Child tax credit to military pensions: What to know about filing for your tax refund this year
Tax season will look a little different this year, from normal deadlines to IRS staffing shortages that could delay refunds. But help is available for the tax-phobic, and it’s free for those who qualify.
Unlike the previous two tax years, when the filing deadline was delayed because of COVID-19, the due date for federal and state tax filings is back to mid-April.
The normal tax filing deadline is April 15, a Friday, but because the District of Columbia will observe Emancipation Day that day, 2021 taxes are due April 18, said Rory Wilson, tax policy lead counsel for the Arizona Department of Revenue.
“The (2020) due date got pushed back to July 15, and then the following year we had the deadline pushed back to May 17, so we are finally back to what we call ‘normal due day,’” he said.
The IRS expects to receive about 3.4 million individual income tax returns in Arizona, and it is projecting that 300,000 Arizonans will file for a six-month extension.
“The IRS strongly encourages taxpayers to prepare accordingly this filing season,” said Yvi Serbones Hernandez, an IRS spokesperson. “They should also file electronically and choose direct deposit for a faster refund and visit Where’s My Refund on IRS.gov to check their refund status after they file.”
As of Feb. 18, Hernandez said, the IRS has delivered more than 22 million refunds worth more than $78 million, with the average refund being $3,536. She also said 9 out of 10 taxpayers can expect to receive their refund within 21 days if they file electronically and have direct deposit.
Wilson said there are many factors that make this tax filing season different – from a backlog of cases to staff shortages – that could lead to delays in dispersing tax returns.
The business group Government Executive said the staffing shortages are so great that in the “first half of 2021, the IRS had one employee for every 16,000 calls that came in.”
“Arizona doesn’t have that same backlog, but to that extent, you can e-file because it’s definitely much faster to get your refund that way,” Wilson said. “What we found in looking at the data is if you’re expecting a tax refund, if you use e-file, you’ll get your refund six times faster.”
Child tax credit, stimulus checks add wrinkles
The American Rescue Plan added some temporary changes to the child tax credit, such as increasing the amount of the money taxpayers can receive, making the credit available for qualifying children who turn 17 in 2021, making the credit fully refundable for most taxpayers and allowing multiple taxpayers to receive half of the estimated 2021 credit in advance, according to the IRS.
Before 2021, the tax credit was worth up to $2,000 per child with the refundable limit to $1,400. The IRS said the new law increases the credit up to $3,000 per child ages 6 to 17 and $3,600 per child 5 or younger.
Taxpayers who received an advance child tax credit should have received a letter from the IRS in January with “the total amount of the 2021 advance Child Tax Credit payments issued and the number of qualifying children used to calculate their advanced payment,” according to the Tax Time Guide. The same goes for stimulus checks.
People eligible for stimulus checks who already received their third one shouldn’t include information about it when they file 2021 taxes, but others could be eligible for the 2021 Recovery Rebate Credit, which could reduce taxes owed for 2021.
Taxpayers can find the total amount of their third stimulus check through their online IRS account, or wait until they receive an official letter.
Changes involve small businesses, military pensions
Taxes at the state level have a few changes for some filers. One of the bigger changes, Wilson said, regards small business income tax.
According to the state Department of Revenue, this “allows individual taxpayers to elect to have their ‘Arizona small business adjusted gross income’ removed from their regular individual income tax return and taxed on a separate ‘Arizona small business income tax return.’”
Wilson said this is also the first year that all military pensions for Arizona veterans are totally excluded from taxation.
“Historically, military taxpayers got a $2,500 subtraction,” Wilson said. “In more recent years, it increased to $3,500, and, for the first time ever, this starts with the 2021 tax year to file in 2022 with a 100% exclusion, so that’s a really big benefit.”
Other changes are related to AZ529 Education Plans and the American Rescue Plan, Wilson said.
AZ529 plans are “state-sponsored savings plans designed to provide a parent, grandparent or future student an opportunity to save for educational expenses in a tax-deferred manner,” according to the Arizona Department of Administration Benefits. In previous years, these plans would allow taxpayers to contribute $2,000 for single filers and $4,000 for those who are married filing jointly. Now, Wilson said, those caps apply per beneficiary.
Under the American Rescue Plan, passed by Congress last year, the federal government excluded unemployment income of up to $10,200 for those who make less than $150,000. Wilson said 2020 Arizona returns still can be amended if filers were unemployed in 2020, to account for the exclusion of up to $10,200 for that year as well.
“Thousands of taxpayers may be unaware that they should have amended their 2020 Arizona return, so they should bring it up when they meet with their tax preparer to file their 2021 taxes due in 2022,” Wilson said.
“If you don’t have all your information yet, file an extension. Arizona honors the federal extension, and the federal extension pushes it out this year until Oct. 17.”
Wilson also recommended consulting with a volunteer tax aid group, such as the Volunteer Income Tax Association (VITA) or AARP, to help the filing process for people who qualify.
How to get free tax help
VITA is an IRS free-file service for taxpayers who make $58,000 a year or less, have a disability or limited English-language skills. Taxpayers can go to their local VITA location with all tax forms, where a volunteer will file their taxes and process their return.
Alan Floth, the VITA site coordinator at the Mesa Community College main campus, has been helping people file their taxes for 12 years. He said most professional preparing services will do federal taxes for free but charge for filing state taxes. But through VITA, it’s all free.
“A lot of people who come to us are math-phobic, they’re tax-phobic, but (taxes) really aren’t that hard,” he said.
Floth said people think doing taxes is hard because of the different filing statuses and life situations, such as whether a filer is a head of household or qualified widower.
Taxpayers who want to file through VITA fill out a form listing all statuses, life events, income and expenses from the previous year, and, along with tax information on such forms as a W-2, 1099 or 1098, a volunteer will go line-by-line with them to verify all the information. If all the information is correct, the volunteer will take the taxes to a volunteer accountant, who will electronically file for state and federal taxes and await processing from the IRS.
“You give us the documents, and we do the taxes from there,” Floth said.
Taxpayers who go through VITA need to bring all relevant tax paperwork and documents, a social security card or Individual Taxpayer Identification Number and a picture ID.
Luis Martinez has been filing his taxes through VITA since he started doing his own taxes three years ago. He said it’s better than trying to file them on his own because the volunteers make the process much easier for him.
“I really like how the volunteers assist you through the process,” he said. “They’re very good about assisting you and telling you where to put what in the forms.”