Updated: Child Tax Credit FAQ on IRS.gov

Updated: Child Tax Credit FAQ on IRS.gov

Updated: Child Tax Credit FAQ on IRS.gov

The Internal Revenue Service is pushing out more information for taxpayers interested in the Child Tax Credit and its advance payments.

The IRS has updated its online list of frequently asked questions, or FAQs, for the 2021 Child Tax Credit and the Advance Child Tax Credit Payments.

The new verbiage describes how taxpayers can provide an estimate of their 2021 income to the IRS using the Child Tax Credit Update Portal (CTC UP).

The FAQs, the IRS says, are being updated to give more information to taxpayers and tax professionals alike as quickly as possible. The information for tax pros includes helpful advice on how practitioners can rely on the data within the Internal Revenue Bulletin—beyond that provided only in the FAQs.

More on the Advance Child Tax Credit

Beyond the updated FAQs, the IRS has also come up with a special web page on the Advance Child Tax Credit Payments in 2021. It aims to deliver up-to-date information about the credit and its advance payments. Visit the new web page at IRS.gov/childtaxcredit2021.

In order to help non-filers, low-income families and other underserved groups sign up for the credit, the IRS urges its partner organizations and community groups to share their information and take advantage of the agency’s online tools and toolkits.

Individuals can check whether they are eligible for the credit by visiting the Advance Child Tax Credit Eligibility Assistant.

The tool has its own set of frequently asked questions as well as direct links to the portal, links to the Non-filer Sign-up Tool and to the Child Tax Credit Eligibility Assistant, and other helpful resources.

Sources: IR-2021-218; General Overview of Taxpayer Reliance on Guidance Published in the Internal Revenue Bulletin and FAQs 

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401(k) Contributions Increased for 2022

401(k) Contributions Increased for 2022

401(k) Contributions Increased for 2022

Taxpayers contributing to a 401(k) plan for their retirement have gotten some good news from the Internal Revenue Service: they can now put more money into their plan for 2022.

New instructions from the IRS raise the 2022 annual contribution limit on 401(k) plans from $19,500 to $20,500.

In addition, the IRS also issued technical guidance in Notice 2021-61 on all of the cost-of-living adjustments that affect limitations for pension plans and other retirement-related items for the 2022 tax year.

What are the 2022 changes?

The increase in the 2022 contribution limit applies not only to 401(k) plans, but to 403(b) plans, most 457 plans, and the federal government’s Thrift Savings Plan.

The income ranges used to determine eligibility have also been expanded for IRAs, contributing to Roth IRAs, and claiming the Saver’s Credit.

A taxpayer can deduct contributions to a traditional IRA as long as certain conditions are met.

If either the taxpayer or the spouse was covered by a retirement plan at work during the year, the deduction may be reduced – or phased out – until it’s eliminated. Filing status and income may influence this process.

Note that the phase-out of the deduction doesn’t apply if neither the taxpayer nor the spouse is covered by a retirement plan at work.

Here are the new phase-out ranges from the IRS for 2022:

  • For single taxpayers covered by a workplace retirement plan, the phase-out range is increased to $68,000 to $78,000, up from $66,000 to $76,000.
  • For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to $109,000 to $129,000, up from $105,000 to $125,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range is increased to $204,000 to $214,000, up from $198,000 to $208,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Taxpayers contributing to a Roth IRA see an increased income phase-out range of $129,000 to $144,000 for singles and heads of household; Married couples filing jointly phase out at $204,000 to $214,000.

A married taxpayer who files a separate return and contributes to a Roth IRA has the same phase-out as before: $0 to $10,000.

Allowable income for the Saver’s Credit also increased. Also known as the Retirement Savings Contribution Credit, the Saver’s Credit income limit increased for low- and moderate-income taxpayers is now $68,000 for married-filing-jointly couples; $51,000 for heads of household; and $34,000 for singles and married taxpayers filing separately.

Taxpayers with a SIMPLE retirement account can also contribute more to their retirement, with the yearly limit for them now at $14,000.

What doesn’t change?

The new instructions from the IRS don’t change everything, however. Annual contributions to an IRA, for example, remain limited to $6,000. The catch-up contribution limit for IRAs isn’t subject to a cost-of-living adjustment and remains at $1,000.

Employees age 50 and over who take part in either a 401(k), 403(b), most 457 plans or the federal Thrift Savings Plan keep their same catch-up contribution limit of $6,500. This means those participants can contribute up to a total of $27,000 in 2022.

