Filing taxes last year was complicated and filled with last-minute changes. This year’s tax-filing season should be easier, but there are still plenty of new issues to deal with if you lost your job, started a new job or freelance work, collected unemployment benefits, had a baby or other life changes in 2021.
You may also need to take extra steps when you file your income tax return if you were eligible for extra stimulus funds or advance child tax credits. But some other COVID-related benefits did not continue into 2021 — such as the law excluding some unemployment benefits from federal income taxes for 2020.
“There’s currently no tax break on unemployment benefits received in 2021, though we can’t rule out Congress passing a last-minute tax break like they did last year,” says Steven Hamilton, an enrolled agent with Hamilton Tax and Accounting in Grayslake, Illinois.
If you did not have taxes withheld from your unemployment benefits in 2021, you may need to pay up when you file your income tax return for the year. Meanwhile, some new laws will help filers this year, such as the expanded $600 charitable deduction for married couples who don’t itemize and a larger break for child and dependent care expenses.
You may have special issues to deal with this year, even if your taxes are usually simple. But there are several resources that can help you file your tax return and answer your tax questions. Here’s what you need to know about filing your taxes for 2021 and making the most of your benefits.
— How to File Taxes.
— When Can You File Your Taxes?
— When Are Taxes Due?
— What if I Miss the Filing Deadline?
— How Do I Get a Tax Extension?
— How Much Do I Have to Make to File Taxes?
— How Do I Get Help With a Tax Audit?
— How Long Should I Keep Tax Records?
— How Should I Pay My Taxes?
— When Are State Taxes Due?
— What Happens if I Forgot to Take a Deduction When I Filed?
— Common Tax Terms to Know.
[Read: What Tax Credits Do I Qualify For?]
How to File Taxes
There are several ways to file your taxes. You can do them yourself, use tax software or an online program, visit a tax preparer in person or virtually, or get help from a certified public accountant or enrolled agent. There are many levels of support and costs depending on the complexity of your situation.
You may be able to file your taxes for free through IRS Free File if your income was below $73,000 in 2021. With this program, several online tax preparation companies partner with the IRS to offer free tax-filing services. For more information, see the IRS’ Free File page. Free File opens on Jan. 14, and the returns will be submitted to the IRS starting on Jan. 24.
You may be also able to get free tax prep help through the IRS Volunteer Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE) programs if you qualify. See the IRS’ database to find out if any of these resources are available in your area.
Some tax software companies also offer free programs that aren’t based on income. For example, TurboTax offers three free ways to file your taxes if you have a simple tax return: You could do your taxes yourself with TurboTax Free Edition, get help and a final review from a tax expert through TurboTax Live Basic (free through March 31), or have a TurboTax professional complete your return with TurboTax Full Service (free through Feb. 15). To qualify for the free service, you must have a simple tax return including Form 1040 only, W-2 interest and dividend income, standard deduction, earned income tax credit, child tax credit, and student loan interest, says Lisa Greene-Lewis, a CPA and tax expert with TurboTax.
TurboTax also has several other levels of tax-filing software and costs depending on your situation, such as the TurboTax Premier option with specific guidance for people with investments like stocks, cryptocurrency or rental property, or the TurboTax Self-Employed, which can help you file and find extra tax deductions for your business.
H&R Block’s tax preparers are working in person and virtually. The tax pro services generally start at $80 for a federal return, plus more depending on the complexity and forms. H&R Block also offers several levels of online tax preparation, with prices starting at $0 for simple returns.
Jackson Hewitt also offers online and in-person tax filing, including 3,000 locations in Walmart stores. Prices vary by location, but they start at $59 in Walmart stores for federal tax returns. Jackson Hewitt’s online DIY platform costs $25 for filing a tax return, including the federal and state returns.
You can also find a licensed tax preparer, a CPA or enrolled agent on your own. Enrolled agents are federally licensed tax preparers who are authorized to represent taxpayers in front of the IRS. You can find an enrolled agent through the National Association of Enrolled Agents. CPAs must complete rigorous education, testing and continuing education requirements. You can find a CPA near you through the American Institute of CPAs’ Find a CPA tool. CPAs who have the personal financial specialist credential also have expertise putting taxes into a financial planning perspective.
