 Income tax 2021-2022. What's new? Part 2. Get ready to get refunds to the max. Diving into income tax 2021-2022. This information can be found in the Form 1040 Instructions for Tax Year 2021 found on the IRS website irs.gov. Changes to Schedule 8812. Because of changes made by ARP detailed discussion of the child tax credit and how to figure your child tax credit and credit for other dependents, which were previously part of these instructions, has been moved to the instructions for Schedule 8812 Form 1040. So in other words, the child tax credit have significant changes to it. Much of the calculation were on the instructions for the 1040 before, but due to those changes and some more complexity possibly, they took it out of here and put it onto the Schedule 8812. We may discuss those in future presentations. If you are claiming the non-refundable child tax credit, refundable child tax credit, additional child tax credit, or credit for other dependents, complete Schedule 8812 and attach it to Form 1040 or 1040 SR. So we're going to have the supplemental schedule that we'll fill out, that we'll feed in as we saw when we're working on a worksheet to kind of solidify this concept. But it'll feed into the Form 1040. We'll take a look at that in future presentation. Premium tax credit, the PTC, premium tax credit, ARP expanded the PTC by eliminating the limitation for a taxpayer's household income. May not exceed 400% of the federal poverty line and generally increases the credit amount. So the premium tax credit has to do with health insurance premiums. So we'll talk more about that possibly in future presentations as well. In addition, in 2021, if you receive unemployment compensation, you are generally eligible to claim the PTC premium tax credit if you meet the other requirements. For more information, see Publication 974 and Form 8962 and its instructions. Changes to the Earned Income Credit, so the EIC, the Earned Income Tax Credit. This is one of the big refundable type of credits typically for lower income individuals possibly having access to it. For 2021, the following changes have been made to the EIC, the Earned Income Credit, the Earned Income Tax. Special rules apply, so this is the EIC rules for taxpayers without a qualifying children. Once again, Earned Income Tax Credit rules for taxpayers without a qualifying child. So note that this tax credit has a couple conditions that make it quite complex. So we'll talk about it in detail in future presentations. But the general idea is that it's trying to give benefit to people that have lower income to help them out. But it's trying not to do what most credits do in that instance, which is to disincentivize work because if you work, then you lose the credit. So they try to actually increase the credit up to some level as your income goes up, which means which is going to be an incentive to work is the hope and then it'll taper back off at some point in time. It's also going to weave in children involved with it or dependents, which will typically have a benefit from you still have access to the credit at zero dependence, but then you can get up to three and still get added benefit. So that's quite complex to kind of calculate and they've made changes here for people without a qualifying child. So that's what we're looking at here. We'll talk more about this credit in detail in future presentation. It is quite complex and interesting to look at all the different scenarios with it. But in any case, special rules apply if you are claiming the EIC earned income credit without a qualifying child. In this cases, the minimum age has been lowered to age 19 except for specified students who must be at least age 24 at the end of the year. So they've changed the age limitation and the age limitation was kind of a concern you would think because if people are below a certain age, they might still be kind of on dependent status and so on and so forth. So in any case, the age limit has changed. However, the applicable minimum age is lowered further for former foster youth and qualified homeless youth to age 18. So in certain conditions, it can actually be down to 18. Additionally, you no longer need to be under age 65 to claim the EIC without a qualifying child. So significant changes to the age limitations that were there before. Tax software will help a lot to help kind of determine these items. But when you're talking to someone about them, that it's useful to have these kind of limitations in your mind. The EIC earned income credit rules for taxpayers with a qualifying child. So now we're talking with a qualifying child. If you are claiming the EIC, the earned income credit with a qualifying child, you should follow the rules that apply to filers with a qualifying child or children when determining whether you are eligible to claim the EIC earned income credit. Even if your qualifying child hasn't been issued a valid SSN social security number on or before the due date of your return, including extensions. So obviously, there's always kind of this issue as to whether, you know, there's the social security number involved with it can be an issue when we're talking about qualifying children. However, when determining the amount of the EIC earned income credit that you are eligible to claim on your return, you should follow the rules that apply to taxpayers who do not have a qualifying child in that instance. Then we have the phase out amounts increased. The amount of the credit has been increased and the phase out income limits at which you can claim the credit have been expanded. So they're going to adjust the phase outs and the limits basically every year in part to basically keep up with basically inflation cost of living changes from year to year. So that's somewhat standard, no big difference than what the norm is in that case. That's a typical type of change. Rules for separate spouses. If you are married but don't file a joint return, you may qualify to claim the EIC earned income credit. If you live with a qualifying child for more than half the year and either live apart from your spouse for the last six months of 2021 or are legally separated according to your state law under a written separation agreement or a decree of separate maintenance and do not live in the same household as your spouse at the end of 2021. So there's going to be typically restrictions for their earned income credit for married individuals. In other words, if you were married and you try to file married filing separate, the IRS is going to be skeptical that the only reason you're filing married filing separate is to try to claim something like these refundable credits. So usually you don't have as much access to a refundable credit if you file married filing separate. So then the question will be, well, what constitutes as a legal kind of separation for us to be able to file and get something like their credit and that often comes down to like state law requirements in terms of what it means to be legally separated. So you have divorced, which is kind of like similar to like divorced, right? So the whole language in terms of are you married for tax purposes or are you not