As we enter 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 settle special stimulus measures on their tax forms and others try to make up for the last two years of missing funds. Here’s a handy Q&A
which solves the biggest problems this year.
Question: When must taxes be paid?
A: Unlike the past two years, when the IRS delayed filing due to the pandemic, we are back to April with one caveat. Instead of the usual April 15, the tax filing deadline is April 18 due to Emancipation Day in the District of Columbia. On April 18, you also need to apply for an extension, which gives you until October 17.
Question: How is the Child Tax Credit (CTC)?
A: Pay attention to this one. When Congress passed the American Rescue Plan (ARP) in 2021, it created an extended child tax credit. Under the old system, families who reached a certain income threshold received credit when they filed their tax returns. The amount has been increased via ARP and the payment plan has been changed. Eligible Americans received half of the increased amount in six-monthly payments. To receive the OTHER half, you must report it on your 2021 tax return.
If you received CTC last year, you should have received (or will soon receive) a letter from the IRS stating the amount of CTC payments sent to you in 2021 and giving specific instructions on how to claim the rest of the money. You can also check the amount of payments you have received using the CTC Update Portal on IRS.gov.
If you did not receive CTC payments but think you are eligible based on your income in 2021 and your family size, you can claim a full credit on your tax return. Payments decrease as your income increases, but you will be eligible for a full loan if you earn less than $150,000 in marriage and apply together or $75,000 as a single applicant. Some families who do not normally need to file a return may need to do so in order to claim CTC.
Question: What if I never received my refund or check for last year?
A: Most of the delays were due to staffing problems with the IRS. According to the 2021 Taxpayer Advocate Report, the agency’s workforce has decreased by 17% since fiscal year 2010, and its workload, as measured by the number of individual declarations, has increased by 19%.
If the return requires a human eye from IRS staff (e.g. paper declarations, correction of errors), you will experience significant delays. As of the end of December, the IRS had 6 million outstanding original individual returns and 2.3 million unprocessed amended individual returns.
Question: How can I avoid these terrible delays?
A: File electronically, use direct deposit, and make sure the child loan and incentive amounts match IRS notices. Most taxpayers should receive a refund within 21 days of filing electronically if they opt for direct deposit and there are no issues with their tax return.
Question: Are stimulus checks taxable?
A: STIMULUS CHECKS ARE NOT TAXED. If you have not received payment or believe you have been scammed, you must apply for a credit for a refund. The IRS sends out separate letters to help determine if people qualify for missing stimulus payments.
Question: Are unemployment benefits taxed?
A: Congress has NOT passed legislation providing tax credits for unemployment benefits in 2021, as it did for unemployment benefits in 2020. Thus, if you did not withhold unemployment taxes, you may owe money or receive a smaller refund. Form 1099-G lists the amount of unemployment benefits you received. In addition, you may also be on the hook for government taxes on your unemployment benefits.
Jill Schlesinger, CFP, business analyst at CBS News. A former options trader and CIO at an investment advisory firm, she welcomes comments and questions at email@example.com. Visit her website www.jillonmoney.com.