January 4, 2022
Happy New Year! It’s time to start watching for important tax documents arriving in the mail and gathering files from 2021. As we enter 2022 and prepare for the filing season there are a few notable differences that taxpayers should be aware of.
Letter 6419: Advance Child Tax Payments
One of the changes for individual taxpayers was the Child Tax Credit being sent as advanced monthly installments to those who had qualifying dependents. The amount that was received will need to be reported on the taxpayer’s 2021 income tax return. Be on the lookout for Letter 6419 from the IRS which will report the total amount of Child Tax Credit payments that were received.
For 2021 the Child Tax Credit was $3,600 per qualifying child up to 6 years old, and $3,000 for those aged 6-17. The IRS issued 50% of the credit due as advanced payments unless the taxpayer chose to opt out. The remaining balance will be applied to the 2021 tax return.
In some cases, the taxpayer may be required to pay back some or all of the Advance Child Tax Credit if the amount that was received exceeds the credit their individual situation allows. This may be the case if they have fewer qualifying dependents on their 2021 return than in prior years, an increase in AGI, their filing status changes, or their main home was outside of the United States for more than half the year.
Letter 6475: Recovery Rebate Tax Credit
In 2021, qualifying taxpayers should have received a third Economic Impact Payment (sometimes referred to as a “stimulus payment”). If a taxpayer did not receive this payment or received a smaller amount than they were entitled to, they may claim the difference on their 2021 return.
The amount each taxpayer received will be reflected on Letter 6475 from the IRS and should be submitted with the rest of the tax documents.
Charitable Donations
The need to itemize in order to deduct charitable contributions has been waived. A taxpayer may deduct up to $300 for cash donations, or up to $600 for those married filing jointly.
Additionally, if you itemize, the charitable contributions to qualifying organizations can be claimed at 100% of the taxpayer’s Adjusted Gross Income (AGI). This amount is normally capped at 60% of the taxpayer’s AGI. This change is for the 2021 tax year only and is not an automatic increase; and therefore must be opted into.
As always, Faw Casson is here to answer any questions. We encourage you to get your tax documents to your preparer as soon as possible.