The IRS announced this month that most Americans should receive their refunds within 21 days of filing – with some exceptions. Due to regulations designed to prevent fraud, claiming the Earned Income Tax Credit will slow down your tax return. As a result, people who claim this credit and file their returns on January 24 or close to that date may not receive their refund until early March, according to the IRS.

The reason for this is due to The Protecting Americans from Tax Hikes Act of 2015 that slows refunds for persons who claim these benefits. The regulation was enacted to target fraudsters who use identity theft to steal taxpayer refunds.

Although the IRS claims that most refunds would be issued within 21 days, experts caution that delays are inevitable due to the agency’s ongoing work on 2020 tax returns.

Despite the fact that some people prefer to file paper returns and others have no choice, the IRS claims that taxpayers who file electronically are more likely to have their returns processed fast. Last year, approximately 10 million persons filed paper forms, accounting for about 7% of the 148 million returns filed in 2021. Experts advise people to join the 138 million taxpayers who already use electronic filing.

The IRS also advises taxpayers to set up direct deposit for their refunds. The quickest way to obtain your money, according to the agency, is to employ a combination of e-filing and direct deposit, which transfers the money directly to your bank account. Last year, around 95 million customers received refunds, with approximately 87 million opting for direct deposit. According to the IRS, most taxpayers who file electronically and choose direct deposit will get their refund within 21 days, assuming there are no issues with the return.

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As of late, the IRS has been sending out letters with valuable information for Advance Child Tax Credit and for the third round of the Economic Impact payments to those who qualify.  Letters will be going out until the end of January. Keeping this information and using it to prepare your tax return will help to reduce errors and delays in processing.

For those who will be receiving these letters, the IRS urges you to hold on to these letters to help you prepare your 2021 federal tax returns.

The following information will help taxpayers coordinate and receive the Child Tax Credits, they are entitled to.  As of late December through January, the Internal Revenue Service will send out the 6419 Letter for the advanced CTC. This letter covers the amount of advance Child Tax Credit payments made in 2021 and the amount of qualifying children used to calculate their advance payments. Taxpayers should keep this letter as well as all letters from the IRS along with their tax records regarding advance Child Tax Credit payments.

Taxpayers who have received advance payments will have to file a 2021 tax return and check the Child Tax Credit payment they were given in 2021 along with the credit they were allowed on their 2021 tax return 

If taxpayers did not get advance Child Tax Credit, they may claim the full amount of the Child Tax Credit on  2021 tax return filed in 2022. This includes families who normally do not file tax returns.

Toward the end of January, the Internal Revenue Service will be sending out the 6475 Letter for the third Economic Impact Payment to EIP  beneficiaries. The letter will help recipients decide if they are entitled to and should claim the Recovery Rebate Credit on their 2021 tax return which they will file in 2022.

For the 3rd round of Economic Impact Payments issued in March of 2021, the 6475 Letter has been sent out. The third round of Economic Impact Payments included the “plus-up” payments, which were advance payments of the 2021 Recovery Rebate Credit that would be claimed on the 2021 tax return.

The IRS sent out the plus-up payments to beneficiaries who were given the third Economic Impact Payment. This payment is provided from information provided by VA, SSA, and RRB. This also applies to people who might be eligible for a larger amount based on their 2020 tax return. The plus-up payments were additional payments the IRS sent to those who received a third Economic Impact Payment based on their 2019 tax return.

Most people who are eligible, have already received their payments. Those who are missing stimulus payments should review the information to find out their eligibility and if they need to claim a Recovery Rebate Credit for the tax year 2021.

The Economic Impact Payment letters are like the advance CTC letter. It includes important information that will help taxpayers accurately and quickly file their tax returns.

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Lower-income taxpayers are getting some very good deals. If your modified adjusted gross income (AGI) does not exceed $40,000 for singles, $50,000 for the head of the household, or $60,000 for couples filing jointly, and you have been a resident in the U.S for over half of 2021, you will not have to return any overpayment amount.

That said, if you are a parent with a higher income, quite the opposite will happen.  If your modified adjusted gross income (AGI)  is $80,000 for single filers, $100,000 for the head of the household filers, or $120,000 for a couple filing jointly, you will have to pay back the entire overpayment!

