The Internal Revenue Service continues to update information regarding changes to tax filing in the coming year. This includes information on advance Child Tax Credit payments, Economic Impact payments, claiming the Recovery Rebate Credit, and charitable deductions. Stay updated with the latest below to make sure filing taxes is easy and streamlined. It could either save you money or cost you.
Advance Child Tax Credit Payments
If you received any advance Child Tax Credit payments in 2021, you will need to compare the amount received with the amount that can be properly claimed on your return. This will determine whether you can claim additional credits or if you need to repay the IRS.
Eligible families who did not get monthly advance payments in 2021 can still get a lump-sum payment by claiming the Child Tax Credit when they file a 2021 federal income tax return next year. This includes families who don’t normally need to file a return.
In January 2022, the IRS will send you a Letter 6419 to provide the total amount of advance Child Tax Credit payments that were disbursed to you during 2021. Keep this for your records during the 2022 filing season.
Excess Child Tax Credit Amount: If the amount of your Child Tax Credit exceeds the total amount of your advance Child Tax Credit payments, you can claim the remaining amount of your Child Tax Credit on your 2021 tax return.
Excess Advance Child Tax Credit Payment Amount: If you receive a total amount of advance Child Tax Credit payments that exceeds the amount of Child Tax Credit that you can properly claim on your 2021 tax year, you may need to repay the IRS some or all of that excess payment.
Why is the total amount of my Advance Child Tax Credit payments greater than the amount I am eligible to claim?
The amount of advance Child Tax Credit received is based on an IRS estimate. This estimate is calculated from your previous tax return in 2019, 2020, and any updated information from 2021. Family and life situations are always evolving, so it is important to consider the following if you see any discrepancies in credit amounts.
- A qualifying child who resided with you may change homes during 2021 and reside more than half of the 2021 tax year with a different individual.
- Your income increases in 2021.
- Your filing status changes for 2021.
- Your main home was outside of the United States for more than half of 2021.
Charitable Deduction Changes
Taxpayers who don’t itemize deductions may qualify to take a charitable deduction of up to $600 for married taxpayers filing joint returns and up to $300 for all other filers. This is in regards to cash contributions made in 2021 to qualifying organizations. If you’re unsure whether you qualify, check out the IRS’s Publication 526 and what it covers below:
- Organizations qualified to receive contributions.
- The types of contributions you can deduct.
- How much you can deduct.
- What records to keep.
- How to report contributions.
Claiming the Recovery Rebate Credit
Are you missing a stimulus check? The third round of Economic Impact Payments was issued starting in March 2021 and continued through December 2021. The third round of Economic Impact Payments, including the plus-up payments, were advance payments of the 2021 Recovery Rebate Credit claimed on a 2021 tax return.
Most eligible people already received the payments. However, people who are missing stimulus payments should review the information below to determine their eligibility and whether they need to claim a Recovery Rebate Credit for the tax year 2020 or 2021.
If you didn’t qualify for the third payment or did not receive the full amount, you may be eligible for the Recovery Rebate Credit based on their 2021 tax information. Your 2021 Recovery Rebate Credit will reduce any tax you owe for 2021 or be included in your tax refund.
If you’re eligible, you’ll need to file a 2021 tax return even if you don’t usually file a tax return. If you use tax software, it will help you figure the correct amount. Do not include amounts of missing first or second stimulus payments on your 2021 tax return.
In early 2022, the IRS will send a Letter 6475 that contains the total amount of the third Economic Impact Payment and any Plus-Up Payments received. Keep this for your records to avoid any delays in processing.
Revamp your tax planning strategy
The confluence of record-low interest rates, high exemption amounts and an uncertain future for tax policy makes it an important time to revisit your tax plan.
Get in touch to start the conversation today!