Don't Mess With Taxes

I got my first tax statement today, a 1099 for some freelance work I did last year. That's just one of the documents that millions of taxpayers are awaiting so they can file their tax year 2021 returns.

In addition to income statements, such as the 1099-NEC I got, 1099s with details on investment earnings, and W-2 forms for folks with wage-paying jobs, there are beau coup documents reporting tax-related transactions.

Among the most common are forms detailing home related mortgage interest and taxes paid from escrow accounts, retirement account distributions, prize and gambling winnings, and in some cases, health care information.

And this 2022 tax filing season, millions of us also are getting special Internal Revenue Service letters about COVID-19 relief payments.

Information only, but not to be ignored: A handful of these documents must be submitted with Form 1040. However, most of these so-called third-party documents are informational only. They're issued to remind you, and let the IRS know, about your various sources of income or payments you can claim on your return.

But don't ignore them. As noted, the IRS gets the data, too, and it uses it to automatically check against what you enter on your Form 1040.

When the IRS detects a mismatch between a return entry and a tax statement, you'll get a letter from the tax agency. Worse, you'll face a delay in IRS processing of your return and issuing any refund you're due.

So if you are expecting any tax statements, don't file before you get them. Even if you're not expecting any, wait a bit. Most of these documents must be issued by Jan. 31, and yes, some issuers wait until that date.

Yes, it's frustrating, especially if you're expecting a refund or need to file to get the rest of the Child Tax Credit or economic impact payment money.

But tax patience is your best move. And remember, your hurry isn't going to help that much. The IRS won't start processing any returns until Jan. 24, even those snail- or e-mailed before then.

Two special 2021 IRS letters: Before we dive into the general tax document pool, let's wade in with a look at two new documents that many filers will need to complete their 2021 tax returns.

They're officially identified by the IRS as letters. And both are being issued in connection with some COVID-19 relief created by the American Rescue Plan Act (ARPA) that became law last March 2021.

Letter 6419 — This IRS document goes to families who got half of the enhanced Child Tax Credit (CTC) amount last year. The credit was temporarily increased as part ARPA. For the 2021 tax year, the CTC is $3,600 for children younger than age 6, and $3,000 for youngsters age 6 to 17. Since so many families were struggling due to continuing coronavirus created economic problems, lawmakers decided some of the CTC should go out early, instead of making them wait until they filed their returns in 2022. ARPA instructed the IRS to deliver of half of the full CTC amounts to qualifying taxpayers as monthly payments from July through December 2021. Letter 6419, officially titled 2021 Total Advance Child Tax Credit Payments, will tell recipients how much CTC they got last year. They'll use that amount to figure the remainder they can claim on their 2021 tax return.

Letter 6475 — Similarly, this IRS letter details how much of the COVID-19 third economic impact payment (EIP) you got last year. The maximum, as also provided by ARPA, was $1,400 per person. If you didn't get that much, you might be able to get additional relief money by claiming the Recovery Rebate Credit. The information in Letter 6475, officially titled Your 2021 Economic Impact Payment, will help you calculate just how much you're still due. If you didn't get any EIP last year, but qualify, you can claim the Recovery Rebate Credit, no letter needed.

Myriad forms to find: OK, that's the new tax statement info for 2021 taxes. Now here's a listing, mostly in numerical order, of some of the more popular tax information documents that will be online or filling both curbside and computer mail receptacles in the coming days and weeks.

The bold-type titles are, in most cases, links to the official IRS documents. Most should be the 2021 tax year versions, but a few might still be being updated by the IRS, so check back later for official current filing year forms.

Also, as mentioned earlier, most of them are due to taxpayers by Jan. 31, unless otherwise noted in the brief discussions of the forms.

W-2 — This is the tax form that most folks anxiously await. It's the wage statement from your employer (or employers, if you hold more than one job) that details how much money you made, how much income tax was withheld, the amounts taken out for Social Security and Medicare, and contributions to workplace benefit programs, such as 401(k) and similar retirement plans, medical accounts and child care reimbursement plans.

W-2G — If you're lucky, you'll get this earnings statement. It's specially designed to reported gambling winnings, hence the appended G. It's sent to winners who get:

• $1,200 or more from bingo or slot machines,
• $1,500 or more in winnings (reduced by the wager) from keno,
• More than $5,000 in winnings (reduced by the wager or buy-in) from a poker tournament,
• $600 or more in gambling winnings (except winnings previously noted) and the payout is at least 300 times the amount of the wager, and
• Any other gambling winnings subject to federal income tax withholding.

