How the COVID-19 Pandemic is Affecting Your Tax Bill in 2022?
The COVID-19 pandemic that hit us during early 2020 affected a lot of aspects of our lives. It changed the way we live, shop, work, and travel. And it impacted the tax bill that most of us are set to get in the tax season of 2022. Some changes will benefit the taxpayers like the increased limits of tax credits and the non-taxable stimulus packages. Others can negatively affect the credits and deductibles that taxpayers can claim given the eligibility criteria that run underneath.
Here’s how the COVID-19 pandemic can affect your tax bill in 2022. To spare yourself the surprise, plan accordingly and file your tax return within the April 18 deadline.
1. An increase in Earned Income and Child Tax Credit
The good changes first! Due to the pandemic, the Federal Government has brought most tax credit and deductible plans under the coronavirus American Rescue Plan where the available monetary tax benefits have increased for the tax year 2021 only. So, when you file your tax returns in 2022, expect to be eligible for up to $6,700 of Earned Income Tax Credit and $3,600 Child Tax Credit this year. The Child and Dependent Care Tax Credit has also doubled in value for eligible taxpayers.
2. Claiming dependent tax credit has become complicated
To claim with the Child Tax Credit or the Child and Dependent Care Tax Credit, the IRS states the dependent person must have stayed with you for at least 6 months in the tax year of 2021. However, given the hybrid work scenario that we saw last year as opposed to shutdowns of 2020, you may or may not be eligible for either the CTC or the CDCTC. You may have had to move to your work city while the child might have stayed back with your partner in the home city. If the dependent’s stay period was less than 182 days, you may not be able to claim dependent credit even when you took care of the expenses.
3. Home office deduction may not be applicable for you
It is possible that you continued to work from home in 2021 as well. And even when you did not set foot in your office premises once in the entire tax year, the home office deductions do not apply to full-time employees who worked from home due to the pandemic-related shutdowns. The IRS reserves the home office deductions only for self-employed taxpayers. The tax break is not for you, the full-time employee, even when you spent your own money to set up your home office. This is a negative impact of the COVID-19 on your tax bill. You cannot claim a tax break that fits perfectly into your situation.
4. Recovery Rebate Credit is applicable this year
You might have received your third round of stimulus checks around March 2021. If not, you can claim the due amount as a Recovery Rebate Credit in this year’s tax return which should lighten your entire tax bill. This, again, is the result of the COVID-19 pandemic. To help the country recover following the shutdowns, the government had announced stimulus money for almost all American citizens worth $1,200 per person and $500 for every dependent child. The Recovery Rebate Credit is nothing but your due stimulus money. And it helps to get you a tax refund this year.
Overall, there have been both good and bad impacts of the COVID-19 pandemic on our tax bills. And fortunately, the weight was heavier on the good side for most taxpayers. If you fall in that category, expect a substantial tax return in the tax season of 2022. This extra cash is coming from the IRS due to increased tax credits and deductibles. And you can spend it in whatever way you want because you do not pay taxes on refund money.
One way you can use your tax refund is to pay the down payment of a new used car in Greenville. You do not have to give up your entire tax refund as in certain cases the lowest down payment you can pay at Family Auto to get started is $500. Beyond that, you can trade in your old car to increase the down and reduce your loan burden. Plus, you get easy bad credit financing irrespective of your credit score status.
Use the opportunity of better tax breaks in 2022 to finally buy a quality buy here pay here used car in Greenville. Work with a tax expert, if required, to maximize your tax credits and deductions and claim the tax refund that you deserve.
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