Tax Surprise! If You Received COVID Benefits, You Could See No Refund — or Even a Bill

by | Feb 8, 2022 | Taxes |

If you are one of the 75% of Americans who receive a tax refund annually, 2022 could bring an unwelcome surprise. Your tax refund could be smaller, non-existent, or you may even find that you owe the IRS money on April 15.

CNBC reported three reasons Americans could owe money at tax time this year:

  • The advance Child Tax Credit.
  • Paused student loan payments.
  • Mutual fund distributions.

If any of these financial situations applied to you in 2021, read on to see what the tax ramifications could be and how you can prepare.

Advance CTC Could Leave Some Parents Owing Money

The advance CTC increased the total child tax credit from $2,000 to $3,600 for children under 6 and to $3,000 for children between the ages of 6 and 17. Half of the payments were distributed on a monthly basis between July and December of 2021, which means even though the total amount of the credit is higher, you could get less back at tax time.

For instance, if you had one child and previously received a $2,000 credit, you’ll only receive a $1,500 credit off your tax bill when you file. If you have more than one child, you could be liable for a large portion of your tax bill that you’d written off in previous years. And if you’re used to getting $2,000 or more back as a tax refund — you’ve already gotten half of that money as payments distributed throughout the second half of last year.

It could be worse for families who saw their income rise in 2021. Single parents who made more than $75,000 in 2021, and married couples filing jointly who made more than $150,000 in adjusted gross income, could have to return a portion of the advance CTC they already received. If you made more than $95,000 as a single parent or $170,000 as a couple, you’ll have to return the entire credit.

Paused Student Loan Payments Mean You Can’t Deduct Interest

Nearly 90% of student loan borrowers took advantage of the option to pause their student loan payments in March 2020. And while the financial boost may have offered temporary relief during the pandemic, those who paused their payments may not have thought about the tax consequences of having done so.

Normally, you can deduct up to $2,500 of interest, which reduces your gross income – even if you don’t itemize your tax deductions. Depending on what tax bracket you fall into, an extra $2,500 on your AGI could mean you’ll pay an extra $500 or $600 on your tax bill, tax experts told CNBC.com.

Strong Mutual Funds Could Mean More Taxes for Investors

If you took capital gains distributions from your mutual funds this year, you may have received more than you did in the past thanks to a bullish market. But you may not have accounted for that extra capital gains income on your tax bill.

At this point, with 2021 closed out on the books, it’s too late to use tax loss harvesting strategies or sell the fund to avoid the capital gains tax. It’s best to speak with your tax accountant and your financial advisor to determine your best steps for 2022 if investment gains remain strong throughout the year.

Unemployment benefits claimed may also be problematic come tax time, so be sure to consult your accountant or financial advisor regarding these benefits, as well.

Should you be in the midst of a divorce or contemplating divorce, contact the Law Offices of Renee Lazar at 978-844-4095 to schedule a FREE one hour no obligation consultation.

gobankingtates.com

Set Up A Free Initial Consultation