Confusion. Amnesia. New paperwork. Delays getting through to the IRS. These are some of the top pandemic-induced frustrations marking this tax filing season, both for tax preparers and their clients.
Confusion. Amnesia. New paperwork. Delays getting through to the IRS.
These are some of the top pandemic-induced frustrations marking this tax filing season, both for tax preparers and their clients.
A recent survey by the National Association of Tax Professionals found that “only 4% [of tax preparers] think that taxpayers are knowledgeable about the tax law changes, which means longer conversations with their clients and chasing down documents needed to file their return.”
Stimulus payments create a paper chase
The IRS recently mailed letters to taxpayers that report how much a filer received in the third round of stimulus payments, which the agency started sending out in March 2021.
“Absolutely no one remembers getting it,” said Texas-based enrolled agent Tynisa Gaines.
And by “it” Gaines doesn’t just mean the letter, but the actual payment itself. She attributes it to the stress of the past two years. “People have blocked out 2020 and 2021.”
Even though many don’t recall it, her clients who were eligible had gotten both the payment and the letter, Gaines said. But she only can establish that after sending her clients on a treasure hunt. If they lost their letter, she tells them to use the IRS portal to retrieve information on their stimulus payments. For some, that process has proven too difficult or time consuming. So she then asks them to comb through their bank records for proof the stimulus money was deposited in their accounts last year.
Providing proof of actual payment and reporting the exact dollar amount is critical if the taxpayer doesn’t want the IRS system to flag their return for a discrepancy, which could delay them getting their refunds for weeks or months, Gaines said.
On the bright side, she noted, clients whose returns were completed and filed electronically have gotten their refunds well within the 21-day window the IRS promises.
Reconciling child tax credit payments is even more frustrating
Confusion and aggravation are even greater when it comes to another letter the IRS mailed recently reporting how much eligible taxpayers were sent in advanced child tax credit payments. The payments began going out monthly in July 2021.
Normally parents get up to $2,000 per child and they see that money when they file their tax return the following year — either as a refund or as a dollar-for-dollar reduction of what they still owe the IRS. But this year, when they file their 2021 returns, they already are likely to have received the first half of their credit — which was temporarily increased to a maximum of $3,600 for children under 6 and $3,000 for children ages 6 through 17. So they will only be able to claim the second half of it when they file. That will possibly result in a smaller refund or less of a reduction in the taxes owed than many parents are used to.
Adding more complexity, the advanced payments were calculated based on the filer’s income from a prior year, so they must reconcile on their tax return whether they were paid too much or too little based on their actual 2021 income.
Louisiana-based enrolled agent Skip Touchet is worried some people will be “shocked” once they figure out what they’re getting or not.
In particular, he worries about those who decided early in 2021 — before anyone knew they would be getting advanced payments — to decrease their tax withholdings. By doing so, they received bigger paychecks during the year with the understanding they would get less of a refund or a slightly bigger tax bill at tax time.
They may find, though, they will owe more money than expected because they reduced their tax withholdings for last year and now can only claim the second half of their child tax credit.
Some parents, however, decided to opt out of getting the advanced payments through the IRS portal last year. But each spouse had to do it separately, which is not exactly intuitive for most married couples filing jointly.
That’s another reason why, all told, reconciling the advanced child tax credit issues “has been a nightmare,” said California-based enrolled agent Laura Strombom.
Reaching the IRS takes an extra long time
Getting through to the IRS has also been a major hurdle this tax season. The agency is already contending with a backlog of matters related to 23 million returns and is understaffed.
Touchet says he often starts calling early in the morning. On a good day — which he estimates is 25% of the time — he will get through to someone on the hotline for tax professionals but only after waiting an hour or more.
The wait for taxpayers reaching out on their own is often much longer.
Gaines said she has a client who was told by the IRS that she owed $10,000 because she had not paid taxes on her pension. Except that she did. The client can’t get through to anyone to address the problem. Now, Gaines said, “We don’t want to file her 2021 return [yet] because she has a refund [coming] and they’ll probably take it to pay what she doesn’t owe.”
Tax preparers bear the brunt of frustration
The added frustrations of this tax season mean more clients are barking at the messenger.
“We’re getting squeezed between the clients and the IRS,” Touchet said.
Robin Rae Huntley, an enrolled agent in Florida, summed things up more bluntly. In early February she said, “I’ve filed 59 returns and been yelled at by at least 50 of [the clients].”
Mintr // Shutterstock
Half of American adults started 2022 with a desire to boost their savings. That admirable intention could prove easier for those who developed good savings habits at a young age.
After all, it’s possible kids who get used to regularly depositing some allowance funds in their piggy bank won’t think twice about setting money aside when higher wages and expenses enter the picture later in life. There’s even a significant bonus for young savers: Compound interest, which is the interest earned on interest.
To demonstrate how people can benefit from this mathematical superpower, GoHenry calculated how starting to save as a kid can impact your wealth by calculating how much money one can make if they started saving $1 a day at the age of 5.
