Here are reasons people who don’t normally file should file a 2021 tax return

With tax filing season is just around the corner, this is a good time for those who don’t normally file to consider the benefits of filing a 2021 tax return. Filing can help them claim a refundable tax credit or get an income tax refund.

Here are some things taxpayers should consider when deciding whether to file a tax return:

Find out the general reasons to file

In most cases, income, filing status and age determine if a taxpayer must file a tax return. Other rules may apply if the taxpayer is self-employed or can be claimed as a dependent of someone else. There are other reasons when a taxpayer must file. The Interactive Tax Assistant can help someone determine if they the need to file a return.

Look at tax withheld or paid

Here are a few questions for taxpayers to ask themselves:

  • Did the taxpayer’s employer withhold federal income tax from their pay?
  • Did the taxpayer make estimated tax payments during the tax year?
  • Did they overpay last year on their taxes and have it applied to their 2021 tax?

If the answer is yes to any of these questions, they could be due a refund. They must file a 2021 tax return to get their money.

Look into whether they can claim the earned income tax credit

A working taxpayer who earned $57,414 or less last year could receive the EITC as a tax refund. For the 2021 tax year, the tax return taxpayers file in 2022, the earned income credit ranges from $1,502 to $6,728 depending on their filing status and how many children they claim on their tax return. The law allows taxpayers to use either their 2020 income or 2021 income to calculate their EITC — taxpayers may choose whichever amount gives them a larger credit. They can check eligibility by using the EITC Assistant on IRS.gov. Taxpayers need to file a tax return to claim the EITC. By law, the IRS cannot issue refunds to taxpayers claiming EITC until mid-February.

Child tax credit or credit for other dependents
Taxpayers can claim the child tax credit if they have a qualifying child under the age of 17 and meet other qualifications. Other taxpayers may be eligible for the credit for other dependents. This includes people who have:

  • Dependent children who are age 17 or older at the end of 2020
  • Parents or other qualifying individuals they support

The Child-Related Tax Benefits page of IRS.gov can help people determine if they qualify for these two credits.

Education credits
There are two higher education credits that reduce the amount of tax someone owes on their tax return. One is the American opportunity tax credit and the other is the lifetime learning credit. The taxpayer, their spouse or their dependent must have been a student enrolled at least half time for one academic period to qualify. The taxpayer may qualify for one of these credits even if they don’t owe any taxes. Form 8863, Education Credits is used to claim the credit when filing the tax return.

Recovery rebate credit
Individuals who didn’t qualify for a third Economic Impact Payment or got less than the full amount, may be eligible to claim the 2021 recovery rebate credit based on their 2021 tax year information. If they’re eligible, they’ll need to file a 2021 tax return even if they don’t usually file a tax return. The credit will reduce any tax owed for 2021 or be included in the tax refund.

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Taxpayers must report gig economy earnings when filing taxes

Whether it’s a full-time job or just a side hustle, taxpayers must report gig economy earnings on their tax return. Understanding how gig work can affect taxes may sound complicated but, it doesn’t have to be. The IRS offers several resources to help gig economy taxpayers properly fulfill their tax responsibilities.

Here are some things gig workers should keep in mind.

Gig work is taxable:

  • Earnings from gig economy work is taxable, regardless of whether an individual receives information returns. The reporting requirement for issuance of Form 1099-K changed for payments received in 2022 to totals exceeding $600, regardless of the total number of transactions. This means some gig workers will now receive an information return. This is true even if the work is full-time, part-time or if an individual is paid in cash.
  • Gig workers may also be required to make quarterly estimated income tax payments and pay their share of Social Security and Medicare taxes.

Check worker classification:

  • While providing gig economy services, it is important that the taxpayer is correctly classified.
  • This means the business, or the platform, must determine whether the individual providing the services is an employee or independent contractor.
  • Taxpayers can use the worker classification page on IRS.gov to see how they are classified.
  • Independent contractors may be able to deduct business expenses, depending on tax limits and rules. It is important for taxpayers to keep records of their business expenses.

Pay the right amount of taxes throughout the year:

  • An employer typically withholds income taxes from their employees’ pay to help cover income taxes their employees owe.
  • Gig economy workers who are not considered employees have two ways to cover their income taxes:
    • Submit a new From W-4 to their employer to have more income taxes withheld from their paycheck, if they have another job as an employee.
    • Make quarterly estimated tax payments to help pay their income taxes throughout the year, including self-employment tax.

The Gig Economy Tax Center on IRS.gov answers questions and helps gig economy taxpayers understand their tax responsibilities.

More information:
Publication 5369, Gig Economy and your taxes: things to know
Publication 1779, Independent Contractor or Employee
Is My Residential Rental Income Taxable and/or Are My Expenses Deductible?

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IRS issues standard mileage rates for 2022

IR-2021-251, Dec. 17, 2021

WASHINGTON — The Internal Revenue Service today issued the 2022 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2022, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 58.5 cents per mile driven for business use, up 2.5 cents from the rate for 2021,
  • 18 cents per mile driven for medical, or moving purposes for qualified active-duty members of the Armed Forces, up 2 cents from the rate for 2021 and
  • 14 cents per mile driven in service of charitable organizations; the rate is set by statute and remains unchanged from 2021.

