The annual tax-return filing season will kick off later this month. It might not be pretty.
A host of issues could slow things down and make for more complicated tax-return preparation. Among them: The Internal Revenue Service still hasn't worked through all of the returns from last year, Congress threw in some new wrinkles and the pandemic continues to cause problems.
The National Association of Tax Professionals is warning of the "most grueling year yet" for preparers and predicts that many taxpayers might need extra help. Erin Collins, head of the federal watchdog Taxpayer Advocate Service, said she was "deeply concerned about the upcoming filing season," for various reasons.
The nation's tax season will officially start on Jan. 24, when the IRS begins to accept and process returns. Arizona's tax-filing season also will begin on that date.
What are some tax-season highlights?
The deadline to file a 2021 return or an extension request is Monday, April 18. That's three days longer than the normal April 15 due date because of the Emancipation Day holiday in Washington, D.C. (Taxpayers who live in Maine or Massachusetts have until April 19 to file owing to a holiday celebrated in those states, Patriots' Day.) Taxpayers who request an extension will have until Oct. 17 to file.
The IRS anticipates most taxpayers will receive refunds, as in past years. Most should receive their refunds within 21 days of when they file electronically if they choose direct deposit (and there are no problems with their returns). Last year's average federal refund was more than $2,800.
However, by law, the IRS can't issue refunds involving the Earned Income Tax Credit or the Additional Child Tax Credit before mid-February, though taxpayers still may file earlier than that.
Some people might want to file returns even though they're not required to do so, such as to claim a Recovery Rebate Credit, tied to 2021 stimulus payments, or additional money from the Child Tax Credit.
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Is the pandemic still causing delays?
Apparently, yes. In a statement, IRS Commissioner Chuck Rettig said the pandemic "continues to create challenges." It doesn't help that call volumes to the IRS were and continue to be heavy. Last year, the IRS received more than 145 million phone calls from Jan. 1 to May 17, more than four times the normal amount.
"In many areas, we are unable to deliver the amount of service and enforcement that our taxpayers and tax system deserves and needs," Rettig said.
The IRS is catching up and recently said that all paper and electronic individual refund returns for 2020 received prior to April 2021 were processed if a return had no errors and didn't require further review. However, plenty of returns did have errors, did require additional review, weren't claiming refunds or weren't filed that early.
As of Dec. 23, the IRS still had 6 million unprocessed individual returns. The agency said it has had to correct "significantly more" taxpayer errors than usual.
Also, the IRS hasn't finished correcting 2020 returns and processing refunds for people who paid taxes on unemployment benefits before Congress made such compensation temporarily tax-free, below certain income limits.
The silver lining, if there is one, is that taxpayers generally don't need to wait for their 2020 return to be processed to file their 2021 return.
How can taxpayers avoid delays?
Rettig urged taxpayers to file electronically and sign up for direct deposit. That has become standard advice, as in past years.
Among other suggestions, the IRS urges people to organize and gather 2021 tax records before preparing and submitting returns. That includes Social Security numbers and, possibly, other information such as Individual Taxpayer Identification Numbers.
Also, taxpayers can check irs.gov for updates, including the latest on reconciling advance payments of the Child Tax Credit or claiming a Recovery Rebate Credit for missing stimulus payments.
Taxpayers also should start watching for documents including W-2 forms from employers; 1099s for dividends, unemployment compensation and the like; a 1099K or 1099 MISC for gig-economy work; a 1099-INT for bank interest or the Health Insurance Marketplace Statement known as 1095-A.
Tax forms usually start arriving by mail or are available online from employers and financial institutions in January. If the information shown on a form is wrong, taxpayers should contact the issuer for a correction.
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Where can taxpayers go for help?
There are various options to help taxpayers, including numerous Volunteer Income Tax Assistance and Tax Counseling for the Elderly locations across the country as well as the IRS Free File program.
Also, taxpayers can set up an online account at irs.gov to access information more quickly.
"We have invested in developing new online capacities to make this a quick and easy way for taxpayers to get the information they need," Rettig said.
IRS Free File opened on Jan. 14, when participating providers started to accept completed returns and hold them until they can be filed electronically.
Free File is open to people who made $73,000 or less in 2021. The program enables taxpayers to file electronically at no cost using select commercial software programs.
More information on these programs is available at irs.gov.
What are some added complexities?
There are several, including the following:
Advance Child Tax Credit payments. Congress last year increased the amount of this credit and, in a twist, paid half of the credit in advance. Now, households that received advance payments need to compare what they received in 2021 with what they can properly claim on their 2021 return.
The IRS has sent out Letter 6419, containing key information such as the amounts paid and number of qualifying children. Taxpayers also may check key information using the CTC Update Portal at irs.gov.
Eligible taxpayers who received advance payments should file a 2021 return to obtain the second half of the credit. People who didn't receive advance payments can claim the full credit by filing a return, including those who don't normally need to file. But taxpayers who got more than they were entitled to receive might need to repay the difference.
Economic Impact Payments. The government approved three rounds of pandemic stimulus payments — two in 2020 and the third last year. The IRS in late January will begin issuing Letter 6475 to people who received the third payment. Eligible individuals who didn't receive payment can still claim it, but they will need to file a return to do so.
More complications in store
These extra payments and credits helped millions of people weather financial pressures, but the added tax-filing complexity isn't lost on critics.
"The new complications are a result of all of the goodies the federal government bestowed upon Americans to mitigate the effects of the COVID-19 pandemic," noted Tom Giovanetti, president of the Institute for Policy Innovation research group. "Many taxpayers will have to do additional calculations in order to get their taxes right, and these additional complications increase the potential for mistakes."
Giovanetti is critical of the tax changes adopted under President Biden, though the first two stimulus programs were enacted while President Trump was in office.
Other changes cited by the National Association of Tax Professionals that could complicate the filing season include those tied to the child and dependent care credit, the Earned Income Tax Credit, credits tied to paid sick and family leave policies and Paycheck Protection Program loans.
Jim Simpson, a certified public accountant who runs some of the VITA free tax sites around metro Phoenix, said key changes include an expanded and fully refundable Child Tax Credit, a broader Earned Income Tax Credit that's available to more people (including some without children) and a higher and now fully refundable Child and Dependent Care Tax Credit.
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This article originally appeared on Arizona Republic: These issues could complicate tax filing in 2022. Here's what to know