“A qualified tax and financial advisor may offer more than just short-term tax advice,” says Michael Trank, a CPA and accredited personal financial specialist in Irvine, California. “They may address holistic issues such as preparation for retirement, planning and saving for important goals, maintaining retirement lifestyle and estate planning objectives with consideration for family dynamics, tax efficiencies and risk tolerances.”
All paid tax preparers must have a preparer tax identification number, which they must include when they sign their line on your tax return. You can use the IRS’ Directory of Federal Tax Return Preparers to check their credentials and qualifications, such as whether they’re a CPA, attorney, enrolled agent, annual filing season program participant, or others with a preparer tax identification number.
When Can You File Your Taxes?
The IRS will begin accepting 2021 returns on Jan. 24, 2022. You should wait until you receive your key forms to file, such as your W-2 from your employer and any 1099 forms reporting earnings from other sources, such as interest, dividends, self-employment and unemployment compensation. Most of these forms must be sent by Jan. 31, although brokerage firms have until Feb. 15 to send some 1099s.
You may receive these forms through the mail or online by logging into your account. If you work with an online tax-filing service, such as TurboTax, you may be able to automatically import your W-2s and 1099s directly from your payroll provider or financial institution.
Also be on the lookout for two letters from the IRS this year with information for filing 2021 returns, says Greene-Lewis. If you received the child tax credit in 2021, you’ll receive IRS Letter 6419 reporting the amount of the advance child tax credit you received and the number of qualifying children used to calculate the advance payments. Use this information when filing your tax return to reconcile the amount of tax credit you received with what you were eligible for.
The IRS will send letter 6475 to everyone who received the third round of economic impact payments, which were issued from March to Dec. 2021. You should receive this letter by the end of January and use it to determine whether you can claim the recovery rebate tax credit on your 2021 income tax return.
“If you did not receive all of the third stimulus payment you are eligible for or had a baby, you may be eligible for more stimulus in the form of a recovery rebate credit, but you will need this letter to correctly report the amount of the third stimulus that the IRS issued in 2021 so you can claim a recovery rebate if you are eligible,” says Greene-Lewis.
When Are Taxes Due?
Federal income taxes are due on Monday, April 18, 2022, because Friday, April 15 is the Emancipation Day holiday in Washington, D.C., and April 16 and 17 are a weekend. Taxpayers in Maine and Massachusetts have until April 19 because of the Patriots’ Day holiday in those states. Your state income taxes may have a different deadline for state income tax returns. For example, Virginia income taxes are generally due on May 1.
People who live in areas that were affected by natural disasters may have later deadlines. For example, the due date for federal income tax returns is May 16 for residents of certain areas of Colorado that were affected by the December wildfires. The due date was also extended to May 16 for Kentucky, Illinois and Tennessee residents whose addresses are within the FEMA-declared disaster zone from the tornadoes, says Hamilton. “States have the option to choose whether to conform to federal due dates,” he says.
The earlier you file, the sooner you can get your refund and the less likely that an identity thief will claim it before you do. Most people receive their refunds within 21 days of filing, although by law the IRS cannot issue a refund involving the earned income tax credit or additional child tax credit before mid-February. You’ll usually get your refund fastest if you file electronically and have your refund deposited directly into your bank account. You can check on the status of your refund after you file with the IRS’ Where’s My Refund? tool.
“Try to avoid mailing anything to the IRS if possible,” says Hamilton. “There are lots of delays in processing mailed items due to the pandemic. Returns should be e-filed whenever possible and payments can be made at irs.gov/payments. We’re currently seeing responses 20 months or more on items mailed to the IRS.”
What if I Miss the Filing Deadline?
It depends on whether or not you owe money. If you don’t owe money, then there’s no penalty for missing the tax-filing deadline, but you need to file a return to get your refund. “There’s technically no penalty,” says Hamilton. “But you have to file within three years of the due date on the return or you lose out on your refund.”
The situation is very different if you owe the IRS. In that case, you could face two penalties. “The penalty for not filing a tax return is potentially 10 times greater per month than the penalty for not paying in full,” says Brittany Benson, senior tax research analyst at the Tax Institute at H&R Block.
