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Why Your Tax Return Could Be Full of Surprises in 2022

If you normally expect a refund when you file your tax return, 2022 brings some changes that could cause big surprises on your tax return.


While not all of these changes are bad, most of the adjustments made last year could have a negative impact on the size of your refund.


Economic Impact Payment (Stimulus Checks)

In 2021, the final round of stimulus checks were issued to taxpayers and their spouses. The third round of stimulus was issued in March of 2021 as part of the American Rescue Plan Act. The most important thing to know regarding the stimulus checks is that receiving the stimulus payments does not impact the amount of tax you will need to pay. However, individuals who applied for the first and second stimulus check on their 2020 tax return may see a significantly lower refund when they file their tax return this year.


Advance Child Tax Credit Payments

The IRS issued Letter 6419 throughout the month of January to any participants who received advance child tax credit payments during the last six months of 2021. While including this letter with your tax documents is important, it is also important to check that the IRS numbers match your bank records.


We attached a sample letter below. Note that married couples filing a joint return will only see half the payments on Letter 6419, as they will receive two identical letters except for the taxpayer name at the top of page 1.


As a reminder, The American Rescue Plan passed in March 2021 increased the Child Tax Credit to $3,000 for children under the age of 18, and $3,600 for children under the age of 6. The bill also required that half of the credit be paid out through monthly installments between July and December of 2021, unless a taxpayer opted out of payments.


Since the bill increased the amount of the credit, taxpayers may be expecting a larger refund this year. However, half of the credit was already paid out in monthly installments last year. And this will result in smaller refunds or greater balances due on the 2021 Tax Return.


The extent of this impact will depend on how many children you have, their ages, and your Adjusted Gross Income (AGI). For a summary of how this credit may impact your 2021 tax return, refer to our 2021 Child Tax Credit Calculator.

Required Minimum Distributions

The CARES Act, passed in 2020, temporarily paused the withdrawal requirements for those aged 72 or older. This resulted in many taxpayers having lower taxable income in 2020. In 2021, required minimum distributions came back in full force, bringing many retirees' incomes back to 2019 levels.


The largest concern for retirees will come to those who failed to complete their 2021 RMD. While there was no penalty for not taking any money from the account in 2020, in 2021 the old penalty rules apply. This means that if a taxpayer failed to distribute their RMD amount by 12/31/21, they will be subject to an IRS penalty of 50% of the amount not taken on time. This means that a taxpayer with a $10,000 RMD could be penalized $5,000 for failure to complete the distribution in 2021.


Unemployment Compensation

In 2020, the American Rescue Plan Act changed the taxation of unemployment benefits. The ARPA made the first $10,200 of unemployment benefits nontaxable for those under certain income limits. This meant that married individuals could collectively receive $20,400 of unemployment benefits before any income was considered taxable.


For the 2021 tax year, that legislation has gone away. Instead, the tax law states unemployment income is fully taxable to the recipient. This change could result in higher taxes than last year.


Earned Income Tax Credit

One bit of good news despite all the negative changes highlighted above is the Earned Income Tax Credit (EITC). The EITC is meant to act as a tax break for low-earning families . In 2021, the limits for claiming this credit, as well as the value received from these credits were raised significantly.


Historically, this credit has been most beneficial for low-income taxpayers with children. Under previous rules, taxpayers with no children were eligible for a credit that maxed out at $538. In 2021, the credit nearly triples, with a maximum benefit now of $1,502.


Significant tax code changes remind us of the importance in having a partner who understands the federal tax code. This kind of partner can help you take advantage of the changes and position you for the future.



This article is a general communication being provided for informational and educational purposes only and is not meant to be taken as tax advice, investment advice or a recommendation for any specific investment product or strategy. The information contained herein does not take your financial situation, investment objective or risk tolerance into consideration. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal, accounting or tax advice from their own counsel. Any examples are hypothetical and for illustration purposes only. All investments involve risk and can lose value, the market value and income from investments may fluctuate in amounts greater than the market. All information discussed herein is current only as of the date of publication and is subject to change at any time without notice. Forecasts may not be realized due to a multitude of factors, including but not limited to, changes in economic conditions, corporate profitability, geopolitical conditions, inflation or US tax policy. This material has been obtained from sources believed to be reliable, but its accuracy, completeness and interpretation cannot be guaranteed.








LEGAL, INVESTMENT AND TAX NOTICE. This information is not intended to be and should not be treated as legal, investment, accounting or tax advice.








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