Tax time: what’s new for tax season 2022
The COVID-19 pandemic has impacted our day-to-day lives for the past two years—including our taxes. And tax season is here again. This year, there are various changes to be aware of before you file—especially if this is your first time filing. The deadline to file is April 18th, which is a few days later than the usual April 15th deadline, but it will be here before you know it. File your taxes with confidence—below are a few things to keep in mind when filing your 2021 tax return.
Economic Impact Payments
In 2020 and 2021, taxpayers were issued Economic Impact Payments (also known as stimulus checks) as part of the CARES Act. However, many people were left out, receiving only partial payments or no payment altogether. If you did not receive the entire amount you qualified for in 2021, you can claim the Recovery Rebate Credit. The Recovery Rebate Credit is for individuals who did not receive stimulus checks or full payments. If you file electronically, the tax software you use will help you determine your Recovery Rebate Credit. The Form 1040 and Form 1040-SR instructions can also help determine your eligibility.
Advanced Child Income Tax credit
The IRS advanced Child Income Tax Credits as part of the American Rescue Plan Act. Families that made less than a certain amount with a qualifying child under 18 met the requirements for these advance payments. Half the total credit was paid in monthly payments, and the other half can be claimed when you file your 2021 tax return. If you qualified for the advanced payments, compare what you received with the amount of Child Tax Credit you can claim on your 2021 return. Those who received less than the amount they’re eligible for can claim a credit for the remaining amount. If you received more than you’re eligible for, you might need to repay some or all of the excess amount. The IRS will send Letter 6419 with the total amount of advance Child Tax Credits you received—be sure to file that with your tax records. If you did not receive any advanced payments, you can get a lump-sum payment by claiming the Child Tax Credit on your return.
Interest on refunds
In 2021, some taxpayers received interest payments on their federal refund if they received their refund late. Refund interest payments are taxable and must be reported when filing your 2021 federal income tax return. The IRS sent Form 1099-INT to anyone who received $10 or more in interest. If you did not receive the form, you must still report your interest income earned. Check your account statement or contact your financial institution to get your interest-earning amounts.
Charitable deduction changes
Taxpayers can take standard or itemized deductions. Most taxpayers take the standard deduction, which increased slightly this year—$12,550 if filing single, $18,800 if filing head of household, and $25,100 if filing jointly. Taxpayers who do not itemize deductions can take a charitable deduction of up to $300 (if filing single) for cash contributions made to qualifying organizations. If you’re married and filing jointly, you can deduct $600. This means the deduction lowers your adjusted gross income (AGI), which is your total income minus any deductions already taken, and taxable income—translating into tax savings for you. Cash contributions are donations made by check, credit card, or debit card. Keep in mind that every situation is different as to whether you should take the standard deduction or itemize. For more information on claiming charitable deductions, you can read Publication 526, Charitable Contributions.
Unfortunately, because of the pandemic, many families continued to struggle with medical bills. You can deduct medical expenses above 7.5% of your AGI. For example, your AGI is $50,000, and you incurred $8,000 in medical expenses. You would take $50,000 and multiply that by .075 (7.5%) to get $3,750. In this case, everything above $3,750 would be deductible—meaning you could deduct $4,250. The lower your AGI, the more deductions you will receive. Most medical expenses can be deducted unless you funded them with a flexible spending account (FSA) or health savings account (HSA). However, if you wish to deduct any medical expenses, you’ll need to itemize, which takes longer.
If you were self-employed in 2021, there are various deductions you can claim on your tax return, like travel expenses or the home office deduction. The home office deduction covers mortgage interest, insurance, utilities, repairs, and depreciation. However, if you, like millions of Americans, worked remotely, you cannot claim these deductions. The Tax Cuts and Jobs Act suspended the business use of home deductions through 2025. Home office deductions are reserved for independent contractors or other self-employed individuals who regularly and exclusively use their homes to conduct business and their work. So, employees who receive a paycheck or W-2 from an employer are not eligible to claim the deduction—even if they currently work from home.
Earned Income Tax Credit
While this isn’t new, the Earned Income Tax Credit (EITC) often goes unclaimed. Around 20% of eligible taxpayers don’t claim the benefit or file a return because they don’t realize they qualify. The EITC helps low- to middle-income workers and their families receive a tax break. If you’re eligible, that money earned can reduce the amount you owe or go towards your tax refund. You can determine if you meet requirements through the IRS’s EITC Assistant.
Remember—if your adjusted gross income (AGI) is less than $73,000 annually, you qualify to file your return for free using the IRS’s Free File Program. Once your return is accepted by the IRS, you can use Where’s My Refund to track when you’ll receive your refund. April will be here before you know it, so allow yourself plenty of time to file to ensure there are no errors. Keep these tips in mind, and tax season will be a breeze.