1095 form series — These forms were created to report Affordable Care Act data. However, political battles over the health care coverage popularly known as Obamacare have changed some things.

The Republican tax reform bill, the Tax Cuts and Jobs Act (TCJA), eliminated the individual mandate penalty at the start of the 2019 tax year. That penalty was the amount that previously was added to your taxes if you didn't have what was deemed adequate insurance coverage. However, the TCJA did not do away with the associated Obamacare reporting requirements. By law, the forms still must be issued.

That mean you might get at least one of the 1095 series insurance coverage tax statements listed below even though you don't need it/them for federal filing purposes to document your 2021 tax year (and beyond…for now) medical coverage and avoid the now-gone federal penalty.

Note, however, that while the federal enrollment mandate and penalty is gone, some states still require their residents to get medical coverage or pay a price.

Due to the TCJA changes, the IRS has extended some of the deadlines for issuing these forms. State deadlines, however, could be different.

So basically, just keep your eyes open for these forms. You'll need the A version to reconcile or claim any ACA premium tax credit (PTC) you got in advance or are eligible to file for on your return. The B and C versions are informational and you can simply store them with your other tax records for the year.

• Form 1095-A, the Health Insurance Marketplace Statement, debuted for the 2015 tax year. Per its name, it is sent by the exchanges where individuals purchased their medical coverage. As noted, use its data in connection with PTC claims.
• Form 1095-B is issued by health care insurance issuers or some smaller companies that provide coverage for employees. It confirms that you had workplace-provided healthcare that met the ACA's acceptable minimal health insurance coverage standard. It also shows how long you were covered and which family members also were on your policy.
• Form 1095-C is the same as B, but is issued by large employers.

1098 — This form lists how much mortgage interest a homeowner paid on the loan. In most cases, this amount is fully deductible. The IRS has an official 1098 form (that's what the 1098 link will show you), but most lenders (like every bank that's given us a mortgage) tend to use a substitute document that contains the same data.

This form also includes another key itemized tax deduction, the amount of real estate taxes on the property that the mortgage lender paid on your behalf the previous tax year. Despite Congressional efforts to eliminate or expand the TCJA's limit on the $10,000 deduction limit on property and other state and local taxes (SALT) taxes, the cap is still in effect, regardless of what's shown here.

1098-E — The interest paid on your student loan is reported on this form and is sent by your lender it the interest tally is at least $600. You may be able to deduct this interest and possibly other loan-related amounts, such as origination fees and capitalized interest.

1098-T — Universities issue this tuition statement to students. It shows the amount of qualified education expenses the college kid paid. The info is needed to help in the claiming of education-related tax benefits, such as the American Opportunity or Lifetime Learning tax credits.

1099-INT — You'll get one of these forms for each savings, CD or other investment account in which you earned more than $10 in interest. Even if you reinvested the interest instead of receiving it as a cash payment, it still counts as taxable income.

1099-DIV — Earnings from stocks and mutual funds are reported here, including dividends and capital gains distributed that are more than $10. As with reinvested interest, if you used the dividends or distributions to buy more shares, you still have to pay taxes. However, the distributions and certain, qualified dividends are taxed at the lower capital gains rates.

1099-B — If you sold stocks, bonds or mutual funds, you will receive a 1099-B from your broker or mutual fund company. It will detail the number of shares sold, when sold and the amount of the sale. Since 2011, brokers also have been providing information on the basis (the cost of an asset plus some adjustments) of sold stock. This information, along with the date you bought the shares and the amount you paid for them, will help you figure your taxes on your profit. 1099-B forms are due to investors by Feb. 15.

1099-G — When you get a refund of state or local taxes, you'll get this form. If you claimed those taxes as an itemized deduction on your previous year's federal tax return, you must report the 1099-G amount as income in the year received. And millions of people will get 1099-G forms this filing season for the unemployment benefits they received in the wake of job losses caused by the COVID-19 economic crisis.

1099-K — Payments you got via credit or debit cards or from third-party payment processors, such as Uber, Lyft, PayPal, Amazon and eBay, will be reported on this form. There are triggers for amounts ($20,000) and number of transactions (200), so not every person who receives such payments will get a 1099-K. This income, however, is taxable and should be reported even without issuance of a 1099-K.

1099-MISC — In 2020, this form changed from the document used to report payments for gig or contract work (that's now 1099-NEC, it's next in this list), to being used to report rent or royalty payments or prizes and awards, such as winnings from television or radio show contest. Form 1099-MISC also will go to some other more esoteric payments, such as fish purchases paid in cash for resales; payments to crew members by owners or operators of fishing boats including payments of proceeds from sale of catch; and crop insurance proceeds. One thing stays the same, though. When a 1099-MISC is required, it will be issued when the payment amount is aid them $10 or more in royalties, or $600 or more in other types of miscellaneous income during a calendar year.

