Important Changes to Know before Filing 2021 Taxes
Tax season is here, and there are a few changes you need to be aware of before you file your 2021 taxes.
First of all, this year we all get a few extra days to file our tax returns.
Instead of the typical April 15, 2022, deadline, this year it’s April 18 due to the Emancipation Day holiday falling on April 15. If you live in Massachusetts and Maine, you have until April 19 due to Patriots Day.
Keep reading for other important changes before you file your 2021 taxes.
Higher Standard Deductions
Standard deductions were adjusted for inflation and rose slightly for the 2021 tax year.
The standard deduction is now $12,550 for single filers and married filing separately, $25,100 for joint filers, and $18,800 for heads of household.
Income Brackets Changed, but Rates Stay the Same
For the 2021 tax year, changes were made to the income brackets to adjust for inflation; however, the tax rates are the same.
Child Tax Credits
If you received an advanced payment for the Child Tax Credit in 2021, these were the monthly payments of either $250/month for kids between 6 and 17 or $300/month for kids under age 6.
Be on the lookout in your mail for Letter 6419. This is the form you will need in order to receive the other half of your payments, which will be added to your tax refund – if your income still qualifies.
Earned Income Tax Credits
For the 2021 tax year, the earned income credit ranges from $1,502 to $6,728 – depending on your filing status and how many children you have.
You can use either your 2019 income or 2021 income to calculate your credit, and use whichever number gets you the bigger credit.
The American Rescue Plan of 2021 “has a “lookback” provision that allows you to use your 2019 earned income instead of your 2021 earned income to calculate the Earned Income Credit (EIC) or Additional Child Tax Credit (ACTC) on your 2021 tax return if doing so makes the credit larger. This will help you get a larger credit amount if your income was reduced in 2021 due to unemployment or other reasons,” according to Turbotax.¹
Also, you don’t have to have a child to qualify for this credit.
Note: By law, if you qualify for this credit, the IRS cannot send your refund until mid-February, no matter how early you file.
Did you receive stimulus checks from the Economic Impact Payments? If so, be on the lookout for Letter 6475 in the mail.
This letter will help you determine if you are entitled to and should claim the Recovery Rebate Credit on your tax year 2021 tax return.
Note that Letter 6475 only applies to the third round of Economic Impact Payments. These were advance payments of the 2021 Recovery Rebate Credit that would be claimed on your 2021 tax return.
Most people have already received the payments. However, if you are missing stimulus payments, make sure to review the information to determine if you are eligible and need to claim a Recovery Rebate Credit for tax year 2020 or 2021.
Increased Deduction for Charitable Cash Contributions
There is an increased deduction for cash charitable contributions this year. So, if you gave cash to charity in 2021, you can take the standard deduction and still deduct up to $300 for single filers and up to $600 for joint filers.
E-File Your Returns
The IRS is spread thin, so expect delays this year – especially if you mail in your returns.
Because of the backlog of paper returns, it may take 6 months or longer to get your refunds. If you don’t want to wait, make sure you e-file your tax return this year.
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