Don't Mess With Taxes

Following these youngsters' example could pay off in more money from Uncle Sam. The IRS is notifying individuals and families who didn't have to file a 2021 tax return to take another look and consider submitting one by Nov. 17 to claim valuable tax breaks, like the enhanced Child Tax Credit, that they missed.

The Internal Revenue Service is still trying to distribute tax benefits to 9 million families that have yet to claim them.

The yet-to-be-collected tax breaks are COVID-19 economic impact payments available as the Recovery Rebate Credit (RRC), the Child Tax Credit (CTC), and the Earned Income Tax Credit (EITC). These tax benefits were created or enhanced under the American Rescue Plan Act of 2021, and their amounts could make a substantial difference to qualifying recipients, as they were enhanced for the 2021 tax year.

But time to get the federal cash is running out.

So the IRS last week began sending special reminder letters to those who appear to qualify for the tax breaks, but, according to IRS data, did not claim them by filing a 2021 federal income tax return. 

Treasury's Office of Tax Analysis identified the letter recipients, who appear to be people who did not make enough money to require they file a Form 1040, by checking available tax information the IRS receives. This data typically is information from W-2 forms, 1099s, and other third-party statements that routinely are copied to the IRS.

New November filing options: The IRS correspondence should start showing up in those folks' snail mail boxes over the next few weeks.

And because of the mailing delay, the IRS is giving the taxpayers more time to file the tax return necessary to receive them. The agency is keeping Free File open for an extra month, until Nov. 17.

The no-cost tax preparation and e-filing service can be used by filers whose incomes are $73,000 or less. Eight companies from the Free File Alliance, the IRS' private sector tax industry partner in the endeavor, are offering their services this year.

This extended Nov. 17 Free File operational date, a month after the usual Oct. 17 extended filing deadline, earns this weekend's By the Numbers honor.

People who have yet to file a 2021 federal tax return also can visit GetCTC.org. There they can use the GetCTC simplified filing tool, which was developed by the nonprofit Code for America in collaboration with the White House and the U.S. Department of Treasury. This modified tax return filing tool also can be used to claim any COVID EIP amounts that might have been missed.

GetCTC's online special filing option is available through Nov. 15 to individuals whose annual incomes are less than $12,500 and couples whose incomes are less than $25,000 for the tax year.

2021's special, larger amounts: The key reason behind the IRS urgency to get the tax breaks distributed to all who qualify is their special 2021 amounts, which were enhanced to help individuals and families deal with financial problems created by the coronavirus pandemic.

The Child Tax Credit can be as much as $3,600 per child age 5 or younger. It's worth $3,000 per youngster age 6 to 17. This increase amount is available only on 2021 tax returns. The amount for the 2022 tax year has returned to $2,000 per qualifying child.

The 2021 tax year Earned Income Tax Credit (EITC) also is more generous — as much as $1,502 — for eligible workers who have no children. The EITC also is worth $3,618 for families with one child; $5,980 for those with two children; and $6,728 for those with at least three children. Additional temporary legislative changes also mean more may qualify for the EITC.

The third round of the Recovery Rebate Credit (RRC), aka the COVID stimulus money, was distributed last year to qualifying taxpayers who had filed tax returns in prior years. Those who missed out on those economic impact payments, or who got less than the maximum — that's $1,400 for each qualifying adult, plus $1,400 for each eligible child or adult dependent — should look into claiming the RRC.

Other possible credit claims: In addition to the COVID-related tax breaks, the IRS notes that many filers may also qualify for two other benefits by filing a 2021 tax year return.

The Child and Dependent Care Credit helps eligible families pay for daycare so that parents can work. For 2021, it's worth up to $4,000 for one qualifying person, and $8,000 for two or more qualifying persons.

The key shared element of the RRC, CTC, EITC and dependent care credit is that they are tax credits. This means that they provide a dollar-for-dollar reduction of any tax you owe and, thanks to the COVID-created enhancements, are at least partially refundable. This means they can produce a refund if you have more of the credit than tax owed.

Tax deduction, too: There's also a special charitable tax deduction that's available (for now) only on 2021 tax returns.

On those filings, taxpayers who take the standard deduction can deduct some of the eligible cash contributions they made in 2021. This deduction — up to $300 for single filers, $600 for married filing jointly couples — does not require itemizing. It is claimed directly on the 2021 Form 1040 on line 12b.

No effect on other benefits: In announcing the special 2021 tax break letters and later Free File availability, IRS Commissioner Chuck Rettig emphasized the value, especially for families, of the unclaimed tax breaks.

"We encourage people who haven't filed a tax return yet for 2021 to review these options," said Rettig. "Even if they aren't required to file a tax return, they may still qualify for several important credits. We don't want people to overlook these tax credits, and the letters will remind people of their potential eligibility and steps they can take."

The IRS also notes that claiming these credits will not affect an individual's ability to claim other federal benefits for which they might qualify. The unaffected benefits include Supplemental Security Income (SSI), Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), and the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC).

Claiming these credits also has no effect on an individual's immigration status or ability to get a green card or immigration benefits.

You also might find these items of interest:

• 5 tests a child must meet to be your tax dependent
• 10 reasons to file a tax return even if you don't have to
• Nov. 15 is deadline for nonfilers to claim enhanced credits at GetCTC.org
• Tax credit for other dependents can help families with older kids, aging parents

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