Claiming COVID costs, and 4 other questions about filing your taxes this year

It's time to file your tax returns, and the 2022 filing season promises to be different from recent years.

"The big thing is that there are a ton of tax changes related to stimulus funds and other benefits people may have received in 2021" because of the pandemic, said Lynnette Khalfani-Cox, the financial expert also known as the Money Coach.

Some of those changes will translate into smaller refunds. But while the IRS warns that it has a large backlog of returns to process, people can still avoid lengthy delays if they file electronically, Khalfani-Cox says.

Can I write off COVID-19 costs?

The pandemic has been an expensive crisis for many families — and some of the most common costs can affect your taxes.

"You can write off COVID-19 expenses – like face masks and personal protective equipment (PPE)," Khalfani-Cox said, "but only to the extent that those costs and your medical expenses exceed 7.5% of your adjusted gross income."

As an example, a household with an adjusted gross income of $67,521 (the median income in 2020) would need to spend more than $5,064 before that tax relief kicks in. Another caveat: you can't claim COVID-19 costs if your insurance company has reimbursed you for them.

If your circumstances don't meet those guidelines, you have another option. The IRS says a slew of costs, from hand sanitizer to home COVID-19 tests, can be paid for or reimbursed through tax-free spending accounts such as FSAs and HSAs.

How will changes to the Child Tax Credit shake things up?

Financial advisers are warning taxpayers that they should expect to get smaller refunds than they did last year.

"Part of the reason is that people have to account for that Child Tax Credit that they've already received in advance," Khalfani-Cox said.

The Child Tax Credit was expanded under the American Rescue Plan, benefiting tens of millions of U.S. households.

The program sent monthly checks to eligible families in the latter half of 2021, with up to $300 per month for every child younger than six, and $250 per month for older children. For tax purposes, that money isn't considered income — but because they're advance payments on a tax benefit, they do reduce the amount recipients might have otherwise received in their refund.

As NPR's Cory Turner reported, current estimates suggest "that by the end of tax season, families will have received an average of $4,380 from the 2021 version of the child tax credit, compared with the $2,310 they got under the previous version."

The American Rescue Plan also boosted unemployment benefits — but the tax rules for that money are different than the previous year.

"People laid off from work were able to exclude up to $10,200 in unemployment benefits in the year 2020," Khalfani-Cox said. "That exclusion went away last year."

With that lapse, the full amount of unemployment payments in 2021 are again taxable at the federal level.

Could my refund be delayed this year?

Taxpayers who file early and electronically should be able to avoid massive delays, Khalfani-Cox said.

"However, delays will likely mostly be felt by people who do manual or paper tax submissions," she said.

Erin M. Collins, the IRS's national taxpayer advocate, says the agency has a backlog of some 35 million returns. The IRS is overworked and underfunded, and it's coping with those challenges while using antiquated computer systems.

"Hands down, the fastest way to get your refund check is to file electronically and have the funds direct deposited into your bank account," Khalfani-Cox said. "Most people already do this, but some people actually file paper returns."

The timing also depends on what's in your return. The IRS said that by law, it can't issue refunds to anyone claiming the Earned Income Tax Credit before mid-February. That benefit applies to low- and moderate-income households, making less than $57,414.

If all goes smoothly, the IRS said, taxpayers who claim either the EITC or the Additional Child Tax Credit (ACTC) should expect to get their refund by the first week of March.

Another benefit of filing online, Khalfani-Cox said, is that the IRS's mobile app and website offer status updates on your return — including a "Where's My Refund?" tab — within 24 hours of when it was filed.

If you wind up needing help from the tax agency, be prepared to wait: Callers to the IRS faced an average hold time of 23 minutes, according to the national taxpayer advocate, and only about a tenth of callers were able to get through to a representative. Those dismal figures reflect a record 282 million phone calls — nearly triple the previous year's total — due to the many questions about shifting tax rules.

"It is going to be, unfortunately, a frustrating tax season," Deputy Treasury Secretary Wally Adeyemo told NPR this week. He urges people to file online, and take extra care in preparing their returns to avoid snags.

So, when is the tax deadline?

The IRS officially began accepting 2021 tax returns on Jan. 24, but don't fret if you haven't filed yet: many of us haven't yet received all the documents we need.

The general deadline for filing your income tax returns is Monday, April 18. The date is later than the normal April 15 date because the District of Columbia's Emancipation Day holiday falls on the weekend — meaning it'll be observed that Friday.

People in Maine and Massachusetts have an extra day to file, because the 18th is the Patriots' Day holiday in those states — pushing the tax deadline to April 19.

How can I avoid common mistakes?

"One huge error people commonly commit is waiting until the last minute to file," Khalfani-Cox said, "and then not having enough time to gather the necessary paperwork to claim all the deductions and tax credits to which they are entitled. Such procrastination can cost people money, especially since the IRS says the average tax refund check is about $3,000."

Another big mistake people make, she says, is to blow through their refund check rather than stashing at least some of the money in an emergency savings account.

"Instead of just spending that windfall, or letting the money slip through your fingers, be sure to save some of it. With inflation, the ongoing pandemic, and so many people quitting their jobs, it's more important than ever to have a healthy chunk of emergency savings."

Khalfani-Cox recommends using online tools to track your savings and other bank accounts — and to add to your reserves when that tax refund does arrive. [Copyright 2022 NPR]