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The Internal Revenue Service announced on January 26 that all third-round Economic Impact Payments have been issued. While some payments of the Economic Impact Payments from 2021 may still be in the mail, the IRS is no longer issuing new payments.

Families with new dependents in 2021

The third-round Economic Impact Payment was an advance payment of the tax year 2021 Recovery Rebate Credit. The amount you received as a third-round Economic Impact Payment was based on your income and number of dependents as listed on your 2019 or 2020 income tax return, but the amount of the 2021 Recovery Rebate Credit you are due is based on your income and number of dependents as listed on your 2021 income tax return. As a result, you may not have received the full amount you are due if your circumstances changed between 2020 and 2021.

If you or your family fit into any of the categories below, you may be eligible to receive more money by claiming the 2021 Recovery Rebate Credit on you 2021 income tax return:

• Parents of a child born in 2021 who claim the child as a dependent on their 2021 income tax return may be eligible to receive a 2021 Recovery Rebate Credit of up to $1,400 for this child. (All eligible parents of qualifying children born or welcomed through adoption or foster care in 2021 are also encouraged to claim the child tax credit — worth up to $3,600 per child born in 2021 — on their 2021 income tax return.)
• Families who added a dependent – such as a parent, a nephew or niece, or a grandchild – on their 2021 income tax return who was not listed as a dependent on their 2020 income tax return may be eligible to receive a 2021 Recovery Rebate Credit of up to $1,400 for this dependent.
• Reduced income.
  • Single filers who had incomes above $80,000 in 2020 but less than this amount in 2021; married couples who filed a joint return and had incomes above $160,000 in 2020 but less than this amount in 2021; and head of household filers who had incomes above $120,000 in 2020 but less than this amount in 2021 may be eligible for a 2021 Recovery Rebate Credit of up to $1,400 per person.
  • Single filers who had incomes between $75,000 and $80,000 in 2020 but had lower incomes in 2021; married couples who filed a joint return and had incomes between $150,000 and $160,000 in 2020 but had lower incomes in 2021; and head of household filers who had incomes between $112,500 and $120,000 in 2020 but had lower incomes in 2021 may be eligible for a 2021 Recovery Rebate Credit.

If you are entitled to eligible to receive more money by claiming the 2021 Recovery Rebate Credit, you must claim it on your 2021 income tax return in order to receive it; the IRS will not automatically calculate the 2021 Recovery Rebate Credit. The IRS began accepting 2021 income tax returns on January 24.

Most other eligible people already received the full amount of their credit in advance and don’t need to include any information about this payment when they file their 2021 tax return. The IRS issued additional payments – called “Plus-Up” Payments – to people who initially received a third-round Economic Impact Payment based on information on their 2019 tax return and were eligible for a larger amount based on information on their 2020 tax return.

The IRS announced that it will issue information letters to Advance Child Tax Credit (CTC) recipients starting in December and to recipients of the third round of the Economic Impact Payments (EIP) at the end of January. Using this information when preparing a tax return can reduce errors and delays in processing, so be sure to provide them to your tax preparer.

The IRS started sending out Letter 6419, which documents the advance Child Tax Credits you received, in late December 2021, and will continue sending them through January 2022. This letter contains important information that can make preparing your tax returns easier, and help your tax preparer determine how much of the Child Tax Credit you are eligible to claim on your 2021 tax return.

The IRS will also begin sending out Letter 6475, titled “Your Third Economic Impact Payment”, to EIP recipients in late January. Like the advance CTC letter, the Economic Impact Payment letter includes important information that can help you quickly and accurately file your tax return. In particular, it can help your tax preparer determine if you are eligible to claim a Recovery Rebate Credit for tax year 2020 or 2021.

The IRS issued the 2022 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Beginning Jan. 1, 2022, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 58.5 cents per mile driven for business use
• 18 cents per mile driven for medical care or moving expenses for purposes of certain members of the Armed Forces
• 14 cents per mile driven in service of charitable organizations

Notice 2022-03 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan, and the maximum fair market value of employer-provided automobiles.

For many people, the end of the year is a time to review charitable gifts that have already been made during the year and to consider making additional charitable gifts before the tax year ends. If you are one of these people, we have a few reminders that you might find helpful.

Expanded tax benefits for those who don’t itemize

The law now permits you to claim a limited deduction on your 2021 federal income tax return for cash contributions made to qualifying charitable organizations even if you don’t itemize your deductions. Individuals can claim a deduction of up to $300 for cash contributions to qualifying charities during 2021, and married individuals filing joint returns can claim up to $600.

Qualified charitable distributions

If you are age 70 ½ or older, you can make a qualified charitable distribution (or “QCD”) of up to $100,000, directly from your IRA to a qualified charitable organization. A QCD is generally a nontaxable distribution made by the IRA trustee directly to a charitable organization. A qualifying deduction may also count toward the taxpayers required minimum distribution requirement for the year.

