Important Reminders for an Efficient 2022 Filing Season

 

It’s that time of year again. Tax time! As individuals begin to gather and organize their 2021 tax documents to prepare for the upcoming filing season, there are a few very important items to keep on your radar. Planning ahead can help ensure the filing of an accurate tax return and avoid processing delays that slow down the issuance of any applicable tax refunds.

 

Advance Child Tax Credit Payments

In January of 2022, the IRS will send Letter 6419 to families that received the advance Child Tax Credit. This letter will report the total amount received in advance during 2021. Keep in mind, since these advance payments were estimated based off 2020 income levels, it is quite likely that there will be a difference in the amount taxpayers are entitled to compared to the amount they initially received. Taxpayers who received less than the amount they’re eligible for – based on their actual 2021 modified adjusted gross income – will claim a credit for the remaining amount of the Child Tax Credit on their 2021 tax return. Taxpayers who received more than the amount they’re eligible for – based on their actual 2021 modified adjusted gross income – may need to repay some or all of the excess payment back with their 2021 tax return. If taxpayers did not receive IRS Letter 6419 in the mail but did receive advance Child Tax Credit payments, it’s possible to view/print historical advance Child Tax Credit payment history via the online portal.

The Child Tax Credit phases out in two different steps based on 2021 modified adjusted gross income. The first phaseout applies to modified adjusted gross income in excess of $150,000 married filing joint, $112,500 head of household, or $75,000 for any other filing status. The second phaseout applies to modified adjusted gross income in excess of $400,000 married filing joint or $200,000 for any other filing status.

 

Third Economic Impact Payments

Also in January of 2022, the IRS will send Letter 6475 to families that received the third Economic Impact Payment (a.k.a. the third stimulus payment) – either partly or in full during 2021. Taxpayers who received less than the amount they’re eligible for – based on their actual 2021 adjusted gross income – will claim the Recovery Rebate Credit on their 2021 tax return. Taxpayers who received more than the amount they’re eligible for – based on their actual 2021 adjusted gross income – will not need to repay any of the excess payment back with their 2021 tax return. If taxpayers did not receive IRS Letter 6475 in the mail but did receive the third Economic Impact Payment in advance, it’s possible to view/print third Economic Impact Payment history via the online portal.

Generally, taxpayers are eligible for the full amount of the third Economic Impact Payment if their adjusted gross income is less than $150,000 married filing joint, $112,500 head of household, or $75,000 for any other filing status. Payments are fully phased out if their adjusted gross income is more than $160,000 married filing joint, $120,000 head of household, or $80,000 for any other filing status.

 

Health Insurance Marketplace Statements

Another important document that will arrive in January of 2022 is IRS form 1095-A. This letter will be sent to families that received health insurance through the marketplace during any month(s) of 2021. Taxpayers who received less of a subsidy toward their health insurance premiums than the amount they’re eligible for – based on their actual 2021 modified adjusted gross income – will claim the Premium Tax Credit on their 2021 tax return. Taxpayers who received more of a subsidy toward their health insurance premiums than the amount they’re eligible for – based on their actual 2021 modified adjusted gross income – may need to repay some or all of the subsidies back with their 2021 tax return. Please note that the American Rescue Plan temporarily restructured the repayment guidelines for tax year 2020. In other words, 2020 health insurance premiums received in advance did not have to be paid back on 2020 tax returns, regardless of actual income levels. Unfortunately, the original repayment guidelines are reinstated for tax year 2021.

In general, families are eligible for the Premium Tax Credit if their household income is between 100% and 400% of the federal poverty line for their family size. The Department of Health and Human Services (HHS) determines the federal poverty guideline amounts annually. Those can be accessed here.

 

As always, it’s important that taxpayers continue to diligently gather their usual tax documents including form W-2s, form 1099s, schedule K-1s, rental income and expenses, virtual currency transactions, real estate tax bills, charitable contributions, estimated tax payments, bank information for direct deposit/direct debit if desired, identity protection PINs (discussed in detail in an earlier blog post), etc. In addition to these typical items, be sure to keep the letters mentioned above in a safe place upon receipt and provide them to your tax preparer during the upcoming filing season. It’s also important that taxpayers notify their tax accountant of any address changes or legal name changes that took place during the tax year, raise any questions they have, or indicate any unusual transactions that occurred. Taking care of the items discussed above will avoid the undesirable rejection of tax returns or the origination of unnecessary IRS notices, and allow for an overall smoother and more efficient 2022 filing season.

 

Should you have additional questions, please contact Jeff Audi via e-mail at [email protected] or via telephone at 404-702-8290.