The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, unless they are members of the Armed Forces on active duty moving under orders to a permanent change of station. For more details see Moving Expenses for Members of the Armed Forces.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Taxpayers can use the standard mileage rate but must opt to use it in the first year the car is available for business use. Then, in later years, they can choose either the standard mileage rate or actual expenses. Leased vehicles must use the standard mileage rate method for the entire lease period (including renewals) if the standard mileage rate is chosen.

Notice 22-03, contains the optional 2022 standard mileage rates, as well as the maximum automobile cost used to calculate the allowance under a fixed and variable rate (FAVR) plan. In addition, the notice provides the maximum fair market value of employer-provided automobiles first made available to employees for personal use in calendar year 2022 for which employers may use the fleet-average valuation rule in or the vehicle cents-per-mile valuation rule.

From IRS.gov

Security Summit: Tax pros should encourage clients to obtain IP PINs to protect against tax-related identity theft

WASHINGTON – Internal Revenue Service Security Summit partners today called on tax professionals to increase efforts to inform clients about the Identity Protection PIN Opt-In Program that can protect against tax-related identity theft.
 
The IRS, state tax agencies and the nation’s tax industry – working together as the Security Summit  –  need assistance from tax professionals to spread the word to clients that the IP PIN is now available to anyone who can verify their identity.

Sharing information about the IP PIN Opt-In Program is the second in a five-part weekly series sponsored by the Summit partners to highlight critical steps tax professionals can take to protect client data. This year’s theme “Boost Security Immunity: Fighting Against Identity Theft” is an effort to urge tax professionals to intensify efforts to secure their systems and protect client data during this pandemic and its aftermath.

“An Identity Protection PIN prevents someone else from filing a tax return using your Social Security number,” said Chuck Rettig, IRS commissioner. “We’ve now made the IP PIN available to anyone who can verify their identity. This is a free way for taxpayers to protect themselves, but we need the help of tax professionals to make sure more people know about it.”

The IRS created Publication 5367, IP PIN Opt-In Program for Taxpayers, in English and Spanish, so that tax professionals could print and share the IP PIN information with clients. There are also special posters available in English and Spanish.

For security reasons, tax professionals cannot obtain an IP PIN on behalf of clients. Taxpayers must obtain their own IP PIN.

Summit partners urged taxpayers and tax professionals to protect the IP PIN from identity thieves. Taxpayers should share their IP PIN only with their trusted tax prep provider. Tax professionals should never store clients’ IP PINs on computer systems. Also, the IRS will never call, email or text either taxpayers or tax preparers to request the IP PIN.

Tax professionals who experience a data theft can assist clients by urging them to quickly obtain an IP PIN. Even if a thief already has filed a fraudulent return, an IP PIN would still offer protections for later years and prevent taxpayers from being repeat victims of tax-related identity theft.

Here are a few things taxpayers should know about the IP PIN:

  • It’s a six-digit number known only to the taxpayer and the IRS.
  • The opt-in program is voluntary.
  • The IP PIN should be entered onto the electronic tax return when prompted by the software product or onto a paper return next to the signature line.
  • The IP PIN is valid for one calendar year; taxpayers must obtain a new IP PIN each year.
  • Only dependents who can verify their identities may obtain an IP PIN.
  • IP PIN users should never share their number with anyone but the IRS and their trusted tax preparation provider. The IRS will never call, email or text a request for the IP PIN.

Currently, taxpayers may obtain an IP PIN for 2021, which should be used when filing any federal tax returns during the year. New IP PINs will be available starting in January 2022.

To obtain an IP PIN, the best option is the Get an IP PIN, the IRS online tool. Taxpayers must validate their identities through Secure Access authentication to access the tool and their IP PIN. Before attempting this rigorous process, see Secure Access: How to Register for Certain Online Self-Help Tools. The tool is offline between November and January.

If you are unable to validate your identity online and if your income is $72,000 or less, you may file Form 15227, Application for an Identity Protection Personal Identification Number. The IRS will call the telephone number provided on Form 15227 to validate your identity. However, for security reasons, the IRS will assign an IP PIN for the next filing season. The IP PIN cannot be used for the current filing season.

Taxpayers who cannot validate their identities online, or on the phone with an IRS employee after submitting a Form 15227, or who are ineligible to file a Form 15227 may call the IRS to make an appointment at a Taxpayer Assistance Center. They will need to bring one picture identification document and another identification document to prove their identity. Once verified, the taxpayer will receive an IP PIN via U.S. Postal Service within three weeks.

The IP PIN process for confirmed victims of identity theft remains unchanged. These victims will automatically receive an IP PIN each year.

Additional resources
Tax professionals also can get help with security recommendations by reviewing the recently revised IRS Publication 4557, Safeguarding Taxpayer Data, and Small Business Information Security: The Fundamentals by the National Institute of Standards and Technology. The IRS Identity Theft Central pages for tax pros, individuals and businesses have important details as well.

Publication 5293, Data Security Resource Guide for Tax Professionals, provides a compilation of data theft information available on IRS.gov. Also, tax professionals should stay connected to the IRS through subscriptions to e-News for Tax Professionals and Social Media.

For more information, see Boost Security Immunity: Fighting Against Identity Theft.

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