For individuals who have not yet filed their 2021 federal tax return, the concerns regarding the processing of tax returns and related refunds are only growing. The IRS is an estimated 16 million tax returns behind—an issue compounded by IRS staff shortages and backlog from the previous year.
The current estimate regarding the tax return processing timeframe is three to six weeks from submission. Paper returns remain the worst offenders due to their manual nature, so individuals should look into e-filing options wherever possible.
Despite approximately 90% of the population claiming the standard deduction, even simple returns have gotten increasingly more complex to address due to American Rescue Plan Act (ARPA) distributions, various dividend tax rates, qualified business income deductions, and trust investments.
This year, in an effort to reduce confusion, the IRS distributed two letters to individuals that should be brought to tax preparers: the 6419 Letter, which details the amount received from Advance Child Tax Credit (AdvCTC); and the 6475 Letter, which states the amount received from the Economic Impact Payments (EIPs or stimulus payments). You will only receive a letter if you received money from either or both of these programs. If you received money from these programs but not a letter, you can create an account with the IRS to confirm this information.
AdvCTC and the temporary increase in the Child and Dependent Care Credit only apply to the 2021 tax year and will not continue into 2022. The reversion to pre-ARPA levels could create an increase in tax for the tax year 2022, barring any legislative intervention. Our professionals recommend monitoring your withholding levels on W-4s to prevent any surprises.
Above-the-line deductions for charitable contributions continue to be a potential area to reduce the tax burden, allowing a $600 deduction on a joint return—double the previous year. In addition, those who took COVID-related distributions will have three years to repay those distributions from your retirement plans from the day you first received them. These distributions may be paid in increments or in a lump sum during this time period, provided the full amount is repaid by the end of the three years.
Our professionals are available to answer questions that arise during this tax season and to aid in the filing of your tax return.
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