Taxpayers are feeling more uncertain than ever about their tax liability this year, particularly when it comes to the taxation of Social Security benefits. According to TSCL’s January Senior Survey, about half of survey participants (51%) said they did not expect to pay taxes on their benefits. That’s pretty much in line with what TSCL expected. The other half, however, were much more conflicted than usual about whether their benefits would be taxable or not.
Survey findings indicate that less than one quarter of survey participants, 24%, said they would definitely owe taxes on their benefits, versus the 47% who last fall reported paying taxes on Social Security benefits last year. But 25% just didn’t know at the time of the survey whether they would owe taxes on their Social Security benefits or not. (If you are among that 25%, you will get another opportunity to tell us how the 2022 tax season turned out for you in the surveys we release later this spring and late summer.)
There’s also considerable uncertainty about the amount of potential tax on Social Security benefits. Of those who thought they would owe taxes on benefits, about 42% thought their tax obligation would be higher than last year. Fifty-three percent however weren’t sure.
It’s hard to imagine tax season being any worse than it was last year, but tax experts warn this year’s tax season is likely to be even more chaotic, and even harder to find answers to tax questions. TSCL has heard from many of you who report waiting months for stimulus payments that were supposed to be sent out by the IRS last March or April, as well as for tax refunds. In 2021, about 30 million taxpayers had their tax returns and their refunds held up by backlogs at the IRS. In January, U.S. Treasury Department officials warned that the IRS is still backlogged with millions of unprocessed individual returns from 2021. To avoid delays this year, the IRS is strongly encouraging all taxpayers to file returns electronically, stating that most people should get their refunds within 21 days of filing.
Getting answers to tax questions has become particularly difficult for individual taxpayers who try to call the IRS. There’s little chance of getting through. TSCL strongly recommends that if you haven’t already made arrangements, look for free tax preparation services for older taxpayers in your area. Try contacting your local library, or senior center for more information.
Taxpayers may be confused about how to handle reporting the $1,400 stimulus payment that most people, including Social Security recipients, received in March or April of 2021. Though stimulus checks are not counted as taxable income, the payments should be reported on 2021 tax returns. If you are still waiting for last spring’s stimulus payment, file your 2021 tax return even if you don’t owe any taxes. Be sure to supply the IRS with your updated bank routing number and account information so it knows where to send your stimulus check and/or refund. The filing deadline this year is April 18, 2022.
Here are some tips for a smooth filing season from the IRS:
Fastest refunds by e-filing, avoiding paper returns: Filing electronically with direct deposit and avoiding a paper tax return is more important than ever this year to avoid refund delays. If you need a tax refund quickly, do not file on paper – use software, a trusted tax professional or Free File on IRS.gov.
Avoid delays; file an accurate tax return: More than ever this year, the IRS urges people to make sure they're ready to file an accurate tax return. An accurate tax return can avoid processing delays, extensive refund delays and later IRS notices.
Special care for EIP, advance Child Tax Credit recipients: The IRS also encourages caution to those people who received a third Economic Impact Payment or advance Child Tax Credit in 2021. Taxpayers should ensure the amounts they've received are entered correctly on the tax return. Incorrect entries when reporting these payments mean the IRS will need to further review the tax return, creating an extensive delay. To help taxpayers, the IRS is mailing special letters about the stimulus payments and advance Child Tax Credit payment amounts. People can also check the amount of their payments in their Online Account available on IRS.gov.
Avoid phone delays; online resources best option for help: IRS.gov is the quickest and easiest option for help. IRS assisted phone lines continue to receive record numbers of calls, more than the agency can handle with its limited resources. Check IRS.gov first for refund information and answers to tax questions. Establishing an Online Account on IRS.gov can also help taxpayers get information quickly. The Online Account feature has recently been expanded to allow more people to gain access.
Don't normally file a return? Consider filing for Child Tax Credit (CTC), other valuable credits: For people who don't normally file a tax return and didn't file a 2020 return or use the Non-Filers tool, they can still qualify for important credits, including the Recovery Rebate Credit (stimulus payment), advance Child Tax Credit or the Earned Income Tax Credit. The IRS encourages people in this group to file a 2021 tax return so they can receive all the credits for which they're eligible.
Other free options for help: IRS Free File is available to any person or family who earned $73,000 or less in 2021. Qualified taxpayers can also find free one-on-one tax preparation help around the nation through the Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs.
2020 tax return still being processed? Tips to help with filing 2021 tax return: For people whose tax returns from 2020 have not yet been processed, they can still file their 2021 tax returns. For those filing electronically in this group, here's a critical point. Taxpayers need their Adjusted Gross Income, or AGI, from their most recent tax return when they file electronically. For those waiting on their 2020 tax return to be processed, make sure to enter $0 (zero dollars) for last year's AGI on the 2021 tax return. Visit Validating Your Electronically Filed Tax Return for more details.
April 18 tax deadline: The filing deadline is April 18 for most taxpayers; automatic six-month extensions of time to file are available for anyone by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.