1099-NEC — This form was revived to primarily report what I call freelance work performed by self-employed individuals. The IRS' official name for these earnings is non-employee compensation, which explains the NEC designation. You should get one if you earned $600 or more from a job. You also should get a separate 1099-MISC from each client that paid you that much. This roughly is the self-employed version of a W-2 without, of course, any taxes paid via withholding. These should have been paid via estimated taxes. And remember that even if you don't get a Form 1099-NEC for a job because the remuneration was less than $600, that $1 to $599 payment still is taxable income.

1099-R — If you received a pension or a distribution from an individual retirement account or workplace retirement plan, you'll get a Form 1099-R with those details. The form is issued by your broker, pension plan manager or mutual fund company. Even if you rolled the retirement money into another employer-provided 401(k) plan or an IRA, you'll still get a 1099-R. The form has several boxes that differentiate any taxable amount from the gross (total) distribution amount. You'll also get a 1099-R if you converted a traditional IRA to a Roth IRA. Again, a rollover usually is not a taxable event, but a pension payout may be.

The 1099 forms discussed above are the most commonly issued versions of this tax statement. However, there are many other 1099s with other appended letters. You can more about the various 1099s, what triggers their issuance and when each form is supposed to be supplied to you in my earlier post on the many versions of IRS Form 1099.

5498 — Any contributions you make during the tax year to any individual retirement account are reported on this form. The 5498 shows traditional IRA contributions that might be deductible on your tax return, as well as any rollovers, including a direct rollover to a traditional IRA, made during the last tax year. It also reports amounts that were recharacterized from one type of IRA to another. 5498 forms with information on your contributions to such accounts aren't due to you by until May 31. The IRS also says, however, that the issuer should make the retirement account's fair market value (FMV) and, if applicable, required minimum distribution (RMD) information, available by Jan. 31.

5498-ESA — This account reporting form has details on contributions to Coverdell Education Savings Accounts, formerly known as Education IRAs. The youngster named as beneficiary of the Coverdell should get a copy of this document by April 30. This information is important is you went overboard last year in contributing to this educational savings vehicle. If your total contributions made to all your Coverdell ESAs for 2021 exceeded $2,000, you must withdraw the excess, plus earnings, by June 1, 2022, or you may owe a penalty.

Schedule K-1 — If you got money from an estate, trust, partnership or S corporation last year, you should get a Schedule K-1. However, because of the complexity of many of these financial arrangements, account managers tend to send out K-1s later in the tax season, often not until well after the April tax return filing deadline.

That's why filers who get K-1 forms usually file another popular piece of tax paperwork, Form 4868, Application for Automatic Extension of Time to File. This gets you six more months to get your K-1 and any other tax statements you need to fill out your Form 1040.

Substitute forms acceptable: The tax docs reviewed and linked (for the most part) in this post are the official IRS versions. You, however, probably will get a slightly different looking document.

That's OK. The IRS gives companies leeway to use statements that fit their software and system.

Just look for the notation on the reporting document of the form number you're expecting, as well as its identification as a "substitute" tax statement.

Double check data: Regardless of what format your statements take, be sure to double check them as soon as they show up in your snail mail or email box.

If you find a discrepancy against your own records, call the payor and get an explanation. By catching any mistake early, you'll be able to get the correct information in plenty of time to accurately file your tax return by the April deadline.

Determine the delivery methods: Finally, make sure you're looking for your tax statements in the right places.

If some of them are sent by the U.S. Postal Service, they could (probably will) arrive in your curbside snail mail box after Jan. 31. Give your carrier a few days before you panic.

Nowadays, however, most places use digital delivery. Instead of sending paper forms by mail, businesses, employers, financial institutions, and the various other third-party tax statement issuers deliver them electronically.

This usually means you get an email notice that your tax documents are ready for you to download from the issuer's website.

So check your email or the appropriated websites for your tax-related accounts periodically during the next few weeks.

You also might find these items of interest:

• Tax Season 2022 for individuals starts Monday, Jan. 24
• IRS began accepting e-filed business tax returns on Jan. 7
• Keep an eye out for IRS letters on COVID relief money, advance Child Tax Credit payments
• Talking Tax Forms, a 2022 listing of posts on tax forms. Earlier forms discussions can be found at Tax Forms Tuesday (2020) and Tax Forms Fiesta! (2021)

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