What a Tax Shock! It’s Possible That Recipients of Covid Benefits Will Not Receive a Refund or Even a Bill.
For those of us who get a tax refund every year, the year 2022 could be a bit of a shock. On April 15th, you may discover that your tax refund is less, nonexistent, or that you owe the IRS money.
For this year’s tax season, CNBC has outlined three possible reasons why Americans may owe money:
- The Child Tax Credit in advance.
- Student loan payments have been put on hold.
- Distributions from mutual funds.
In the year 2021, if you find yourself in any of these financial circumstances, keep reading to learn about the potential tax implications and how you may prepare.
CTC Advances Could Leave Some Parents With Debts They Can’t Pay
From $2,000 to $3,600 for children under the age of 6, the advance CTC boosted the overall child tax credit to $3,000 for children ages 6 to 17. It’s possible that you’ll get less money back in taxes even though the credit is bigger because half the payments were made monthly between July and December of 2021.
It doesn’t matter how many children you have, you’ll only be able to deduct $1,500 from your tax bill if they’re all under the age of 18. Your tax bill could be significantly higher if you’ve had more than one child in the last several years. Tax refunds of $2,000 or more have already been delivered to you throughout the second half of last year if you’re used to receiving that amount.
Families who saw their income rise in 2021 could face a worse situation. A portion of the advance CTC may have to be returned by single parents and married couples who made more than $150,000 in adjusted gross income in 2021. Your entire credit will have to be repaid if you earned more than $95,000 on your own or $170,000 as a couple.
If you’re not making payments on your student loans, you can’t deduct the interest you pay.
In March 2020, nearly nine out of ten borrowers who had the option of pausing their student loan payments took use of that option. Financial relief may have been a welcome short respite, but people who stopped their payments may not have considered the long-term tax implications of doing so.
Even if you don’t itemize your tax deductions, you can deduct up to $2,500 in interest, which lowers your taxable income. Tax experts tell CNBC.com that an additional $2,500 on your AGI could result in an additional $500 or $600 on your tax bill, depending on your tax bracket.
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For Investors, Strong Mutual Funds Could Mean Higher Taxes.
Because of the bullish market, you may have earned more in capital gains dividends from your mutual funds this year than in previous years. On the other hand, you may not have included that additional capital gains income in your tax return.
It’s too late to take advantage of tax-loss harvesting tactics or sell the fund to avoid capital gains tax at this point in time. If your investment gains continue to be substantial in 2022, you should consult with your tax accountant and financial counselor to identify the best course of action for you.
Be sure to check with your accountant or financial counselor before claiming unemployment benefits, as they may be taxed differently than regular income.