By Jill Schlesinger
As we start the third tax season of the COVID-19 era, I advise you to take a deep, breath. It’s going to be another confusing year, as Americans try to reconcile special stimulus measures on their tax forms and others scramble 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 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 on this one. When Congress passed the American Rescue Plan (ARP) 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 and the size of your family, you can claim the full credit on your tax return. The payments taper down the higher your income but you would be eligible for the full credit if you earned less than $150,000 married and filing jointly or $75,000 as a single filer. 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?
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% while its workload – as measured by the number of individual returns – has increased by 19%.
If a return requires human eyes from IRS personnel (i.e., paper returns, correcting errors), you will encounter significant delays. As of late December, the IRS had backlogs of 6 million unprocessed original individual returns and 2.3 million unprocessed amended individual returns.
Q. How can I avoid those awful delays?
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?
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?
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.
Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes questions at email@example.com. Check her website at www.jillonmoney.com.