2021 Taxes: 8 Things You Need to Know About

Last year’s tax season was complicated, thanks to the pandemic. Now, 2021 tax filings may be shaping up to be the same. Covid-19 continues to create challenges, and stimulus money, unemployment benefits, and the child tax credit can make it more complicated. With all the shifts, it’s essential to keep on top of changes and new requirements. Here are eight things you may need to know as you file your 2021 taxes.

1. Income Tax Brackets Have Shifted

Thanks to inflation, tax brackets have adjusted. Despite this, the seven standard tax brackets are still about the same. The following table outlines the income brackets for 2021 taxes:

Income tax bracket changes have been made primarily to account for inflation.

2. Standard Deductions have increased.

The standard deduction is a dollar amount that reduces your taxable income. The IRS lets you take the standard deduction even if you have no other qualifying deductions or tax credits.

The standard deductions for 2021 taxes are:

• $12,550 for single filers ($150 increase from 2020)
• $25,100 for married couples filing jointly (A $300 increase from 2020).
• $18,800 for heads of household (A $150 increase from 2020).

3. The Child Tax Credit Has Expanded

Thanks to the American Rescue Plan implemented in 2021, the Child Tax Credit (CTC) has increased. However, if you have received advance payments of the CTC, you will need to report how much you have already collected to find if you will owe any taxes or still qualify for an additional credit. You may either put this information in your IRS online account or fill out a schedule 8812 form.

If you have not received any portion of your 2021 CTC yet, you are eligible to receive a $3,600 tax credit for each dependent child, age five and under. For children ages 6-17, you qualify for a $3,000 tax credit per child. The CTC has also expanded to apply to Puerto Rico and U.S. territories and is fully refundable this year.

4. IRA and 401 (k) Deductions Remain the Same 

Both IRA and 401k contribution limits have not changed from 2020. You can contribute a maximum of $6,000 to your Roth and traditional IRA. This limit increases to $7,000 if you are 50 years old or older. The maximum contribution for a traditional and safe harbor 401k is $19,500 for 2021. Depending on if your 401k plan allows it, if you are 50 or older, you can make a $6,500 catch-up contribution to traditional and safe harbor 401k plans.

5. New Charitable Deductions for 2021 Taxes 

In 2020, the CARES act allowed for a deduction of up to $300 per tax return on charitable giving, even if you did not itemize your taxes. For 2021 taxes, U.S. taxpayers may deduct up to $300 per person for charitable donations if they were made this year.

Donating volunteer hours or clothing does not count. Your donation needs to come in the form of a check, credit card, or debit card. It’s a good idea to look over the official documentation from the IRS to determine what qualifies as a charity.

6. Limits for Health Savings Have Increased

Health savings account (HSA) annual limit contributions for 2021 increased by $50 ($3,600 total) for an individual and $100 ($7,200 total) for a family. If you are 55 or older, you may qualify for an HSA catch-up contribution of $1,000. For a flexible savings account (FSA), the contribution limit rose to $2,850 – a $100 increase from 2020. Keep in mind that your annual contribution limits include both what the employer and the employee place in the HSA or FSA.

7. The Unemployment Benefits Tax Break No Longer Applies 

In 2020, the American Rescue plan allowed beneficiaries of unemployment benefits to get a tax break. A relief law was implemented during this time, which waived up to $10,200 per person in taxes on unemployment benefits. This temporary tax relief is no longer applicable for 2021 taxes, so you will be taxed this year if you have received any unemployment benefits from 2020 to 2021.

8. The Earned Income Tax Credit Expanded 

The EITC was created to help workers with low-to-moderate income get a tax break. Thanks to the American Rescue Plan, the EITC applies to more workers and families and includes benefits for younger workers in 2021. If your income in 2021 fell below $57,414, you may be able to claim:

• $1,502 for no qualifying children
• $3,618 for one qualifying child
• $5,980 for two qualifying children
• $6,728 for three or more qualifying children

2021 Tax Filing Deadlines 

The deadline to file your 2021 taxes is Monday, April 18, 2022. If you solicit an extension, you will have until Monday, October 17, 2022, to file.

What Else You Should Know

According to IRS Commissioner, Chuck Rettig, to get your refund fast, “file electronically. File accurately. And request direct deposit for your refund.” Mistakes on your taxes will significantly delay receiving your returns, so remember to ensure that all your information is accurate.

The IRS provides plenty of extra resources to guide you through this tax season. The IRS free file allows you to file your taxes online for free if you make less than $73,000 a year. This year make sure to start filing your taxes early, and you won’t have to worry about missing the deadline.

Posted In: FFCCU News and Info, Tips For Managing Finances