The late-filing penalty is up to 5% of the unpaid balance each month, up to a maximum of 25%, and the monthly penalty for failure to pay on time is 0.5% of the unpaid taxes. “For example, for someone who owes $1,000, the failure-to-pay penalty starts at $5 per month, but the penalty for failing to file a return starts at $50 per month,” she says.
How Do I Get a Tax Extension?
If you can’t make the April 18 deadline, then you can file IRS Form 4868 for an extension, which pushes your tax-filing deadline forward six months to Oct. 17. Some people file an extension because they run out of time to gather their tax records or they’re waiting to receive some tax forms.
“Some people routinely file for an extension because they’re waiting for a Schedule K-1 from a partnership, S corporation or trust,” says Mary Kay Foss, a CPA in Walnut Creek, California. “Whoever is responsible for providing the Schedule K-1 should give them an estimate of the income to be reported in enough time so the extension payment can be calculated.”
Even though you can receive a six-month extension to file, the money you owe is still due by the April 18, 2022 deadline. “A lot of people think an extension is an extension to pay as well, but it’s only an extension to file,” says Greene-Lewis. “At least pay 90% of what you owe by April 18 to avoid any penalties.” If you can’t pay the full amount, try to file and pay what you can and you can work with the IRS to an installment agreement, she says.
[Read: What It Really Means to Tax the Rich]
How Much Do I Have to Make to File Taxes?
You generally have to file a federal income tax return if your gross income exceeds the standard deduction. For 2021, the standard deduction was $12,550 for single filers and $18,800 for head of household, and $25,100 for married filing jointly. Taxpayers who are 65 or older can claim an extra $1,350 deduction or $1,700 if using the single or head of household filing status
Dependents must generally file a return if they have unearned income over $1,100 or earned income over $12,550, says Benson. They also must file if they have gross income more than $1,100 or earned income up to $12,200 plus $350, she says.
Your state may have different filing requirements.
You may still want to file an income tax return even if you aren’t required to do so. For example, you could get a refund if your employer withheld taxes from your paychecks or you qualify for the earned income tax credit even if you earned less than the filing requirement. “The IRS reports that they have over $1 billion in unclaimed refunds every year,” says Greene-Lewis. “The average (unclaimed) refund owed is for over $800, and it doesn’t hurt to file.” You have up to three years after the tax-filing deadline to file a return and get back a refund.
If you qualified for a stimulus payment but hadn’t received it yet — or qualified for more than you received — you could get extra money by filing an income tax return. “You could receive an additional stimulus payment, in the form of a recovery rebate credit, if your circumstances changed,” says Benson. “An additional payment would be added to your refund or reduce your balance due.” You should also file a return if you are eligible to receive additional child tax credit payments.
Filing an income tax return also starts the clock ticking on the statute of limitations for the IRS to initiate an audit, which is generally three years from the tax-filing deadline or, if later, three years from the date you filed your return. “If you don’t file a tax return, the statute of limitations doesn’t start,” says Hamilton.
How Do I Get Help With a Tax Audit?
If you worked with an enrolled agent or CPA, let them know about the audit — they should be able to help and can represent you in front of the IRS. If you filed your return through a tax preparer or software service, they may be able to help, too.
Enrolled agents often specialize in audits and complex tax-filing situations. “We have 25 to 50 audit cases open at any time, and they’re referred to us throughout the year,” says Hamilton. “If you’re audited, reach out to an accountant — you have a right to representation.”
How Long Should I Keep Tax Records?
“People should keep the returns themselves forever,” says Foss. “The supporting records can be shredded earlier.”
Many tax experts recommend keeping your tax returns or a digitized copy for an unlimited amount of time — they can be helpful later on if you apply for a mortgage or disability insurance or you need to prove your income for your Social Security record or show how much you’ve made in tax-deductible contributions to your retirement savings through the years.
You need to keep your supporting documents for at least three years after the tax-filing deadline, which is the length of time the IRS generally has to initiate an audit. That timeframe rises to six years if you omit 25% or more of your income, which may be more likely to happen if you have self-employment income from several sources.
“I usually recommend that people keep the supporting documents for seven years after filing,” says Foss. And you need to keep some records for longer. “Records related to the purchase or improvement of an asset like a personal residence or marketable security should be kept until seven years after the asset is sold,” she says.
