Individual Retirement Agreement IRS Notice CP22I

IRS Notice CP22I simply means that the IRS has made changes to your tax return for the tax year listed on the notice for your Individual Retirement Arrangement (IRA) taxes, and you owe money to the IRS as a result.

The IRS will explain why you owe money on your taxes. If you agree with the changes, pay the full amount by the date shown on your notice, and if you are unable to pay the full amount by the date shown you may be able to set up a payment plan. If you disagree with the changes made, contact the IRS at the toll-free number listed on your notice.

STEPS TO TAKE AFTER RECEIVING NOTICE CP22I

  • The first thing to do is to read the notice CP22I carefully. The IRS will explain why you owe money on your taxes. The notice is easy to understand but if you need help understanding the notice from your tax expert, please don’t hesitate to contact them.
  • The next step you need to take is to determine if you agree with the IRS or not. If you do agree with them, then you will need to pay the full amount due on the notice by the date specified on the notice. If however, you disagree with the changes the IRS made, you will need to contact them at the toll-free number listed on the top right corner of your notice CP22I.
  • Always keep the notices you receive in your records. They could be useful later on. If you also agree with the changes the IRS made, you need to correct the copy of your tax return that you kept for your records.
  • If you can’t pay the full amount you owe, you can arrange to make a payment plan with the IRS. You can enter an installment agreement with them to pay the amount you owe monthly. The type of agreement you get depends on your financial situation. The IRS first evaluates your situation before determining whether you can pay the full amount you owe. You can make these agreements with the IRS by yourself but it is advisable to seek the help of a tax professional as they will get the best deal possible for you.

The IRS charges interest on the money you owe

If you don’t full pay the amount you owe by the date on the payment coupon, interest will accrue on the unpaid balance after that date. That is definitely bad news. You will need to find a way to eliminate these interests. You will also receive a penalty if you can’t pay the full amount. You will receive a late payment penalty. You can contact the IRS using the number listed on your notice if you’re unable to pay the full amount shown in your notice CP22I because of your financial hardship. Make sure you contact them by the due date of your payment. Depending on your financial situation, they may be able to remove the penalty.

If you need to make another correction to your account, you’ll need to file the IRS Form 1040X, Amended U.S. Individual Income Tax Return.

INDIVIDUAL RETIREMENT ARRANGEMENT (IRA)

As we know, the IRA is the main reason for this notice so it is important for taxpayers to know what IRA entails. An individual Retirement Account (IRA) is an investing tool that taxpayers use to earmark funds for retirement savings. As of 2020, there are several types of IRAs. They include traditional IRAs, Roth IRAs, SEP IRAs and SIMPLE IRAs.

Traditional IRA

In most cases, contributions to traditional IRAs are tax-deductible. If someone puts $6,000 into an IRA, that person’s taxable income decreases by the amount of the contribution. However, when that individual withdraws money from the account during retirement, those withdrawals are taxed at their ordinary income tax rate. As of 2020, annual individual contributions to traditional IRAs cannot exceed $6,000 in most cases. If you are 50 or older, you can contribute up to $7,000 per year using catch up contributions. For 2020, the IRS left the IRA contribution limits unchanged. However, they changed the income phase-out range for deducting contributions to a traditional IRA for investors with retirement plans at work. The phase-out range changed from $103,000–$123,000 to $104,000–$124,000 for married couples and $64,000–$74,000 to $65,000–$75,000 for single taxpayers.

Roth IRA

Roth IRA contributions are not tax-deductible, but qualified distributions are tax-free. You contribute to a Roth IRA using after-tax dollars, but you do not face any taxes on investment gains. When you retire, you can withdraw from the account without incurring any income taxes on your withdrawals. Roth IRAs also do not have Required Minimum Distribution (RMDs). If you don’t need the money, you don’t have to take it out of your account. You can still contribute to a Roth IRA as long as you have eligible earned income, no matter how old you are. Roth IRA contribution limits for 2019 and 2020 are the same as for traditional IRAs. The maximum amount is $6,000 for investors under age 50. If you are 50 or older, the limit rises to $7,000. However, there are income limitations for contributing to a Roth IRA.

SEP IRA

Self-employed individuals, such as independent contractors, freelancers, and small-business owners, can set up SEP IRAs. The acronym SEP stands for “simplified employee pension.” A SEP IRA adheres to the same taxation rules for withdrawals as a traditional IRA. For 2019, SEP IRA contributions are limited to 25% of compensation or $56,000, whichever is less. In 2020, the limit rises to $57,000. Business owners who set up SEP IRAs for their employees can deduct the contributions. However, company employees are not allowed to contribute to their accounts, and the IRS taxes their withdrawals as income.

SIMPLE IRA

The SIMPLE IRA is also intended for small businesses and self-employed individuals. The acronym SIMPLE stands for “savings incentive match plan for employees.” It also follows the same taxation rules for withdrawals as a traditional IRA. Unlike SEP IRAs, SIMPLE IRAs allow employees to make contributions to their accounts, and the employer is required to make contributions as well. All the contributions are tax-deductible, potentially pushing the business or employee into a lower tax bracket.

The SIMPLE IRA employee contribution limit for 2019 is $13,000, with a $3,000 catch-up contribution allowed for savers age 50 and older. The contribution limit rises to $13,500 in 2020, while the catch-up limit remains unchanged at $3,000.