This calculation was made by taking the premise that someone would deposit $365 at the end of a year into an investment account, and this money would compound annually at a market rate of 8%. The story shows the example of how much one would save if they started saving and depositing money at the age of 5, and how much that money increases by the ages of 6, 7, 10, 12, 16, 18, 25, 50, and 100.
Notably, minors can’t open their own savings accounts, but their parents or other adults can open joint or custodial accounts for them.
People Image Studio // Shutterstock
- End-of-year amount deposited: $365.00
- Amount returned: $0.00
- Total end-of-year wealth: $365.00
Abstract concepts like money and the power of compounding are hard for kids to comprehend at this age. Nevertheless, children are typically ready to develop skills that the Consumer Financial Protection Bureau says can build “a foundation for behaviors that support financial well-being,” including saving for the future. These skills include persisting through hard tasks and learning to wait for things they want.
The abilities to control impulses and plan ahead are also important, the bureau notes. Playing “pretend” and games like Simon Says and Red Light, Green Light can help kids build these and other critical skills while having fun.
In addition, encouraging kids to put coins into a glass jar can make the idea of money—and growing it—more concrete and exciting as savers develop their counting skills.
YAKOBCHUK VIACHESLAV // Shutterstock
- End-of-year amount deposited: $730.00
- Amount returned: $29.20
- Total end-of-year wealth: $759.20
This is a great age to introduce allowances, which can be powerful tools to teach young kids about earning, saving, and spending. A 2019 study found kids in the U.S. were receiving an average of $30 a week in allowance, but an important lesson wasn’t sticking: Parents said their children were primarily spending the money to buy things. To help kids better understand savings, parents can encourage them to pick small savings goals and track their progress on a chart filled with colorful visuals.
Parents could go a step further by “matching” their childrens’ savings, like adding 10 cents to the piggy bank for every dollar they save. It’s a benefit children will hopefully recognize and appreciate one day if a future employer offers a similar incentive in the form of a 401(k) retirement savings match.
Darrin Henry // Shutterstock
- End-of-year amount deposited: $2,190.00
- Amount returned: $487.61
- Total end-of-year wealth: $2,677.61
Kids in the fourth and fifth grades are ready to tackle key personal financial topics. These include understanding interest, why it’s important to save for emergencies, and how to develop ways to set short-term and long-term goals for saving, according to the FDIC.
These young smarties can also better understand the benefits of saving money in a bank versus at home. If parents haven’t already opened an interest-bearing savings account (or investment account) for a child, it’s a great time to do so. The best options offer a good interest rate that doesn’t require monthly fees or minimum balance requirements and have online tools that let tech-savvy savers monitor their growing balances.
MAYA LAB // Shutterstock
- End-of-year amount deposited: $2,920.00
- Amount returned: $962.37
- Total end-of-year wealth: $3,882.37
Tweens are typically able to understand the math behind concepts like compound interest, not just the theory. They’re also able to plan ahead and save for things they want. That’s a timely skill as many are old enough to start babysitting, mowing yards, or finding other ways to earn larger sums of cash.
While they may be learning about personal finance at school, many youths are also looking for guidance at home. Half of surveyed kids between ages 8 and 14 said they want their parents to talk to them about how to save money.
VALUA VITALY // Shutterstock
GaudiLab // Shutterstock
- End-of-year amount deposited: $5,110.00
- Amount returned: $3,728.45
- Total end-of-year wealth: $8,838.45
Cash is always a popular graduation gift, and it’s surely welcomed by high-school seniors who are embarking on the transition into a full-time job or the next level of schooling. Some kids who have custodial savings accounts created as UGMA (Uniform Gifts to Minors Act) or UTMA (Uniform Transfers to Minors Act) accounts will finally gain control of them when they turn 18. Others will need to wait until they are 21 or even older.
This is a time for parents to help increasingly independent kids understand not only how to budget successfully, but also how to save and invest for short- and long-term goals. If teens are taking out college loans, they need to gain an honest understanding of the impact that graduating with student debt will have on their personal finances. The average public university student borrows $30,030 in pursuit of a bachelor’s degree, and that sum will likely take quite a while to pay down.
SFIO CRACHO // Shutterstock
Bystrov // Shutterstock
- End-of-year amount deposited: $35,040.00
- Amount returned: $7,337,459.00
- Total end-of-year wealth: $7,372,499.00
There were 97,000 centenarians in the U.S. in February 2021, and that number could increase over time. Life expectancy, or the number of years a person is expected to live, has generally been on the rise in the country since 1980.
Though reaching a three-digit birthday is a remarkable achievement, it can also be scary from a financial perspective. Forty-nine percent of Americans fear they will outlive their savings. It’s a reasonable worry given that Social Security replaces only about 40% of a worker’s pre-retirement income on average.
Fortunately, dutifully saving $1 a day for more than nine decades—and having the money compound annually at a market rate of 8%—could make someone a multi-millionaire by the time they gather around their cake with 100 candles to blow out, plus one to grow on.
This story originally appeared on GoHenry and was produced and distributed in partnership with Stacker Studio.