This is also very confusing for those taxpayers who are stuck in the middle.  A portion or part of your over-payment might be overlooked if your modified AGI for 2021 is between $40,000 and $80,000 as single filers, $50,000 and $100,000 as head of the household, or $60,000 and $120,000 as a couple filing jointly. To find out where you stand as far as the payment being wiped out, you will have to calculate what the IRS refers to as your “repayment protection amount”. It’s equal to $2,000 multiplied by:

How many children the IRS used to calculate your monthly child tax credit payment, minus the number of children used to calculate your total credit amount on your 2021 tax return.

If there is no difference between the number of children applied to calculate the 2 amounts then there is no overpayment reduction and the full amount will have to be repaid.  If you have a positive repayment protection amount, it will slowly phase out as your modified AGI increases within the above-mentioned ranges. 

The rate is based on how much your modified AGI exceeds the lower limit of the income range. Since your final repayment protection amount is calculated, it will be subtracted from your overpayment so you will know how much you will have to repay. Keep in mind, your overpayment cannot be reduced below zero.

This, again, can be confusing. As an example, if Mr. X is single and has claimed a child tax credit for 2 children on his 2020 tax return and they are between 2 and 4 at the end of 2021, the IRS will send him $3,600 in monthly payments in 2021. However, he cannot claim the child tax credit on his 2021 return if his ex-wife is claiming the 2 children as dependents on her return.  His 2021 child tax credit is $0 so the entire $3,600 he received from IRS is considered an overpayment. His initial repayment protection is $4,000 for each child at $2,000. Therefore, if Mr. X filed his 2021 return with a modified AGI of $60,000, his modified AGI exceeded the lower limit of the appropriate income range; $40,000 by 50% – $60,000 – $40,000 / $80,000 – $40,000 = 0.5. As a result, his $4,000 repayment protection amount will be reduced by 50% to $2,000 and he only has to repay $1,600 of the $3,600 over-payment ($3,600 minus $2,000 equaling $1,600.

 

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If you need help paying health insurance premiums during the year, you can apply to receive the Advance Premium Tax Credit.

You can claim the Advance Premium Tax Credit when you buy insurance coverage through a Health Insurance Marketplace and reconcile it on Form 1040 with Form 8962.

The credit is based on your estimated income for the year, so you can claim it before you actually file your taxes. The Advance Premium Tax Credit is paid directly to the insurance company every month to lower your premium payment amount.

If you received too much Advance Premium Tax Credit in 2020, you won’t have to pay back the excess—and if you’ve already filed your 2020 return and paid back the excess on Line 29 of Form 8962, Premium Tax Credit, you should not file an amended tax return only to get a refund of this amount. The IRS will determine the correct amount and refund it to you. 

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Need more time to prepare your federal tax return?
Please be aware that:
  • An extension of time to file your return does not grant you any extension of time to pay your taxes.
  • You should estimate and pay any owed taxes by your regular deadline to help avoid possible penalties.
  • You must file your extension request no later than the regular due date of your return.
  • Filing this form gives you until Oct. 15 to file a return.
  • To get the extension, you must estimate your tax liability on this form and should also pay any amount due.

Get an extension when you make a payment

You can also get an extension by paying all or part of your estimated income tax due and indicate that the payment is for an extension using Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or a credit or debit card. This way you won’t have to file a separate extension form 4868 and you will receive a confirmation number for your records.
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Reasons for Refund Delays

February 5, 2020

Some tax refunds take longer than expected. The IRS may delay refunds for several reasons, including the following:

• Errors in Direct Deposit information (refunds then sent by check);

• Financial institution refusals of Direct Deposits (refunds then sent by check) or delays in crediting the Direct Deposit to the taxpayer’s account;

• Claims of the Earned Income Tax Credit or Additional Child Tax Credit require the IRS to hold the entire refund until mid-February

• Estimated tax payments differ from amount reported on tax return (for example, fourth quarter payments not yet on file when return data is transmitted);

• Bankruptcy;

• Inappropriate claims for the Earned Income Tax Credit, Additional Child Tax Credit, Credit for Other Dependents’ Child Tax Credit, or American Opportunity Tax Credit; or

• Recertifications to claim the Earned Income Tax Credit, Child Tax Credit, Additional Child Tax Credit, Credit for Other Dependents’ or American Opportunity Tax Credit.