For those taxpayers age 50 and older with SIMPLE plans, the catch-up contribution limit remains at $3,000.

For additional details on retirement plan cost-of-living adjustments for 2022, see Notice 2021-61 on IRS.gov.

Source: IR-2021-216

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Some Non-Itemizers Can Deduct Charitable Donations

Some Non-Itemizers Can Deduct Charitable Donations

Some Non-Itemizers Can Deduct Charitable Donations

A new provision in the tax code lets more taxpayers deduct up to $600 in donations to qualified charities—even if they don’t itemize. 

Itemizing is ordinarily the key that unlocks the charitable donation deduction; taxpayers choosing the standard deduction usually just don’t have that option.

A new, albeit temporary, change in the tax law now lets taxpayers claim a limited deduction on their 2021 federal income taxes for cash contributions to qualified charitable organizations.

First enacted in 2020, the special deduction was extended in December 2020 to run through the end of 2021.

Individual taxpayers can claim up to $300 for such donations; married taxpayers filing jointly can claim double that amount.

The provision covers donations made by check, credit card or debit card and also includes amounts an individual may have in unreimbursed out-of-pocket expenses incurred through volunteering with a qualified charitable organization. Qualifying donations, however, don’t include the value of securities, household items or other property, or volunteer services.

This new deduction is not open to contributions to just any organization; only recognized charitable organizations qualify. Use the IRS Exempt Organization Search Tool to check the status of a charity.

Generally, cash contributions to most charities will qualify—but not always. Donating either to what’s called “supporting organizations” or to establish or maintain a donor-advised fund aren’t covered by the temporary deduction.

A donor-advised fund is generally a fund or an account that’s maintained by a charity that allows donors to tell the fund how to invest or distribute amounts contributed by the donor.

Supporting organizations are charities that support other tax-exempt organizations, which are usually other public charities.

There are other limitations in the deduction: qualified contributions can’t be carried forward from previous years and donations to most private foundations and charitable remainder trusts aren’t qualified.

Taxpayers claiming this deduction need to keep in mind that special record-keeping rules apply. This includes getting a letter from the charity acknowledging the donation before filing a return and keeping a cancelled check or credit card receipt to prove donations of cash.

Details on the rules of proving charitable gives are available in Publication 526, Charitable Contributions, on the IRS website.


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Some in Connecticut Get Extended Ida Relief

Some in Connecticut Get Extended Ida Relief

Some in Connecticut Get Extended Ida Relief

Taxpayers in Connecticut are getting a little extra time to file their taxes, courtesy of Hurricane Ida and the IRS. Ida tore up coastal areas in the southern U.S., and went on to batter the Northeast with flooding and other damage.

The Internal Revenue Service recognizes that some victims of the storm may have trouble getting their taxes in on time, so it’s giving taxpayers in part of Connecticut until Jan. 3, 2022 to file and pay various taxes.

The Federal Emergency Management Agency (FEMA) officially declared parts of Connecticut a federal disaster area and the taxpayers within those areas are eligible for individual or public assistance.

Currently, the designated area includes Fairfield and New London counties, including the Mashantucket Pequot Tribal Nation and the Mohegan Tribal Nation.

If any counties, township or other jurisdiction are added later, taxpayers within those additional locations will be automatically eligible for the IRS relief measures.

What are the terms of the relief?

The IRS relief measure basically postpones a number of tax filing and payment deadlines that would have taken place between Sept. 1, 2021, and Jan. 3, 2022. Taxpayers in the affected areas now have until Jan. 3 to file and pay taxes that would have been due during the period.

Worth noting, however, is that while taxpayers with valid extensions of time to file now have until January 3 to file their taxes, there is no extension of time to pay, since that payment was originally due May 17, 2021.

What payments are covered by the extension include quarterly estimated income tax payments that were due in September, and quarterly payroll and excise tax returns that would have been due otherwise on November 1.

Businesses also are getting more time to file and pay various returns. Calendar-year partnerships and S corporations with a 2020 extension that ended in September and calendar-year corporations that had an extension that ran out in October are also covered by the new deadline, as are calendar-year tax-exempt groups with 2020 extensions that end Nov. 15, 2021.

There are other provisions of the relief package, for both individuals and businesses. Visit the IRS disaster relief page for details on the returns, payments and other actions that qualify for the additional time.

