 Income tax 2021-2022. Payments. Get ready to get refunds to the max diving into Income Tax 2021-2022. Most of this information can be found in the Form 1040 Instructions Tax Year 2021 on the IRS website at irs.gov, irs.gov, Income Tax Formula. We're focused down here on the payments area. Quick recap of the formula. Everything down to this taxable income. You can imagine basically kind of like a modified income statement where we have income minus different types of deductions. Then we get to the taxable income. Then we apply the tax calculation, which is confusing because it's not a flat tax, but we finally get to the tax and you would think then that you would be comparing the tax then to what we paid because we have to pay during the year, which would be the withholdings typically for a W-2 employee to get to the amount that you would still owe or the amount that that you would get refunded to you at that point. But we have a little bit more complexity down here, including possibly other taxes that we have to include other than the federal income tax, one of them being, for example, the self-employment tax. And then we have the credits as well, which we'll talk about later, noting that the credits are beneficial. So people often group them up with deductions because they're kind of good things for taxes. But if you had a dollar credit versus a dollar deduction, the credit would be better because you're getting that full dollar worth of benefit, whereas the deduction would be reducing the taxable income, which would lower the amount of tax in that way, giving less of a benefit. So from the credits then act in a similar way as the actual payments because you're getting the same amount of benefit as if you actually paid the government or if they gave you that dollar of credit, a dollar payment and a dollar credit is in essence the same amount. But then the credits get a little bit confusing because we have the refundable credits and the non-refundable credits, and that means that if it's non-refundable, then we're not going to get that dollar credit if it goes or takes the tax liability below zero. The government's not going to pay us, in other words, for that amount. But if it is refundable, then they will pay us that amount. It would be just like we kind of overpaid the government in essence. So that's why we have to group those a little bit separately. So when we get down to the payments down below, it gets a little bit complex because there's multiple ways that we can make the payments. And because the payments and the credits kind of get lumped together because they have a similar function within the income tax formula, realize that if in a perfect world, if the income tax code was set up the way it's kind of designed to be set up, and if it wasn't so complex, then it would be kind of similar to the payroll taxes, meaning the filing of the form 1040 should just be an information return, not triggering either more tax or a refund if everything went smoothly. In other words, during the year, we have to pay the government either through the withholdings that we have or through actual payments that we make, for example. And then at the end of the year or by April 15th or April 18th following the year, in this case, April 15th or 18th of the 2022, we would file the form 1040 and this would just be a recap recalculating what we owe to the government and what we had already paid in a similar way as like a 941 does for payroll taxes. And then we would just say there's how much we owed you, we already paid that amount, and therefore it would just be an information return. The reason we cannot do that with the taxes is because the tax code is way too complicated because we have a progressive tax system, because we have multiple things that even deviate from the progressive tax system to calculate the tax, because we have multiple income kind of areas because we got these different types of deductions. Therefore, we have to shoot basically for an overpayment when we calculate our payments or withholdings or our estimated payments so that we can avoid the penalties and interest. That's why we shoot for a refund. So down here, we're looking at the payments that we already made, which we had to estimate in some way because we have no idea actually exactly how much we owe. So we had to use some kind of estimate. Hopefully we did an estimate so that we can get a refund because we want a refund per se, because I would rather have my money during the year personally, but because I want to avoid penalties and interest. Now, this is the actual form 1040. This is page two. We're focused here starting on line 25. Now, again, note that the second half you would think would be a lot shorter than the first half. You would think that calculating the taxable income would be the complex part of the return, and then the second half would just be the payments that you made. But again, there's different forms of payment that you can make, and the credits get involved down here that keep kind of commingled, which makes it a bit complicated. So on line 25, we've got the federal income tax withheld during our working years. For most people, that's going to be represented by the W-2 income, and the employer is responsible for making those withholdings based on our W-4 and taking them from us, paying them to the government. They report them to us and the government on the W-2. And then we've got the form 1099, which is more common that we might have withholdings on the 1099s if we're in retirement. For example, with a 1099R from pension plans in IRS, for example, and retirement plans. And so that might be the way we have withholdings. We could have other withholdings. Then we would be adding up the withholdings. Line 26, 2021 estimated tax payments and amount applied to 2020 return. These are the estimated tax payments that we might make, which is common if, for example, we have a Schedule C business where we don't have withholdings from the W-2 and we have to actually make payments. So that would be in a Schedule C or possibly in a retirement situation. If you're not having the capacity to withhold from the 1099Rs, you might just have to actually write them a check. And then it gets a little complex because now we've got the credits that kind of are down here co-mingled up with these amounts of the payments, which we'll talk about the credits later. But you've got the earned income tax credits. You've got the non-taxable compact pay election, the prior year credit. We've got the refundable child tax credit. So now we've got the refundable portion of the credit, American Opportunity Credit. These