Every year, my husband and I vow to get our taxes done early.
Last-minute tips as the April 18 tax deadline looms
Don’t miss these tax breaks: Check if you qualify for the expanded credit for child and dependent care expenses, often referred to as the child care credit. Families can get a credit for as much as $4,000 for one qualifying person or $8,000 for two or more. For 2021, it’s fully refundable for most filers, which means if the credit exceeds the amount of taxes you owed, the difference is paid as a refund.
The changes “mean that more taxpayers are eligible for the credit for the first time, and for many, the amount of the credit will be larger than in prior years,” wrote National Taxpayer Advocate Erin M. Collins in her most recent blog post.
Collins said most taxpayers will see a significant increase, with the credit climbing to an average of $1,537 for the tax year 2021, up from an average of $652 for 2020.
For 2021 only, more childless workers and couples can qualify for the Earned Income Tax Credit (EITC). The American Rescue Plan Act temporarily increased the maximum credit for the EITC to $1,502, up from $538 for filers without qualifying children who are at least 19 with earned income below $21,430 or $27,380 for spouses filing a joint return. The expansion also includes a special exception for 18-year-olds who were formerly in foster care or are experiencing homelessness.
This also means more people than ever qualify for this credit, according to Roxy Caines, EITC campaign director for the Center on Budget and Policy Priorities (CBPP). The EITC is the government’s largest refundable tax credit for low- to moderate-income families.
The CBPP estimates 17 million people benefit from the EITC expansion, and 11 million are newly eligible. “People who have known about it in the past but didn’t think it was worth the effort to file their taxes, need to know about it and know that it’s increased significantly,” Caines said.
Families can also use 2019 pre-pandemic income to qualify for the EITC if it results in a larger credit.
Most families got advance payments of the child tax credit during the last half of 2021. In most cases, these payments covered half of their eligible credit. You have to file a return for 2021 to claim the remaining credit. Or file to claim the credit if you didn’t get any of the advance payments.
Didn’t file for 2018? You might be due a refund: The IRS says unclaimed income tax refunds totaling almost $1.5 billion may be waiting for an estimated 1.5 million taxpayers who did not file a 2018 return.
There’s only a three-year window to claim a refund. So, for 2018, the window closes on this year’s April tax deadline. The IRS estimates the median refund is $813.
File electronically, if you can: So far, the average tax refund of $3,226 is up 11.5 percent compared with the same period last year. Despite a massive processing backlog and absurdities of this tax season, the vast majority of taxpayers will easily get their refund in three weeks or less. How?
They e-filed an error-free return and elected to have their refund direct deposited into their bank account.
It’s taking much longer to process paper returns. Even though more than nine in 10 returns are now e-filed, about 40 percent of paper returns were prepared using tax computer software, according to the IRS.
It’s not always a choice for people to file electronically. There are IRS forms that still require a taxpayer to mail a paper return.
If you can’t e-file, mail your return: Unfortunately, there are still many taxpayers stuck in return purgatory. They are attempting to file electronically but can’t. One more reason they can’t is because of a verification issue tied to the massive backlog at the IRS.
When you file electronically, one of the verification questions asks for your adjusted gross income, or AGI, from your most recent tax return. If your return is in that backlog and still unprocessed, this could cause your e-file to be rejected.
There’s a fix. Enter $0 (zero dollars) for your prior-year AGI. If you used the non-filers tool last year to register for an advance child tax credit payment or to claim the third stimulus payment, enter $1 as your prior-year AGI.
“I e-filed my federal return and it got rejected when I put in my correct AGI from last year,” wrote a Washington, D.C., resident. “So I put in 0 like you suggested and the return was accepted. I was not looking forward to printing reams and reams of paper!”
But you’re not alone if this solution didn’t work.
“Unfortunately, neither worked for us,” one reader wrote. “After several calls stuck in a phone loop with the IRS, we acknowledge it is time to mail our return. At least we won’t be waiting for a refund.”
File on time if you owe the IRS: If you can’t pay on time the full amount of taxes you owe, pay what you can. You can apply online for a payment plan at irs.gov.
Keep in mind that there is a penalty for not filing on time and paying late. The IRS charges interest on any tax not paid by the due date of your return. The interest rate, which is adjusted quarterly, is currently 4 percent for underpayments, compounded daily.
Filing an extension does not give you more time to pay: Even if you’re filing an extension, you still need to estimate how much you owe and pay that amount by the tax deadline. You can electronically request an extension on Form 4868, which gives you until Oct. 17 to file your return.
Double-check for errors: Some common mistakes include not selecting the right filing status, putting down the wrong Social Security number, and underreporting income.
The IRS says it’s seeing cases where people are failing to report their unemployment income.
Because of the pandemic, taxpayers were allowed to exclude up to $10,200 in unemployment compensation paid in 2020. But the exclusion was only for that year. Unemployment income received in 2021 is generally taxable.
If you have to file a paper return, confirm you are sending it to the correct address. On irs.gov, search for “Where to File Paper Tax Returns With or Without a Payment.”
Source: WP