Some states have a different time frame for initiating an audit.
How Should I Pay My Taxes?
If you owe money, you have several options. You can write a check, pay the money directly from your bank account or use a credit card or debit card. If you can’t pay the full amount by the deadline, you can apply for an installment agreement.
“If a taxpayer cannot pay their federal tax liability by the due date but can pay within 120 days or less, they may request a short-term payment plan online or by phone,” says Trank. “There is no setup fee, but interest and penalties will be charged on unpaid balances until paid.”
If the taxpayer needs more than 120 days, they may request an installment plan either online or by filing Form 9465 Installment Agreement Request. There is a one-time setup fee that varies from $31 to $225 depending on whether you apply online, by phone or mail and how the tax will be paid, he says. Low-income taxpayers may be able to receive a fee waiver.
When Are State Taxes Due?
Most states also have state income taxes. State income tax returns are generally due by April 18, too, although some states have different deadlines. Check with your state department of revenue for the details.
You may be eligible for Free File for your state income taxes based on your income, or you can use software, a CPA, enrolled agent or tax preparer for these taxes, too.
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming don’t have individual income taxes. New Hampshire has no individual income tax, but it does tax some dividend and interest income.
What Happens if I Forgot to Take a Deduction When I Filed?
You generally have up to three years from the tax-filing deadline to file an amended return if you left something out or realize you made a mistake. File Form 1040X with the changes and also submit any additional forms that are affected by the change. If you claim additional deductions or credits, you can get an extra refund.
If you discover an error before the filing due date, you should file a superseding tax return before the due date, says Trank.
Common Tax Terms to Know
Standard deduction: The standard deduction is the amount that you can deduct regardless of your expenses. For 2021, the standard deduction for people under 65 is $12,550 for single filers, $18,800 for head of household, and $25,100 for married filing jointly. Taxpayers who are 65 or older can claim an extra $1,350 deduction or $1,700 if using single or head of household filing status.
Itemized deductions: These deductions are based on certain expenses such as charitable contributions, mortgage interest and state and local taxes up to $10,000 per year and medical expenses that are more than 7.5% of your adjusted gross income. If your itemized deductions add up to more than your standard deduction, then you’ll file Schedule A to report those deductions instead of taking the standard deduction.
Tax deduction: A tax deduction reduces your taxable income. For example, you may be able to deduct traditional IRA and health savings account contributions. You may also be able to deduct up to $300 in charitable contributions made in 2021 if you don’t itemize. And new for tax year 2021, you can deduct up to $600 in cash donations if you are filing married filing jointly, says Greene-Lewis.
Tax credit: A tax credit reduces your tax liability. A $300 credit, for example, can reduce your tax liability by $300. A nonrefundable tax credit can provide a refund only up to the amount you owe. A refundable tax credit provides a refund even if it’s more than you owe. Some common tax credits include the American Opportunity Credit and Lifetime Learning Credit for education expenses, the child tax credit, dependent care credit and the retirement savers’ tax credit.
Withholding: This usually refers to the amount of money that employers take out of employees’ paychecks to cover federal income taxes, state taxes and other obligations. You can also have taxes withheld from a pension, unemployment benefits or Social Security benefits.
W-4: This is the IRS form you submit to let your employer know how much money to withhold from your paycheck for taxes. It’s a good idea to run your numbers through the IRS’ withholding estimator and then adjust your W-4 with your employer so you don’t have a large bill due at tax time. If you received a large refund, adjusting your W-4 to reduce your withholding could help you receive more money in your paychecks instead.
W-2: This form reports to the IRS your annual wages and the amount of taxes withheld from your paychecks for federal and state income taxes.
1099: These forms report other kinds of income, such as self-employed or freelance income, dividends, interest and unemployment benefits.
Schedule C: This is the tax form you usually need to file if you have income from self-employment. You report your income and can deduct business expenses on this form.
Tax return: A tax return is the form you file that outlines your income, expenses, deductions, credits and other tax-related information to the IRS or your state department of revenue.
Tax refund: This is the money returned to you when your tax liability is less than the amount you paid through the year, either through withholding or estimated taxes.
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What to Know About Filing Taxes originally appeared on usnews.com
Update 01/18/22: This story was published at an earlier date and has been updated with new information.
