For purposes of the Child Tax Credit for the 2021 tax year, a qualifying child is one who doesn’t turn 18 before January 1, 2022, and who satisfies certain other conditions. Taxpayers who don’t qualify for the Child Tax Credit because their children are too old may have an alternative.
The Credit for Other Dependents maxes out at $500 per dependent if certain conditions are met. To qualify, a dependent must:
In addition to an older child, a taxpayer’s dependent parent may also qualify.
The credit begins to phase out when income exceeds $200,000 or $400,000 for married couples who file joint tax returns. It can be claimed in addition to the Child and Dependent Care Credit and the Earned Income Credit.
The Social Security Administration (SSA) announced that the Social Security “wage base” will increase to $147,000 for 2022 (up from $142,800 for 2021). Wages and self-employment income above this threshold aren’t subject to Social Security tax.
The Federal Insurance Contributions Act (FICA) imposes Social Security tax and Medicare tax on employees, employers and the self-employed. There’s no threshold for Medicare tax; all wages and self-employment income are subject to the tax. The FICA tax rate for employees and employers is 7.65%: 6.2% for SS and 1.45% for Medicare. The self-employed pay both the employee and employer portions. Wages or self-employment income above certain amounts are subject to an additional 0.9% Medicare tax.
Meanwhile, the SSA announced that Social Security benefits will increase by 5.9% in 2022. The increase is the largest in nearly four decades, a result of increasing inflation this year. For an average Social Security recipient, the 5.9% increase results in a monthly payment of $1,657 next year, an increase of $92 per month over 2021. The cost-of-living adjustment will begin with benefits payable to more than 8 million Supplemental Security Income beneficiaries on December 30, 2021, and 64 million Social Security beneficiaries in January 2022.
Now that the last quarter of 2021 is here, the IRS is reminding taxpayers that it’s a good time to check withholding from your wages or compensation. Life changes might have occurred in 2021 that can affect your taxes. Examples include: COVID-19 relief you may have received; disaster relief, such as for a wildfire or hurricane; job loss; possible gig economy income; marriage; and a new baby.
If too little is withheld, you could incur penalties at tax-filing time. (You may have to increase withholding or make quarterly estimated tax payments to the IRS.) Or, if too much is being withheld from your paychecks, you might be able to put more cash in your pocket now with a simple change. Use the IRS Tax Withholding Estimator tool in this link to determine if you need to make a change or contact us with questions.
If the IRS can’t collect delinquent taxes, a “lien” may arise and encumber the property of an individual or entity. The Treasury Inspector General for Tax Administration (TIGTA) has released the results of its fiscal year 2021 audit of IRS compliance with lien notice filing procedures. The audit focused on whether lien notices issued by the IRS complied with federal legal requirements. After filing the first Form 668(Y)(c), Notice of Federal Tax Lien, the IRS must notify affected taxpayers in writing at their last known addresses, within 5 business days. Generally, TIGTA found that the IRS “timely and correctly” mailed the notices to the correct addresses.
If a taxpayer doesn’t pay delinquent taxes, the IRS also has the authority to work directly with financial institutions and other third parties to seize the taxpayer’s assets. This action is known as a levy. TIGTA recently published the results of its fiscal year 2021 audit of IRS compliance with legal guidelines when issuing levies. It found that the IRS generally complied with legal administrative requirements. However, the audit added “there were some instances of noncompliance in which an estimated 1,306 taxpayers’ rights were potentially violated and 1,186 taxpayers were potentially burdened.”
The IRS publishes “Audit Techniques Guides” that IRS examiners use during audits to understand unique issues in specific industries or situations. While the guides are designed for IRS auditors, they’re available to the public so they can be used to understand the audit process. The guides explain audit techniques and include information on the examination of income, interview techniques and evaluation of evidence.
The IRS recently released a guide that discusses the tax consequences of an individual’s property being disposed of through foreclosure, short sale, deed in lieu of foreclosure and abandonment. It also released a revised guide about the “hobby loss rules” Click here to check out these Audit Technique Guides, titled “Real Estate Property Foreclosure and Cancellation of Debt” and “Activities Not Engaged in for Profit Internal Revenue Code Section 183,” along with all of the other guides.
Contact Joseph Wilson via our online contact form for more information.
Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.