There’s no need to call

Taxpayers don’t need to contact the IRS to qualify for the relief measures; in fact, the relief is granted automatically to any taxpayer with an address on file with the IRS within a declared disaster area.

That said, if a taxpayer within the disaster area gets a notice they’ve been assessed a penalty for filing late or paying late for missing a filing deadline within the September 1 to January 3 timeframe, they have a solution. Simply call the phone number printed on the notice and the IRS will have the penalty abated.

Other taxpayers, the IRS says, indeed should call the agency. Those who qualify for relief but live outside the declared disaster area – such as relief workers attached to a government or recognized philanthropic organization – should contact the IRS at 866-562-5227.

Taxpayers who live outside the disaster area but whose records are needed to file and are located within the disaster area should also call the number for guidance.

How do taxpayers file a loss claim?

Taxpayers have two options when it comes to claiming an uninsured or unreimbursed loss on an income tax return. First, they can claim the loss on a return for the year the loss occurred – such as 2021 in this case, the return normally filed next year.

The second option is to claim the loss on the return for the prior year (2020). In either instance, Connecticut taxpayers claiming losses from the storm need to write the FEMA declaration number DR-4629 on their return.

For more on claiming a loss on a tax return, see Publication 547 for details.

The IRS’ tax relief measures are part of the federal government’s coordinated response to Hurricane Ida. They are based on local assessments of storm damage conducted by FEMA.

DisasterAssistance.gov has additional information on disasters and federal recovery measures.

Source: IR-2021-213

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Last Call for ACTC Signup, Income Changes

Last Call for ACTC Signup, Income Changes

Last Call for ACTC Signup, Income Changes

Families who have significant income changes to report for the advance Child Tax Credit payments are running out of time to pass those changes on to the Internal Revenue Service.

The IRS says the changes must be entered on the Child Tax Credit Update Portal (CTC UP) by November 29 to be in effect for the December payment. A Spanish version of the CTC UP is expected to launch in late November.

When income is updated, the IRS can adjust the remaining advance payment amounts so the eligible taxpayers get the correct total amount for the year. The agency reminds married couples that if one spouse updates income on the portal, the update will apply to both spouses and so could affect future advance payments of the CTC for them both.

Time is short for tweaks

There’s no need to report minor fluctuations in income through the portal. Instead, the IRS says, taxpayers should use the online update portal to report substantial changes in annual income.

With the December payment being the last advance installment to be paid in 2021, it’s also the last chance for families to report income changes and have them put into effect for the year.

Updates have to be received on the portal before midnight on November 29 to be included in the December 15 advance payment.

Some families receiving the advance monthly payments are getting amounts below the maximum and may be eligible for an increase. This could happen if, for example, the taxpayer had a job loss during the year or had some other decline in income. Reporting the loss of income through the portal could increase the taxpayer’s advance Child Tax Credit payments for the remainder of 2021.

Updating income through the CTC UP is also important for those CTC recipients who find themselves making more income. Those who now get the maximum monthly payments – but expect to qualify for less at tax time – should update their income amounts now to avoid surprises when they file their income tax return.

Topic C of the IRS’ Frequently Asked Questions has more on calculating the Child Tax Credit. QC4 and QC5 have details for families that qualify to receive less than the full amount.

The IRS has tips for using the CTC Update Portal

The IRS says its Child Tax Credit Update Portal is only available to any taxpayer who is already eligible for the tax credit and is receiving advance payments of the CTC. But there are other limitations to keep in mind:

  • The update portal is the only place to report a change in income circumstance to the IRS by advance payment recipients. IRS telephone operators can’t take these changes from callers and representatives at Taxpayer Assistance Centers cannot take them in person.
  • Joint filers should note that taxpayers who submitted a joint return in 2020 can only update their income on the portal if they intend to submit a joint return for 2021 with the same spouse.
  • Portal users should not be caught off-guard if the portal doesn’t show details of their changes. The IRS says the CTC UP will acknowledge a change was made – but will not display the change itself. Calling the IRS won’t be much help; their telephone representatives won’t be able to confirm a change was made, either.

There’s still time to sign up for the CTC

Low-income families still have time to sign up for the remaining advance payment of the Child Tax Credit.