married? And if you're not married or if you're legally separated under the state law, then the idea would be then you might be able to have access then to this credit even though you normally, if you were married, would have to file a joint return and you're filing a separate return which often disqualifies people. We'll talk more about that in the future, but that's the general idea. Investment income limit in increases. So we have an increase to the investment income limit, the amount of investment income you can receive and still be eligible to claim the EIC earned income credit has increased to $10,000. Now investment income you would think would be things like dividends and interest. So you would think that you'd have a significant amount of investments if you've got like $10,000 of investment income, right? I mean, so the fact is that as your investment income goes up, you would think that you have the money to kind of support yourself even if your actual income that you're generating is low. And given the fact that the earned this credit is designed to help people whose income are low, then they're saying if this income limit should stop people from basically kind of taking the credit. If they don't need the credit because they have sufficient income, but they increase that amount to pretty significant amount, $10,000 of dividend. I mean, how much investment must you have to get $10,000 of interest? But in the case prior year 2019 earned income, you can elect to use your 2019 earned income to figure your 2021 earned income credit. If your 2019 earned income is more than your 2021 earned income, see the instructions for line 27A. So this is another new thing that they tried to help people out with the earned income tax credit because you'll recall that it actually goes up to some degree as your income goes up. And then they had this problem, they're saying, well, what if people couldn't work in 2021 because of the whole pandemic thing? We don't want to take away the credit in that case. So we're going to allow you to take the 2019 income, possibly if it's higher, which is actually a benefit for this credit because it or it could be. And if it is, then you might you might be able to take the 2019 income. So quite confusing again adds a level, it should be beneficial, but adds a significant level of confusion to the earned income tax credit. So we'll talk more about that in future presentations, run some scenarios on it file schedule EIC form 1040. If you have a qualifying child, if you have at least one child who meets the conditions to be your qualifying child for purposes of claiming the EIC complete and attached schedule EIC to your form 1040 or 1040 SR. Even if that child doesn't have a valid SSN social security number for more information, including how to complete schedule EIC earn income credit. If your qualifying children doesn't have a valid SSN social security number, C line 27 a instructions and schedule EIC forgiveness of paycheck protection program, the PPP loans. So the PPP loans are a kind of thing that they tried to do for the whole pandemic thing is to give possible ability to get access to these PPP loans, which were a big, a big thing. And so now of course we have the tax consequence component of it because they might have forgiven the PPP loan. Part of the process was be that you might be able to forgive some of the loan itself, which means it wouldn't be a loan at that point would put kind of like free money. And then the question is, well, as a taxable, if it's free money, you know, and so on. So then down we go the whole of the rabbit, the rabbit has a bunch of tracks on their holes. So we're going down the rabbit hole and we're lost. But any case, the forgiveness of the PPP loan creates tax exempt income. So you don't need to report the income on form 1040 or 1040 SR. So that is nice. Remember, anytime it says you don't need to report the income income is bad for taxes because that means you owe more. Taxes. So you want you want to earn income but not be required to put it on as taxable income so you don't pay taxes on it would be what they're saying here. But you do need to report certain information related to your PPP loan to find out how to report information related to your PPP loan. See forgiveness of paycheck protection program. The PPP loans under income later. Identity Identity verification. The IRS launched an improved identity verification and sign in process that enables more people to securely access and use IRS online tools and applications. And if you tried to get into this before they tried to put some facial recognition stuff in there, which was just a mess. I couldn't even get it. I couldn't even get it to recognize my face. And even even if I could get it to recognize my face, I don't really like that because I don't see why they need that because that seems over because no bank has that kind of thing. And it just seems like the next step is a camera. I mean maybe I'm just paranoid, but it seems like once they have all the any case there were problems with that for me and they they took that away now. So you shouldn't need to go through the whole facial recognition thing to get the account and the account is going to be something more and more important. Hopefully the IRS is trying to get better at a better website and a better account access and so on online. Similar to a banking situation which deals with very sensitive information, which typically have very good online access stuff and we got stuff like PayPal and that seems fairly secure. So if they can do all that stuff, I would think the IRS could do it without needing your face on file. But in any case, to provide verification services, the IRS is using ID.me, a trusted technology provider. The new process is one more step the IRS is taking to ensure that taxpayer information is provided only to the person who illegally has to write to the data. Taxpayers using the new mobile friendly verification procedure can gain entry to existing IRS online services such as the Child Tax Credit Update Portal, online account, get transaction online, get an identity protection PIN, IPPIN and online payment agreement. So these are things that are becoming more and more important because as the laws are changing and as their favorite thing these days the IRS is sending out these prepayments. So now we've got these prepayments, which is how they sent out the stimulus payments, a prepayment of the recovery rebate credit, the prepayments for the child tax credits thing, advanced child tax credits. Any payments that you make to the IRS would be nice to be able to track and this kind of stuff will be easier to track if you can log into the online portal. And so I think going forward more people should should just be it should be more it's going to be more routine I believe or should be because it'll be easier kind of like logging into your bank has become. Additional IRS applications will transition to the new method over the next year. Each online service will also provide information that will instruct taxpayers on the steps they need to follow for access to the service. You can also see IR 2021 228 for more information.