Cash donations

Most cash donations made to charity qualify for the deduction. However, there are some exceptions. Cash contributions that are not tax deductible include those:

• Made to a supporting organization
• Intended to help establish or maintain a donor advised fund
• Carried forward from prior years
• Made to most private foundations
• Made to charitable remainder trusts

These exceptions also apply to taxpayers who itemize their deductions.

Cash contributions include those made by check, credit card or debit card as well as unreimbursed out-of-pocket expenses in connection with volunteer services to a qualifying charitable organization. Cash contributions don’t include the value of volunteer services, securities, household items or other property.

The IRS announced in November increases to retirement plan limits for 2022. The 2022 contribution limit for 401(k) plans will increase to $20,500, which means that next year you can put an extra $1,000 into your 401(k) plan. The IRS also announced cost‑of‑living adjustments that may affect pension plan and other retirement-related savings in the coming year.

Highlights of changes for 2022

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $20,500 in 2022. Limits on contributions to traditional and Roth IRAs remains unchanged at $6,000.

You can also deduct contributions to a traditional IRA if they meet certain conditions. If neither you nor your spouse is covered by a retirement plan at work, your full contribution to a traditional IRA is deductible. If you or your spouse is covered by a retirement plan at work, the deduction may be reduced or eliminated. The amount of the deduction depends on your filing status and your income.

Traditional IRA income phase-out ranges for 2022

• $68,000 to $78,000 – Single taxpayers covered by a workplace retirement plan
• $109,000 to $129,000 – Married couples filing jointly. This applies when the spouse making the IRA contribution is covered by a workplace retirement plan.
• $204,000 to $214,000 – A taxpayer not covered by a workplace retirement plan married to someone who’s covered.
• $0 to $10,000 – Married filing a separate return. This applies to taxpayers covered by a workplace retirement plan

Roth IRA contributions income phase-out ranges for 2022

• $129,000 to $144,000 – Single taxpayers and heads of household
• $204,000 to $214,000- Married, filing jointly
• $0 to $10,000 – Married, filing separately

Saver’s Credit income phase-out ranges for 2022

• $41,000 to $68,000 – Married, filing jointly.
• $30,750 to $51,000 – Head of household.
• $20,500 to $34,000 – Singles and married individuals filing separately.

The amount individuals can contribute to SIMPLE retirement accounts also increases to $14,000 in 2022.

It was announced by the Social Security Administration (SSA) in October that the maximum amount of an individual’s taxable earnings in 2022 subject to Social Security tax will be $147,000, up from $142,800 for 2021. The wage base limit applies to earnings subject to the tax, known officially as the old age, survivors, and disability insurance (OASDI) tax. Because the OASDI tax rate is 6.2%, an employee with total wages from an employer at or above the maximum in 2022 will pay $9,114 in tax, with the employer paying an equal amount.

The Medicare hospital insurance tax of 1.45% each for employees and employers has no wage limit and is unchanged for 2022.

Individuals with earned income of more than $200,000 ($250,000 for married couples filing jointly and $125,000 for married taxpayers filing separately) are required to pay an additional hospital insurance tax of 0.9% of wages with respect to employment (also unchanged).

Self-employed individuals pay self-employment tax equal to the combined OASDI and Medicare taxes for both employees and employers, i.e., 15.3%, up to the OASDI wage base and 2.9% in Medicare taxes on net self-employment income above it, with an offsetting above-the-line income tax deduction of half of the OASDI-equivalent component of self-employment tax.

Approximately 70 million Americans will see a 5.9% increase in their Social Security benefits and Supplemental Security Income (SSI) payments in 2022. Federal benefit rates increase when the cost-of-living rises, as measured by the Department of Labor’s Consumer Price Index (CPI-W).

The CPI-W rises when inflation increases, leading to a higher cost-of-living. This change means prices for goods and services, on average, are a little more expensive, so the cost-of-living adjustment (COLA) helps to offset these costs.

The Social Security Administration will mail COLA notices throughout the month of December to retirement, survivors, and disability beneficiaries, SSI recipients, and representative payees. But, if you want to know your new benefit amount sooner, you can securely obtain your Social Security COLA notice online using the Message Center in your my Social Security account. You can access this information in early December prior to the mailed notice. If you don’t have an account yet, you must create one by November 17, 2021, to receive the 2022 COLA notice online.

The U.S. Small Business Administration (SBA) announced major modifications to the COVID-19 Economic Injury Disaster Loans (EIDL) program, including raising the loan cap from $500,000 to $2 million and adding business debt payments to the list of ways businesses can use the loan proceeds.

