, you can claim the credit on your tax return. Some families that don't normally need to file a return, may have to do so to claim the CTC.
Q: What if I never got my refund or stimulus check from last year?
A: Most of the delays have been due to IRS staffing issues. According to the 2021 Taxpayer Advocate Report, since FY 2010, the agency’s workforce has shrunk by 17 percent, while its workload, as measured by the number of individual returns, has increased by 19 percent.
As of late December, the IRS had backlogs of 6 million unprocessed original individual returns (Forms 1040), 2.3 million unprocessed amended individual returns (Forms 1040-X), more than 2 million unprocessed employer’s quarterly tax returns (Forms 941 and 941-X), and about 5 million pieces of taxpayer correspondence, with some of these submissions dating back at least to April.
Q: How can I avoid those awful delays?
A: File electronically, use direct deposit, and make sure child-credit and stimulus amounts match IRS notices. Most taxpayers should receive refunds within 21 days of when they file electronically if they choose direct deposit and there are no issues with their tax return.
Q: Are stimulus checks taxable?
A: STIMULUS CHECKS ARE NOT TAXABLE. If you did not receive the payment or think you were shortchanged, you should file for the Recovery Rebate Credit. The IRS is sending separate letters to help determine if people are eligible to claim missing stimulus payments.
Q: Are unemployment benefits taxable?
A: Congress has NOT passed a law offering tax breaks on 2021 unemployment benefits, as they did for 2020 unemployment benefits. So, if you didn’t withhold taxes from unemployment, you may owe money or get a smaller refund. Form 1099-G highlights the amount of unemployment that you received. Additionally, you may also be on the hook for state taxes on your unemployment benefits. (Here’s a link to each state’s site, so you can find the specific rules for your state.)
Q: Can I deduct expenses for my home office?
A: If you are a W-2 employee, you are not eligible for the home office deduction, even if you are working from home. If you are self-employed, the home office deduction is still available, as long as you use a portion of the home for conducting business on a regular basis and your home is your principal place of business.
If you worked from home in a different location, you could see tax benefits, or penalties, for the change in location. Check your primary state/city rules about other jurisdictions and make the necessary adjustments.
Q: I need help on my return, what can I do?
A: There are great resources available, including:
IRS Free File: The IRS works with several tax preparation companies to offer FREE online products for those who make $73,000 or less. Each provider sets its own eligibility rules for products based on age, income, and state residency, so you need to do some homework. Go to IRS.gov/FreeFile and use the “Free File Online Look up” tool for help in finding the right product. If you don’t have a computer, Free File products support mobile phone access.
Volunteer Income Tax Assistance (VITA): Free tax help to people who generally make $58,000 or less, persons with disabilities and limited English speaking taxpayers who need assistance in preparing their own tax returns.
Tax Counseling for the Elderly (TCE): Free tax help for individuals who are 60 years of age and older, specializing in questions about pensions and retirement-related issues unique to seniors.
Where’s My Refund Tool: https://www.irs.gov/refunds