are credits related to the education, which we'll talk about later. Recovery rebate credit with the stimulus payment kind of credit amounts from Schedule 3. And then we're going to add those up and notice here it says total other payments and refundable credits. So again, the reason I'm going into the credits here is because they kind of co-mingled those things together because they have a similar impact as the payments do with regard to just the form or calculation. But we're focused here on the payments at this time. So line 25, federal income tax withheld. Line 25A forms W2. Add the amounts shown on federal income tax withheld on your forms W2. Enter the total on line 25A. The amount withheld should be shown in box 2 form W2. So that's the most straightforward one. The W2 will typically have, of course, your income line item on line 1. And then the withholdings you will have on line 2. The withholdings then second page of the form 1040 line 25A. You might have multiple W2s and you, of course, would have to add those up. Line 25B forms 1099 include on line 25B any federal income tax withheld on your forms 1099R. So 1099R typically in retirement likely to have 1099Rs for IRAs. For example, retirement plans, 401Ks and whatnot, pensions. And so those would likely have withholdings reported on them in a similar way as the W2s, most likely for people in retirement. The amount withheld should be shown on in box 4 there. Attach your form 1099R to the front of your return if federal income tax was withheld. If you're doing it electronically, then of course you would be electronically filing and not, you know, stapling. If you received a 2021 form 1099 showing federal income tax withheld on dividends, taxable or tax-exempt interest income, unemployment compensation, social security benefits, railroad retirement benefits or other income, you received include the amount withheld in the total on line 25B. And then we have this should be shown in box 4 of form 1099. Box 6 of form SSA for your social security 1099 if you had withholdings there or box 10 of form RRB 1099. So then we have line 25C. Other forms include on line 25C any federal income tax withheld on your forms W2G. I believe that was the gambling winnings because if you had large gambling winnings from a casino, for example, and they go over a certain threshold, the casino might be required to make withholdings or possibly you want them to make withholdings possibly because that would be, you know, make your tax situation beneficial. So the amount withheld should be shown in box 4. Attach forms W2G to the front of your return if the federal income tax was withheld. Notice that you can imagine situations where people make winnings on like like like they won a car or something like that. And you can imagine if you won $100,000 car and you don't have any any actual wages that year, you don't have much money, then you wouldn't even be able to pay tax on the car, right? So when you get because you would have income on the winnings and possibly not even have the money to pay the tax on the winnings, right? So sometimes the government might require then if you make over a certain amount of money on the winnings that they withhold it for it, or it might be beneficial to withhold it because then of course you don't get this big jump on your winnings with regards to your income tax if you had some large winning that you had. If you had additional Medicare, Medicare tax withheld include the amount shown on form 8959, line 24, and the total on line 25C attached form 8959 include on line 25C any federal income tax withheld that is shown on schedule K1. So a schedule K1 is like a flow through that you might have from an S corporation, a flow through entity or a partnership. And if you had withholdings on it, then you might report that then or you would report it on 25C. So also include on line 25C any any tax withheld that is shown on form 1042S form 8805 or form 8288A. You should attach the form to your return to claim a credit for the withholding line 26 2021 estimated tax payment. So now we're on the estimates. Enter any estimated federal income tax payment you made for 2021. So if you're not able to cover your payments with the withholdings in some way, then you might actually just have to write the IRS a check or give them some kind of electronic transfer. So include any overpayment that you applied to your 2021 estimated tax from your 2020 return. So in 2020 or in the prior year, if you had a refund coming to you, you might then have applied it as part of your estimated payments to the following year. That of course needs to be included as a form of payment as well. So we have that. And then if you and your spouse paid joint estimated tax but are not filing a separate income tax returns, you can divide the amount paid in any way you choose as long as you both agree. If you can't agree, you must divide the payments in the proportion each spouse's individual tax has shown on your separate returns for 2021. For more information there, you can see publication 505. Be sure to show both social security numbers in the space provided on the separate returns. So clearly if we have married filing separate, then it gets a look. You could have some complications with the report in there if you want to dive into that more detail publication 505. If you or your spouse paid separate estimate attacks, but you are now filing a joint return at the amounts you each paid together. So follow these instructions, even if your spouse died in 2021 or in 2022 before filing a 2021 return. So then we have line 26 divorced taxpayers. If you got divorced in 2021 and you made joint estimated tax payments with your former spouse, enter your former spouse or social security number in the space provided on the front to form 1040 or 1040 SR. If you were divorced and remarried in 2021, enter your present spouse's social security number in the space provided on the front of form 1040 or 1040 SR. Also on the dotted line next to line 26, enter your former spouse's social security number followed by DIV. Name change. If you changed your name and you made estimated tax payments using your former name, attach a statement to the front of form 1040 or 1040 SR. That explains all the payments you and your spouse made in 2021 and the names, social security numbers under which you made them. So if you change your name, then obviously the IRS is going to get confused. So you got to, you got to, you know, make, you know, going to have to work with the IRS to make sure that they've got all the payments that are applied to the proper name and social security number.