In a news release issued on September 9, 2021, the SBA said it was implementing the changes to make it easier for the small business communities still feeling the effects of the pandemic, especially hard-hit sectors such as restaurants, gyms, and hotels, to access the more than $150 billion in funding available for loans.

The following key changes were announced. All are effective immediately:

• Increasing the COVID-19 EIDL cap from $500,000 to $2 million. Loan proceeds can be used for any normal operating expenses and working capital, including meeting payroll, purchasing equipment, and paying debt. COVID-19 EIDL funds are now also eligible to prepay commercial debt and make payments on federal business debt.
• Implementation of a deferred payment period. The SBA said small business owners will not have to begin COVID-19 EIDL repayments until two years after loan origination. Payments are deferred for the first two years (during which interest will accrue), and payments of principal and interest are made over the remaining 28 years. The agency previously had implemented an 18-month deferment period for loans made during 2021.
• Establishment of a 30-day exclusivity window. To ensure “main street” businesses have additional time to access these funds, the SBA said it is implementing a 30-day exclusivity window of approving and disbursing funds for loans of $500,000 or less. Approval and disbursement of loans over $500,000 will begin after the 30-day period.
• Simplification of affiliation requirements. To ease the COVID-19 EIDL application process for small businesses, the SBA established more simplified affiliation requirements to mimic those of the Restaurant Revitalization Fund.

The COVID-19 EIDL program, which runs through December 31, offers 30-year loans with fixed interest rates of 3.75% for small businesses, including sole proprietors and independent contractors, and 2.75% for not-for-profits. If you would like more information about this program, including determining if it might benefit your business, please contact our office.

The IRS recently issued its annual update of special per-diem rates for substantiating ordinary and necessary business expenses incurred while traveling away from home. The new rates are in effect from October 1, 2021, to September 30, 2022. Specifically, the per-diem rates issued include the transportation industry meal and incidental expenses rates; the rate for the incidental-expenses-only deduction; and the rates and list of high-cost localities for purposes of the high-low substantiation method.

High-low substantiation method

For purposes of the high-low substantiation method, the per-diem rates are $296 for travel to any high-cost locality and $202 for travel to any other locality within the continental United States, both slightly higher than last year.

The amount of these rates that is treated as paid for meals is $74 for travel to a high-cost locality and $64 for travel to any other locality within continental United States, both also slightly higher than last year.

The notice contains a list of the localities that are high-cost localities (localities that have a federal per-diem rate of $249 or more, $4 higher than last year) for all or part of the calendar year.

Incidental expenses

Since 2012, incidental expenses have included only fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. The per-diem rate for the incidental-expenses-only deduction remains unchanged at $5 per day for any locality of travel.

Transportation industry

The special meals and incidental expenses rates for taxpayers in the transportation industry are $69 for any locality of travel within continental United States and $74 for any locality of travel outside continental United States, both $3 more than last year.

Recent legislation includes several provisions to help individuals and businesses who give to charity. The new law generally extends four temporary tax changes through the end of 2021. Here’s an overview of these changes.

Deduction for individuals who don’t itemize

Taxpayers who take the standard deduction usually can’t deduct their charitable contributions. The law now permits taxpayers to claim a limited deduction on their 2021 federal income tax returns for cash contributions they made to certain qualifying charitable organizations.

These taxpayers, including married individuals filing separate returns, can claim a deduction of up to $300 for cash contributions to qualifying charities during 2021. The maximum deduction is $600 for married individuals filing joint returns.

100% limit on eligible cash contributions made by taxpayers who itemize deductions in 2021

Taxpayers who itemize can generally claim a deduction for charitable contributions to qualifying organizations. The deduction is typically limited to 20% to 60% of their adjusted gross income and varies depending on the type of contribution and the type of charity.

The law now allows taxpayers to apply up to 100% of their AGI, for calendar-year 2021 qualified contributions. Qualified contributions are cash contributions to qualifying charitable organizations.

The 100% limit is not automatic, however. The taxpayer must choose to take the new limit for any qualified cash contribution. Otherwise, the usual limit applies. The taxpayer’s other allowed charitable contribution deductions reduce the maximum amount allowed under this election.

Corporate limit increased to 25% of taxable income

The law now permits C corporations to apply an increased corporate limit of 25% of taxable income for charitable cash contributions made to eligible charities during calendar year 2021. The increased limit is not automatic. C corporations must the choose the increased corporate limit on a contribution-by-contribution basis.

Increased limits on amounts deductible by businesses for certain donated food inventory

Businesses donating food inventory that are eligible for the existing enhanced deduction may qualify for increased deduction limits. For contributions made in 2021, the limit is increased to 25%. For C corporations, the 25% limit is based on their taxable income. For other businesses, including sole proprietorships, partnerships, and S corporations, the limit is based on their total net income for the year. A special method for computing the enhanced deduction continues to apply, as do food quality standards and other requirements.