Developments for individuals
Educator expense deduction
Late in 2021, the IRS released inflation adjusted amounts for the 2022 tax year (Rev. Proc. 2021-45). This included an increased educator expense deduction; the first increase in that amount since the deduction was created in 2002. For 2022, educators are allowed to deduct up to $300 of out-of-pocket expenses. For educators who are married and filing a joint return, the deduction rises to $600, but at a maximum of $300 per spouse. Eligible educators include anyone who is a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide in a school for at least 900 hours during the school year. Both public- and private-school educators qualify. Educators can deduct the unreimbursed cost of books, supplies, and other materials used in the classroom; equipment, including computer equipment, software, and services; COVID-19 protective items to stop the spread of the disease in the classroom; and professional development courses related to the curriculum they teach or the students they teach.
Comment: As this is the first time the limitation on the deduction has ever been increased, it would be helpful to advise clients who are educators of the increase, especially before buying supplies during the Summer in preparation for the 2022-2023 school year.
Addressing missing economic impact payments
The IRS issued guidance for those who are missing Economic Impact Payments (EIPs) (IRS-2022-72). The agency reminded taxpayers to accurately claim any remaining third-round stimulus payment on their 2021 tax returns as the 2021 Recovery Rebate Credit (RRC). The IRS announced the completion of special mailings of all Letters 6475, Economic Impact Payment (EIP) to recipients of third-round of Economic Impact Payments. As required by law, the IRS is no longer issuing first-, second- or third-round EIPs. Individuals who are missing a stimulus payment or received less than the full amount may be eligible to claim an RRC on their 2020 or 2021 federal tax return. Most eligible individuals 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. Individuals may securely access their IRS Online Account to view the total amount of the third-round Economic Impact Payment issued to them. Married individuals filing a joint return will each need to log into their own Online Account or check their Letter 6475.
Comment: For most individuals, the time to claim any missing EIPs on an original return has passed. However, there is still time to file an amended 2020 return for unclaimed first- or second round EIPs, as well as an amended 2021 return for the third-round payments.
The IRS stated that a crowdfunding website or its payment processor may be required to report distributions of money raised if the amount distributed meets certain reporting thresholds by filing Form 1099-K, Payment Card and Third Party Network Transactions (FS-2022-20). If Form 1099-K was required to be filed, the crowdfunding website or its payment processor must also furnish a copy of that form to the taxpayer to whom the distributions are made. Prior to 2022, the threshold for a crowdfunding website or payment processor to file and furnish a Form 1099-K was met if, during a calendar year, the total of all payments distributed to a person exceeded $20,000 in gross payments resulting from more than 200 transactions or donations. For calendar years beginning after December 31, 2021, the threshold is lowered and is met if, during a calendar year, the total of all payments distributed to a taxpayer exceeded $600 in gross payments, regardless of the number of transactions or donations. The American Rescue Plan Act of 2021 clarified that the crowdfunding website or its payment processor was not required to file Form 1099-K with the IRS or furnish it to the person to whom the distributions are made if the contributors to the crowdfunding campaign do not receive goods or services for their contributions.