Any family that isn’t normally required to file a tax return and isn’t already receiving advance payments of the CTC need to check out the IRS website. IRS.gov has tools to help determine a taxpayer’s eligibility for the credit and to help them fill out a simplified tax return to sign up.

Taxpayers have until November 15 to sign up.

Eligible families can get half of the credit amount as advance payments; the other half comes as a refund when the taxpayer files a tax return in 2022.

Need more information?

A special Advance Child Tax Credit 2021 page providing the most recent information about the tax credit and advance payments is available at IRS.gov/childtaxcredit2021. The site provides a number of online tools, including a list of frequently asked questions and a user guide for the Child Tax Credit Update Portal (Publication 5549).

In addition, the site contains direct links to the portal and other tools and resources.

Source: IR-2021-211

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Some Mississippi Counties Get Expanded Ida Relief

Some Mississippi Counties Get Expanded Ida Relief

Some Mississippi Counties Get Expanded Ida Relief

While most of the nation’s attention is turned to fall colors and the Thanksgiving holidays, residents of some Mississippi counties still have all-too-vivid memories of meaner weather earlier in the summer.

That’s when Hurricane Ida ravaged the state with high winds, heavy rain and serious flooding. Because of the problems caused by Ida, the Internal Revenue Service is placing some Mississippi Counties in the relief measures tailored to help the storm’s worst-off victims.

Not all of the state is covered by this relief package. Currently, the expanded relief applies to Amite, Claiborne, Copiah, Covington, Franklin, Georgia, Hancock, Harrison, Jackson, Jefferson, Jefferson Davis, Lawrence, Lincoln, Pearl River, Pike, Simpson, Walthall, Wayne and Wilkinson counties.

Other counties may be added if they become part of the Federal Emergency Management Administration’s (FEMA) disaster declaration, which names counties and localities that qualify for individual or public assistance.

The terms of relief

In a nutshell, the IRS relief package postpones various deadlines for filing and paying federal taxes in the named counties until Jan. 3, 2022. In other parts of Mississippi—covered by a separate relief measure previously—the deadline remains Nov. 1 of this year.

To see a full list of eligible locations, check out the disaster relief page on the IRS website.

This new relief package applies only to the counties named, and delays filing and payment deadlines that otherwise would have started on August 28. The relief applies to qualified individuals and businesses alike, giving them until Jan. 3, 2022, to file tax returns and pay any tax that would have otherwise been due during that time.

Taxpayers with a valid extension to file by Oct. 15, 2021, now have until Jan. 3, 2022 to file. In the case of extensions, however, any tax due should have already been paid back on the original filing deadline of May 17 and is not covered by the new relief package.

What else is covered?

Quarterly estimated income tax payments, usually due in September, are also postponed due to the new relief terms, as are quarterly payroll and excise tax returns that would otherwise be due on November 1.

In addition, businesses with an original or extended due date have more time; this includes calendar-year partnerships and S corporations with 2020 extensions that ran out in September, and calendar-year corporations with 2020 extensions that ended on October 15.

Calendar-year tax-exempt organizations with 2020 extensions ending November 15 are also covered.

To see a full list of what returns, payments and other tax-related actions qualify for the January 3 filing date, visit the IRS disaster relief page.

Do not contact the IRS

There’s no need for taxpayers to contact the IRS to see if they qualify for the delayed filing and payment deadline. The agency automatically determines eligibility by the taxpayer’s address of record on file when a return is filed.

Taxpayers who qualify for relief but live outside one of the 19 currently named counties should contact the IRS at 866-562-5227; this includes relief workers who are part of a recognized government or philanthropic organization.

Taxpayers within the federal disaster area who seek to claim their uninsured or unreimbursed losses from the storm on their federal income tax return can do it in one of two ways. They can claim the losses on the return for the year the loss occurred—in this case, on their 2021 return that will be filed next year—or they can claim the loss on the return for the prior year, which would be 2020.

In either case, the taxpayer has to write the FEMA declaration number on any return claiming a loss. To claim a loss in the original disaster area, which includes the entire state of Mississippi, the declaration number is EM-3569.

The declaration number for the new, 19-county disaster declaration is EM-4626.

Publication 547 has details on filing and claiming disaster losses.

The IRS says its disaster relief measures are part of a coordinated response to Hurricane Ida that includes not just FEMA and the IRS, but a number of federal agencies. For the full scope of the federal response to the hurricane, visit DisasterAssistance.gov.

Source: IR-2021-210

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