While the year 2020 was historically weird (to put it mildly), the year 2021 was anything but. While the US economy partially recovered from the pandemic’s early blows, and for a brief period, it appeared as though COVID was diminishing — intricate governmental adjustments were going behind the scenes. Oh, and the epidemic did not end; in fact, it worsened, with the virus killing more people in 2021 than the previous year.
While the pandemic went on, Congress worked to develop strategies to assist Americans in remaining afloat. It passed the $1.9 trillion American Rescue Plan Act in March 2021, which was a sort of enlargement of the $2.2 trillion CARES act passed in March 2020. Citizens enjoyed a variety of benefits under the new plan, some of which are now coming back to haunt them on their tax returns. In other words, the benefits we gained, as a result, assisted in reducing our burden on the federal government, which may have resulted in a reduction in the amount of our tax refund.
Here are all the reasons you might not be eligible for a refund this year. While the majority of them are beyond your control, there are several instances in which you should definitely contact the IRS personally.
You Received Child Tax Credit Payments in Advance
“Many families will recall that they began receiving monthly deposits (or checks) from the IRS in July 2021 as part of the government’s COVID alleviation initiatives,” said Taylor Hoffman, an investment advisor and director of financial planning. “These payments were distinct from the stimulus payments received in 2020 and 2021 in that they were actually partial prepayments of the child tax credit that many families receive each year on their tax return (in comparison to the stimulus payments, which were more akin to free money).”
According to Hoffman, the child tax credit is a dollar-for-dollar write-off on your tax bill: “In other words, the IRS was rewarding families in advance for a tax credit they would have received otherwise when they submitted their taxes.”
The child tax credit from last year may have resulted in some people not receiving a refund, since the IRS paid families up to half of their qualifying child tax credit.
“As a result,” Hoffman explained, “when those families pay their taxes, they will only be able to deduct half of the credit.”
You Accomplished Investment Gains
“Stocks in the United States enjoyed a great year in 2021, with the S&P 500 returning about 29 percent. Other assets, like cryptocurrencies, have soared in value, with Bitcoin over 60% in 2021 and Ethereum approximately 400%,” said Scott Caufield, principal of Sophos Wealth Management. “Investors who realized some of their gains this year may see their taxes increase significantly. Mutual fund investors may be astonished to learn that they received capital gains distributions in 2021 on which they will owe taxes.”
You Violated the Moratorium on Student Loans
“The Biden administration has extended the payment moratorium until mid-2022,” said Ryan McCarty, owner/CEO of McCarty Money Matters. “This has been a saving grace during the pandemic, (but) not paying student loan interest means not deducting student loan interest. Depending on the amount of interest paid in a given year, this can make a small or significant impact in your overall tax situation.”
You Have Amassed Unemployment
“Unemployment income is a significant issue that is on everyone’s mind right now,” McCarty explained. “In 2021, we witnessed the implementation of a taxable exemption on the first $10,200 of unemployment income received in 2020. This has not been the case in 2022. If someone got solely unemployment benefits in 2021, the impact would likely be small, as the first dollar received is taxed at extremely low rates. If this was in addition to revenue from a new job/enterprise, it could add a significant chunk of untaxed income.”
You freelanced or worked as a side hustler
“If you supplemented your lost income in 2021 by working as a contractor and receiving 1099s rather than W-2s, we can only hope you laid aside some funds to cover the self-employment tax rates,” McCarty added. “This is clearly a wake-up call for individuals who have never seen similar situations.”
You Did Not Earn a Sufficient Amount of Withheld Income
“If you did not work the entire year, either through resignation or layoff — both of which are highly important in 2021 — you will find that less tax is taken from your paycheck,” McCarty explained. “If you do not appropriately adjust your withholding along the way via your W-4 with employers, you may be exposed to a significantly different number than in previous years.”
You Purchased or Sold Cryptocurrency
“Selling bitcoin or exchanging it for another cryptocurrency is treated as a sale of property, and any gain is subject to capital gains tax,” Yvette D. Best, owner of Best Tax Solutions LLC, explained. “Typically, cryptocurrency transactions generate short-term gains (tax on earnings from the sale of an asset held for less than a year), and the capital gains tax rate is identical to your ordinary income tax rate.”
Taxes in 2022: Questions to Ask Your Accountant Before Filing
You Are a Suspect in Identity Theft
“Identity theft is on the upswing,” said Steven Jager, a certified public accountant, and partner at Fineman West. “When someone electronically files a tax return using another person’s Social Security number (illegally) and then files the real tax return legitimately, the real tax return is rejected. After the identity theft is investigated, it must be filed on paper and physically processed. It’s a lengthy procedure, and refunds might take an inordinate amount of time to process. We have had a case where a nearly million-dollar refund was obtained very recently on a tax return submitted several years ago.”
The Internal Revenue Service Is Understaffed and Overburdened
“The IRS currently has a significant backlog of unprocessed regular filed tax returns and amended tax returns, which may cause processing delays in 2022,” Trenda Hackett, technical tax editor at Thomson Reuters Tax and Accounting, explained. “In fact, the IRS had backlogs of around 6 million unprocessed original individual tax returns (Form 1040), 2.3 million unprocessed individual modified forms, and approximately 5 million unprocessed taxpayer letters as of late December.”
If your tax information has been revised or corrected and it says that you are due a refund, you may not receive a dollar due to no fault of your own, but rather because the IRS has not updated your account.
If you have not received your tax refund within six weeks of filing your return, contact your local IRS office or the federal agency for assistance. Additionally, you can track the status of your refund here.
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