Most people with gross income of $12,550 or more must file a federal tax return. Some people with a lower income are not required to file. However, these individuals should still consider filing for a refund of federal income tax withheld. They may also be eligible for certain tax credits, like the earned income tax credit, the recovery rebate credit and others.
Generally, the 2021 Federal individual income tax return was due April 18, 2022; however, if you timely filed an extension no later than April 18th, your filing deadline is now October 17, 2022.
Here are five things to consider when determining whether to file a 2021 tax return, including possibly being eligible for an Economic Impact Payment:
- Tax withheld or paid–
- Did your employer withhold federal income tax from your pay in 2021?
- Did you make estimated tax payments?
- Did you get a refund last year, and have it applied to your 2021 tax?
If you answered “yes” to any of these questions, you may be owed a refund. To receive the refund, you must file a 2021 tax return.
- Earned income tax credit– This is a tax credit for low- to moderate-income wage earners. It is a refundable tax credit, and the amount depends on the taxpayer’s income and number of children. The credit doesn’t just reduce the amount of tax owed but could also result in a refund. However, once again, to claim the EITC, you must file a return.
- Child tax credit– Taxpayers can claim this credit if they have a qualifying child under the age of 17 and meet other qualifications. The maximum amount per qualifying child is $2,000. Up to $1,400 of that amount can be refundable for each qualifying child. So, like the EITC, the Child Tax Credit can give a taxpayer a refund even if they owe no tax.
Taxpayers with dependents who don’t qualify for the child tax credit may be able to claim the credit for other dependents. The maximum credit amount is $500 for each dependent who meets certain conditions.
- American opportunity or lifetime earning credits – Two credits can help taxpayers paying higher education costs for themselves, a spouse or dependent. Even if the taxpayer doesn’t owe any taxes, they may still qualify. You need to complete Form 8863, Education Credits and file it with the tax return.
If you do not qualify for the either of these credits, you may benefit from taking the Tuition and Fees Deduction on your tax return.
- Economic Impact Payment– Anyone who is eligible for an Economic Impact Payment but did not get the payments or did not get the full amount, must file a tax return to claim the recovery rebate credit even if they aren’t normally required to file. Families and individuals in the following circumstances, among others, may not have received the full amount of their third-round Economic Impact Payment because their circumstances in 2021 were different than they were in 2020.
These families and individuals may be eligible to receive more money by claiming the 2021 Recovery Rebate Credit on their 2021 income tax return:
- Parents of a child born in 2021 who claim the child as a dependent on their 2021 income tax return may be eligible to receive a 2021 Recovery Rebate Credit of up to $1,400 for this child. All eligible parents of qualifying children born or welcomed through adoption or foster care in 2021 are also encouraged to claim the child tax credit — worth up to $3,600 per child born in 2021 — on their 2021 income tax return.
- Families who added a dependent – such as a parent, a nephew or niece, or a grandchild – on their 2021 income tax return who was not listed as a dependent on their 2020 income tax return may be eligible to receive a 2021 Recovery Rebate Credit of up to $1,400 for this dependent.
- Single filers who had incomes above $80,000 in 2020 but less than this amount in 2021; married couples who filed a joint return and had incomes above $160,000 in 2020 but less than this amount in 2021; and head of household filers who had incomes above $120,000 in 2020 but less than this amount in 2021 may be eligible for a 2021 Recovery Rebate Credit of up to $1,400 per person.
- Single filers who had incomes between $75,000 and $80,000 in 2020 but had lower incomes in 2021; married couples who filed a joint return and had incomes between $150,000 and $160,000 in 2020 but had lower incomes in 2021; and head of household filers who had incomes between $112,500 and $120,000 in 2020 but had lower incomes in 2021 may be eligible for a 2021 Recovery Rebate Credit.
Individuals must claim the 2021 Recovery Rebate Credit on their 2021 income tax return in order to get this money; the IRS will not automatically calculate the 2021 Recovery Rebate Credit.
Getting Late Filing Penalties Abated
Filing timely is very important because the late-filing and late-payment penalties and interest on unpaid taxes add up quickly. However, in some cases, a taxpayer filing after the deadline may qualify for penalty relief. For those charged a penalty, they may contact the IRS by calling the number on their notice and explain why they couldn’t file and pay on time.
Taxpayers who have a history of filing and paying on time often qualify for administrative penalty relief. A taxpayer usually qualifies if they have filed and paid timely for the past three years and meet other requirements.
An Opportunity For Taxpayers Who Owe The IRS
Do not think that if you owe the IRS your tax problem will disappear because of the measures being considered by the government. Instead you should be utilizing this valuable time to get yourself prepared so that when activity in this nation regains momentum, you are ready to make the best offer or proposal to take control of your outstanding tax debts.
As a prerequisite to any proposal to the IRS, you must be in current compliance. That means if you have any outstanding income tax returns, they must be completed and submitted to IRS.
Also, if you are required to make estimated tax payments, you must be current in making those payments. Fortunately, as we are now in 2022, taxpayers who expect to owe for 2021 should have their 2021 income tax returns done now so that the 2021 liability can be rolled over into any proposal and the requirement to make estimated tax payments will now start for 2022.
Remember that COVID-19 does not alter the tax laws, so all taxpayers should continue to meet their tax obligations as normal. Individuals and businesses should keep filing their tax returns and making payments and deposits with the IRS, as they are required to do.
The take away from this – use the Federal government’s downtime and continued uncertainty with COVID-19 to your advantage to prepare for the future.
What Should You Do?
You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you. And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.