2022 ushers in an age of confusion in regards to tax laws for many people. While some prospective regulations remain in limbo, we hope to clarify some things we’re already seeing questions on.
Economic Impact Payments & Advance Child Tax Credit Program
Both the Economic Impact (Stimulus) and Advanced Child Tax Credit (CTC) payments can affect your 2021 Tax Return. They are not both the same, though.
The Stimulus was received as part of the American Rescue Plan Act of 2021 as the advanced payment of a Recovery Rebate Credit that is part of your 2021 Tax Return. This amount needs to be recorded on your tax return for one of two reasons: either to acknowledge that you received it in the correct amount, or to inform the IRS that you did not receive the correct amount. In case of the second reason, you will receive the correct amount either included in your refund or as a credit towards your amount due. If you received too much, you will not have to pay it back.
The Advanced Child Tax Credit payments were sent out July 15 – December 15, 2021. These were meant as a pre-payment of any child tax credit you would receive once you file your 2021 Tax Return. Taxpayers were given the option of opting out at the beginning of the program. Those that didn’t opt out and fell within the eligibility requirements (<$150,000 for couples; <$75,000 for individuals; and <$112,500 for Head of Household) received a monthly payment. According to the IRS website, the CTC payments were based on estimates of what the family would be allowed on their 2021 taxes. Since these were a pre-payment of 2021 amounts, if you received them and do not qualify for them once you file 2021, you may end up owing the IRS. The same goes if your income changed for the better, or if you do not claim your child in 2021.
Because of this, the IRS is offering repayment protection for some families. Eligibility includes: Your main home was in the U.S. for more than half of 2021 and if your modified Adjusted Gross Income (AGI) for 2021 was at or below the threshold amounts ($60,000 for joint or qualifying widow or widower; $50,000 for Head of Household; or $40,000 for single or married filing separate) on your 2021 Tax Return.
Third-Party Reporting Requirements
Beginning January 2022, a new tax rule took effect. This rule was enacted as part of the American Rescue Plan to help close some long-standing loopholes that allowed certain merchants and independent business to mis-report or under-report their incomes. Third-party payment processors like Venmo, PayPal and Cash App are often used to receive payments from patrons and are now required to report a user’s business transaction to the IRS if the amount exceeds $600 for the year.
The new rule applies only to those payments received for goods and services. Any money exchanged as gifts or transferred between friends, family, or even between your own personal accounts is exempt. The exemption also extends to property sold at a loss, such as items sold through resale sites like Facebook Marketplace or at a garage or rummage sale.
If you use any of these services to receive payments, you will receive a Form 1099-K from them that must be reported on your 2022 Tax Return. If you have received any payments for exempted services, you should keep records of them, just in case, as you may need that documentation if the IRS decides you underreported your income when they compare their records with what you reported on your return.