Ready or not, tax season is coming, and we can help with some advice for parents filing them in 2022. The typical due date is back: the IRS has released its plans to have 2021 individual tax returns due on April 18, 2022, for most filers. Although things feel far from normal for the rest of us, this marks the first time since the pandemic began that filing deadlines will return to historical norms.
Keep in mind that although you can start filing your income tax returns on January 24th, the existing IRS backlogs are likely to cause frustrating delays. In addition to disruptions caused by the pandemic, budget cuts and outdated technology have bogged down the IRS. According to their website, the IRS has six million unprocessed individual tax returns (up from the typical one million that we saw at this point in the year prior to the pandemic).
So although the filing date may be returning to normal, there were a lot of abnormalities in filing this year, and now more than ever you should get things in early to avoid heavy delays. Whether you’ve had a new baby or started paying for preschool, there are increased credits and deductions exclusive to this year that can benefit you as a parent.
Here are some things for parents to keep in mind as you compile your documents and get ready to file your 2022 taxes.
Claim your credits and deductions
The Child Tax Credit
The Child Tax Credit isn’t a new concept, but under the American Rescue Plan Act, the amount and how it was distributed has changed for 2021.
The previous credit of $2000 per child was expanded to $3000 per child ($3600 for children under 6). Half of the credit was prepaid in 2021, with monthly payments distributed from July 2021 through December 2021 (a maximum of $250-$300 per child).
The other half of your credit can be claimed as a credit on your 2021 tax return, but after this year, the credit reverts to previous amounts.
In order to qualify, the child must:
- Be a citizen of the United States, U.S National or U.S. Resident Alien
- Have a Social Security number
- Be under the age of 17
- Be filed as a dependent on your taxes
- Receive more than half of their financial support from you
- Have lived with you for more than half a year
The Child Care Tax Credit
The child and dependent care credit is a tax break designed to let parents claim a credit for expenses from child care, such as paying for a daycare provider to watch your child while you were working.
In previous years, the maximum credit you could receive was up to 35% of $3000 of childcare expenses for one child or $6000 for two or more, but the child tax credit was expanded by the American Rescue Plan Act of 2021. This year, you can receive a credit for up to 50% of $8000 of expenses for one child and up to $16,000 for multiple children. The percent of expenses allowed to be claimed as a credit will be limited over certain income levels.
A 529 plan—or “qualified tuition plan”—is a savings plan designed to encourage saving for future education costs through tax benefits. The money saved within this investment account can then be used to pay for education-related expenses for the beneficiary named on the account.
Although these benefits vary depending on where you live, some states will allow you to claim income tax benefits based on the total 529 plan contributions you made in the year. While there are no annual contribution limits for 529 plans, most states limit the amount of contributions that will qualify for an income tax credit or deduction.
Save your COVID relief letters
Every year the IRS mails letters or notices to taxpayers for many different reasons, some of which are essential to correctly filing your tax return. This year, the IRS is already sending out two letters to taxpayers who received COVID relief:
- Letter 6419, 2021 advance Child Tax Credit, which contains important information that can help ensure the return is accurate. Eligible taxpayers who received advance Child Tax Credit payments should file a 2021 tax return to receive the second half of the credit, while eligible taxpayers who did not receive the advance payments can claim the full credit by filing their 2021 tax return. (People who received the advance CTC payments can also check the amount of the payments they received by using the CTC Update Portal.)
- Letter 6475, Your Third Economic Impact Payment, to individuals who received a third stimulus payment in 2021 in late January.
Even if you report all of your information correctly, the IRS notes it can’t issue a refund that involves the Earned Income Tax Credit (EITC) or the Child Tax Credit before mid-February in an effort to help the IRS stop fraudulent refunds from being issued.
Be Aware of the Kiddie Tax
If your child is earning passive income through capital gains distributions, dividends, and interest income, that income will be taxed at your rates. This doesn’t include the income your child earns working summer jobs (aka, earned income), but will mostly apply to parents who have opened investment accounts in their children’s names.
The Kiddie Tax applies to dependent children under the age of 18 at the end of the tax year (or full-time students younger than 24). The first $1,100 of unearned income is covered by the kiddie tax’s standard deduction and isn’t taxed.
- The next $1,100 is taxed at the child’s marginal rate.
- Anything above $2,200 is taxed at the parents’ marginal tax rate.
Try to do everything electronically (if you can)
In addition to the strains on the IRS caused by the pandemic, the IRS’s workforce is the same size now that it was in 1970, which means fewer workers handle a greater volume of returns as the US population continues to grow. Simply put, the IRS is overwhelmed by the amount of work on their plates and doesn’t have the capacity to keep up with it.
The quickest way to file your tax return is to opt for electronic filing when you can. In fact, the IRS anticipates most taxpayers will receive their refund within 21 days of when they file electronically if they choose direct deposit and there are no issues with their tax return. If you can avoid paper filing, you are less likely to encounter delayed refunds, incorrectly assessed penalties, and, of course, lost or delayed mailings.
Additionally, try to find the answers to your questions online or with a tax professional. Last filing season, the IRS received more than 145 million calls from January 1 to May 17—which is four times more than the calls received in an average year. Although sometimes there is no other option than to call and speak to an agent, you should always check if the information you’re looking for is something you can get online, like the status of your refund. Otherwise, you might be on hold for a while.
Key Individual Tax Filing Dates
- January 14: Taxpayers can begin filing returns through IRS Free File partners or tax software companies (but the returns will not be transmitted to the IRS until January 24th).
- January 18: Due date for tax year 2021 fourth quarter estimated tax payment.
- January 24: IRS begins accepting and processing 2021 tax returns.
- April 18: Due date to file 2021 tax return or request extension and pay tax.
- April 19: Due date to file 2021 tax return or request extension and pay tax owed for those who live in MA or ME.
- October 17: Due date to file for those requesting an extension on their 2021 tax returns.