The IRS sends a letter or notice explaining the issue(s) and how to resolve the issue(s) to the taxpayer when it delays a refund. The letter or notice contains the contact telephone number and address for the taxpayer to use for further assistance.

The IRS offsets as much of a refund as is needed to pay overdue taxes owed by taxpayers and notifies them when this occurs. The Bureau of the Fiscal Service offsets taxpayers’ refunds through the Treasury Offset Program (TOP) to pay off past-due child support, federal agency non-tax debts such as student loans and unemployment compensation debts, and state income tax obligations. Offsets to non-tax debts occur after the IRS has certified the refunds to Fiscal Service for payment but before Fiscal Service makes the Direct Deposits or issues the paper checks. Refund offsets reduce the amount of the expected Direct Deposit or paper check but they do not delay the issuance of the remaining refund (if any) after offset. If taxpayers owe non-tax debts they may contact the agency they owe, prior to filing their returns, to determine if the agency submitted their debts for refund offset. Fiscal Service sends taxpayers offset notices if it applies any part of their refund to non-tax debts. Taxpayers should contact the agencies identified in the Fiscal Service offset notice when offsets occur if they dispute the non-tax debts or have questions about the offsets. If taxpayers need further clarification, they may call the Treasury Offset Program Call Center at (800) 304-3107. If a refund is in a joint name but only one spouse owed the debt, the “injured spouse” should file Form 8379, Injured Spouse Allocation.

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The name of the credit is Child and Dependent Care Credit.

The amount of your work-related expenses you can use to determine your credit is a dollar cap. For one qualified person, the cap is $3,000, or $6,000 for two or more qualified individuals.

If you have paid work related expenses for caring for two or more qualified persons, the dollar limit applicable is $6,000. There is no need to split the cap equally between them. For example, if one qualified person’s work-related expenses are $3,200 and another qualifying person’s work-related expenses are $2,800, you can use a total of $6,000 when calculating your credit.

The cap for the year. The dollar limit is the yearly limit. The dollar cap remains the same no matter how long your household has a qualified person in the course of the year. Use the $3,000 cap if, at any point during the year, you have charged job related expenses to care for a qualified person. Use $6,000 if over the year you have paid work related expenses to care for more than one qualified person at any time.

Example: You pay $500 a month for an after-school care for your  son. On May 1 he turned 13, and is no longer a qualified person. Between January to April, you can use the $2,000 of your care costs to determine your bonus, as this is no more than the $3,000 annual limit.

Example: In July of this year you enrolled your 3-year-old daughter in a nursery school which provides pre-school childcare to enable your spouse to start a new job. For child care you paid $300 a month. You can use the entire $1,800 you charged ($300 for about 6 months) as a deductible expense as it does not surpass the $3,000 annual limit.

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Financially, the time after graduation can be difficult. Starting on your own, looking for a job, trying to pay back money that you may have borrowed for school can all be very stressful when it comes to budget management. Fortunately, recent college graduates can claim a few tax breaks to save.

Three Tax Breaks:

Student Loan Interest Deduction: Borrowers earning less than $60,000 a year can receive a full deduction from the interest paid on the loan. Those in the interest range of $60,000 to $70,000 are entitled to a partial deduction. A borrower earning $55,000 a year with loans over $2,500 can save $625 at the time of taxation.

Lifetime Learning Credit: Taxpayers can receive a $2,000 annual credit for all qualifying expenses in their own or post-secondary education of their dependent. The credit is not reimbursable, but it matches the dollar’s expenditure. Lifetime learning credit reduces expenses of $2,000 or less to zero. Students who graduated in May can claim a portion of their tax return expenses. For those students in the first four years of post-secondary education, the American Opportunity Tax Credit is also available, offering $2,500 in credit.

Other opportunities: Graduates are eligible for a variety of tax credits and breaks that the young professional often overlooks. For example, your tax bill can be helped by 401 (k) retirement plans that allow pre-tax contributions, or a Roth IRA that taxes contributions but does not withdraw. Saving is another option that many graduates must earn a tax credit. Those who earn less than $18,000 per year are eligible for a tax credit of 50 percent of their savings of up to $2,000.

