Much of the federal government’s Covid-19 assistance was distributed to individuals in 2020 and 2021, however, it may still have an impact on your budget in 2022.
The government’s aid package last year included the third stimulus check, improvements to unemployment insurance, a federal student loan freeze, and an expanded child tax credit. Except for the loan freeze, none of the other measures will be implemented in 2022. (at least so far).
However, they may have an impact on your tax bill this year, and as a result, many families’ returns may be lesser than usual. Here are some things to remember about Covid-19 relief in 2022.
Child tax credit in advance
Although the enhanced child tax credit has not been extended until 2022, contributions made in 2021 will still have an impact on your tax bill.
In 2021, the credit was raised from up to $2,000 to up to $3,000 to $3,600 per kid. Throughout 2021, many families will get half of the greater amount in monthly installments ranging from $250 to $300 per child. When they file their 2021 tax forms, everyone will get the other half (and families who opted out of advance payments will get the entire amount of the credit).
In general, many households earned far more money. Families may receive a lesser tax refund than they are accustomed to because half of the payment was submitted in advance for the first time.
For example, a family with a 10-year-old who qualified for the entire $3,000 may have gotten $1,500 over the course of 2021. This means they can claim an extra $1,500 on their tax return, rather than the $2,000 they usually claim. With more children, the disparity becomes even further.
Furthermore, the CTC was calculated using income data through 2020. If a parent’s or household’s income in 2021 was significantly different, they may be required to refund some of the credit.
The Democrats’ American Rescue Plan exempted up to $10,200 in unemployment benefits per individual from federal taxes in 2020. However, no equivalent respite is being granted for 2021 as of yet. The benefits will be taxed as usual for filers.
Since the commencement of the coronavirus epidemic, unemployment has drastically decreased. However, over 25 million people claimed unemployment benefits in 2021. They may owe some of the money back if taxes were not withheld or were withheld insufficiently.
A bit of good news: Those who were qualified for the third coronavirus stimulus check last year but never received it may be able to receive it when they file their taxes in 2021.
Each qualifying individual and their dependents were eligible for up to $1,400 in benefits. Those who didn’t get one or got less than they should claim the Recovery Rebate Credit on their 2021 tax returns. This is true even for those who do not file a tax return on a regular basis.
To speed up the disbursement process, the third installments were initially based on 2019 revenue, even though they should have been based on 2020 income. The IRS began sending plus-up payments to those who earned too much in 2019 to qualify but lost income in 2020 to correct the issue.
However, it is possible that some persons who are eligible for the check did not receive it or received it insufficiently. If an eligible individual had a child in 2021, for example, they can now claim that child as a dependent on their 2021 tax return.
At the end of January, the IRS will send people a letter regarding the stimulus payments, which they can use to see if they are eligible for more money.
Those who earned less in 2019 than they did in 2020 will not be required to repay any of the stimulus funds to the IRS.
Pause in student loan payments
The payment moratorium on federal student loans started in March 2020 and was recently extended to May 1, 2022. In addition to pausing monthly payments, several borrowers’ interest rates were set to 0%.
While this is a welcome respite for many, it also means that they will be unable to deduct student loan interest from their taxes in 2021. Borrowers can normally deduct up to $2,500 in interest. For some debtors, this may mean a loss of a few hundred dollars in deductions.
Many people, including those with private loans and those with federal loans that did not qualify for the delay, can still deduct the interest.