3 Changes For The 2022 Tax Season
There were several tax law changes in 2021 which will affect most Americans this coming tax season. The expanded child tax credit payments could impact many families’ tax refunds, and for the nearly 90% of Americans who claim the standard deduction, they will see a small but positive change.
The IRS has yet to announce an official start date to the 2022 tax season, but it typically begins accepting tax returns by the end of January.
Here’s what you need to know and how you can prepare for the changes.
Your Monthly Child Tax Credit Payments May Increase or Decrease Your Refund
For the first time in history, the IRS sent the child tax credit as monthly payments to qualifying families. Depending on the amount of your monthly child tax credit payments received in 2021, you may receive a bigger tax refund, get a smaller refund than expected—or even owe additional taxes. If you received monthly child tax credit payments, you must report the amount on your 2021 tax return. You should receive Letter 6419, which will state the total amount of child tax credit payments you received.
The IRS recommends that you compare this amount with the total child tax credit you’re entitled.
If the total child tax credit you qualify for exceeds how much you already received through your advance child tax credit payments, you can claim the remaining amount on your 2021 tax return. If you received more than you qualify for, you will need to repay some or all of the excess payments back to the IRS when filing their taxes.
Here are some reasons where you may receive more than what you may qualify for in 2021:
Your qualifying child now lives with another parent
Your income or filing status changed
You no longer reside in the United States for more than half of 2021
Your tax professional can use Letter 6419 and other letters to claim any remaining amount of the child tax credit if you qualify for it, says Alton Bell II, enrolled agent and founder of Bell Tax Accountants & Advisors.
The child tax credit for 2021 is up to $3,600 for children under the age of 6 (up to $3,000 for children ages 6-17). From July to December, qualified families received up to 50% of their child tax credit as monthly payments. Some families can claim the remaining amount on their 2021 tax returns. However, not all families received the payments, some chose to opt-out.
You could claim the full lump sum on your 2021 tax return if you opted out of receiving monthly payments in 2021.
2021 Recovery Rebate Tax Credit for Third Stimulus Payments
For 2021, you may qualify for the Recovery Rebate Tax Credit. This is the case if you haven’t received the third economic impact payment (also known as a stimulus payment) or received only a partial payment (less than the full stimulus payment amount of $1,400),
You must file a 2021 tax return, even if you’re not typically required to do so. In general, if you earn over the following income amounts and aren’t claimed as a dependent, you should file a Form 1040 for the 2021 tax year (filed in 2022).
Single and married filing separately $12,550
Married filing jointly $25,100
Head of household $18,800
You need to know the amount of your third stimulus payment you
You need to know the amount of your third stimulus payment you received in 2021 for yourself, spouse, or dependents to claim your Recovery Rebate Credit. You’ll receive Letter 6475 from the IRS in early 2022, showing the amount of your third stimulus payment. You can also view your stimulus payment amount by logging into your IRS.gov online account.
You should keep these letters with your tax records, and you will need the information to claim the credit on your 2021 tax return.
You’ll need to complete the Recovery Rebate Tax Credit worksheet to request any additional payments you may be due for your 2021 tax return. If you’re using tax software, it will walk you through the process to determine your correct payment.
You Don’t Have to Itemize to Claim Charitable Donations
Normally, you must itemize to deduct charitable contributions. But for 2021, you can deduct up to $300 for cash donations to qualifying charities (up to $600 combined for married filers) whether you itemize or take the standard deduction for 2021.
“The increased charitable donation deduction for both individuals who itemized and for those who do not itemize (for) 2021 is a momentous year to support your favorite charity,” Bell said.
And there’s a bonus for generous charitable givers who itemize. Those who claim charitable contributions as itemized deductions can claim cash contributions made to qualifying organizations up to 100% of their adjusted gross income (AGI) for the 2021 tax year only, Bell said. Generally, the deduction is limited to 60% of the taxpayer’s AGI.
It is important to remember that the temporary increase of the 100% limit isn’t automatic. Taxpayers must opt for increased limitations by making the election on their federal tax return for 2021. Otherwise, the usual limitation of up to 60% applies.