tax law changes

Tax Law Changes That May Affect Your 2021 Tax Return

The tax laws just changed in 2021, which will affect most Americans this coming tax season. The expanded child tax credit payments could impact many families’ refunds, and for the nearly 90% of Americans who claim the standard deduction.

It looks like the IRS will start accepting tax returns later this month. Expect an announcement soon.

This blog post contains information on these new rules and how to prepare for what’s on the horizon.

2021 Recovery Rebate Tax Credit for Third Stimulus Payments

For 2021 you may be eligible for the Recovery Rebate Tax Credit. You may be eligible for an economic recovery payment if you haven’t received the third recovery payment (stimulus payment) or received only a partial payment.

To receive this rebate, you must file a 2021 tax return, even if you’re not typically required to do so.

You need to know the amount of your third stimulus payment in 2021 for yourself, spouse, or dependents in order to claim your Recovery Rebate Credit. The IRS will send a letter in early 2022 (Letter 6475) giving you the amount of your third stimulus payment. Or you can log into your IRS online account to retrieve the amount.

You will need this information to claim the credit on your 2021 tax return so hold on to these documents.

The Recovery Rebate Tax Credit worksheet will allow you to calculate any additional payments you may be due for your 2021 tax return.

Depending upon your qualifying child care expenses, your monthly child tax credit payments may increase or decrease your refund.

This year, for the first time ever, the IRS sent out monthly child tax credit payments to qualifying families. Depending on your monthly payment amount this past year, it may result in either a bigger or smaller refund with your taxes.

If you got monthly tax credit payments to help with your child, you need to include it on your 2021 tax return. You might receive a letter from the IRS, Letter 6419, stating how much money you have been given.

The IRS recommends that you compare this total against the amount of child tax credits you’re entitled to.

If you qualified for an additional child tax credit after the advance payments were made, you can claim it on your 2021 return. If you receive more than you should qualify for, you will need to repay some or all of the excess payments back to the IRS when filing your taxes.

Here are some reasons where you may be eligible for benefits that exceed those offered in 2021:

  • Does your qualifying child now live with another person/parent?
  • Your filing status or income level may have changed
  • Your time living in the U.S. in 2021 was less than 50% of the year

The child tax credit for 2021 is up to $3,600 for children under the age of 6 (up to $3,000 for children ages 6-17). Qualified families received up to 50% of their child tax credit as monthly payments, between July and December of 2021. However, not all families received the payments, some chose to opt-out.

You can use Schedule 8812, Credits for Qualifying Children and Other Dependents to see how much you may qualify for on your tax return.

If you opted out of receiving monthly payments in 2021, you could claim the full amount on your 2021 tax return.

Itemized Charitable Donations are No Longer Needed

For 2021 you can deduct up to $300 for cash donations, ($600 total for married filers) whether you itemize or take the standard deduction.

But there is a bonus for charitable givers who itemize. Those who claim charitable contributions as itemized deductions can claim cash contributions made to qualifying organizations of up to 100% of their adjusted gross income (AGI) for the 2021 tax year only, Generally, this deduction is limited to 60% of the taxpayer’s AGI.

It is important to keep in mind that the temporary increase of the 100% limit isn’t automatic. Taxpayers must opt for increased limitations by making the election on their federal tax return for 2021. If not, the usual limitation of up to 60% applies.

Received a letter from the IRS?!?

Don’t reply until you read these rules.

Don’t communicate with the IRS regarding an audit or tax debt until you read ‘Cohen’s 12 Rules for Dealing with the IRS’. Submit your email below to receive a PDF copy of this 1-page checklist.

Your privacy is important to you and us. We will not sell or give your contact email to any third-party.

dealing with the irs