All it takes is a little bit of research and you can find a variety of tax credits and deductions to keep your money in your pocket. Every little bit helps, especially when you’re out of school.

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Filing Status

February 20, 2019

When you file your taxes, you need to know which filing status you should use. The five different options differ and you’ll want to choose the one that gives you the greatest benefit. Make tax time easier and faster by submitting the correct status.

The five different status are: Single, joint marriage, separate marriage, head of household or qualifying widow. If you meet the required criteria in more than one status, you should file using the one that gives you the highest tax advantage.

Single: If you are not married, you would usually file a single status. It is important to be aware of special circumstances that may affect individuals who file single files. The IRS considers taxpayers legally separated, even if only for the month of December. Single unmarried persons without dependents should file this status, but those with dependents should consider their eligibility for the head of the household. Divorce and annulment are also considered for one purpose.

Married: Married couples may choose to file a single tax return together, or they may file separately using the status of married couples. Legally married couples must live together only for a small part of the tax year in order to file as married. Couples whose union falls under common law practices may also file as married if the state legally recognizes their jurisdiction. Partners who live separately but are not legally divorced must still file as a married taxpayer most of the time. Married couples who file both incomes on a single return jointly process. These types of returns require both parties to sign, and the couple shares the responsibility for tax payment. There are only a few circumstances in which the couple would not be affected by joint responsibility, such as innocent wife relief, liability separation (if they did not live together for the tax year) and fair relief. The primary filer may need to sign the return as a proxy in some cases, but written explanation must be included. This can happen if the military deploys one spouse.

Widowed: If your spouse died during the tax year and you didn’t remarry, you can file married together. You can then file as a qualifying widow for the next two years if you remain unmarried. Once you are remarried, you should file your current spouse as married. If you remarry the same year that your spouse dies, you will have to file with your deceased spouse and your new spouse separately. It is an important part of filing your tax return to choose the right status. This is one of the easy ways to maximize your tax benefit and take advantage of all your ideal status deductions and credits.

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Business deductions

February 19, 2019

As a professional, you are probably aware of the many deductions you may be entitled to when you file your tax return. Almost anything you buy for the company can be deducted if it is necessary for the company. The cost must also be reasonable. The deductions can really add up for small businesses and help save some on your bottom line. Think about it this way: Your business falls into a 25 percent bracket and you buy a computer for $1,000. If the computer is used for business purposes, you can save $250 in a tax deduction. You are not eligible to claim a personal deduction.

Some of the most common deductions are: Office costs: Keeping a company office can lead to serious deductions. Rent and utilities can be deducted, and if you work from home, you can deduct a portion of your monthly rent if you don’t own your home. Make sure your home office meets all the requirements to deduct them. Travel expenses: Travel in connection with business can be deducted as long as the trip is spent on business. You can deduct airfare, accommodation and other costs. Meals you take during your business are deductible by 50 percent. If you organize your trip properly, you can even deduct costs on a half-business and half-personal trip. Transport: The most common deduction for companies is deductions for cars and trucks. All driving you do for business purposes can be deducted, with the exception of driving from your home to your workplace. You can either split your expenses or choose a standard deduction of 0.54.5 / mile. Instead of gas and repair costs, the standard deduction only requires you to track your miles. Meals / entertainment: In the past, companies could write off many outings as a cost. However, the IRS recently ended these deductions unless you have a genuine legitimate business reason to attend the event. Before, during or immediately after the event, you must have an in-depth business conversation. Depreciation: Some properties, such as cars, furniture and computers, are subject to depreciation and you can gradually claim the cost over time. Thanks to the IRS Code Section 179, you don’t always have to depreciate. This allows small companies to deduct the entire property cost and at the same time create a larger deduction. Supplies: If you purchase items to keep your company operating, you can deduct them. Simple supply costs, such as rubber bands and paper clips, also count. Legal costs: At some point during the tax year, you probably used professional legal services. If you paid for these services, you can deduct the cost as long as it deals directly with the company. Insurance: If the policies apply to the company, liability and property insurance can be deducted. You may be eligible to deduct part of your homeowner’s insurance if you work from your home office. Individuals who are self-employed can also deduct health insurance costs.

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