Tax Changes 2021

01
Child Tax Credit Payment
  • IRS Letter 6419 with the total amount of Advance Child Tax Credit payments taxpayers received in 2021 is needed to file your Taxes. Taxpayers who received less than the amount for which they're eligible will claim a credit for the remaining amount of Child Tax Credit on their 2021 tax return. Taxpayers who received more than the amount for which they're eligible may need to repay some or all of the excess payment when they file
02
Economic Impact Payments and Claiming the Recovery Rebate Credit
  • IRS Letter 6475 is needed when filing your taxes. Individuals who didn't qualify for the third Economic Impact Payment or did not receive the full amount may be eligible for the Recovery Rebate Credit based on their 2021 tax information. Individuals need to file a tax return, even if they don't usually file, to claim the credit.
03
Daycare and Dependent Care Credit
  • The American Rescue Plan Act of 2021, increased this credit to $4,000 for one qualifying person and $8,000 for two or more qualifying persons) and potentially refundable
    • You can claim payment for the care of a qualifying person, or for household services if at least part of the services is for the care of a qualifying person.
  • If married filing jointly, both taxpayers must both be employed.
    • Your work can be for others or in your own business or partnership.
    • It can be full or part-time.
    • It includes when actively looking for work; however, if you do not find a job and have no earned income for the year, you cannot take this credit.
  • Taxpayers with an adjusted gross income over $438,000 are not eligible for this credit.
04
ACA Individual Mandate Penalty is imposed by States
  • No federal penalty
  • Some states have implemented their own individual mandates and associated penalties. (for example, in California, individuals without healthcare coverage for the year 2021 will have to pay a flat rate amount of $800 per adult and $400 per dependent child under 18 or a percentage of household income = 2.5% of the amount of gross income that exceeds the filing threshold requirements based on the tax filing status and number of dependents)
05
Small Business
  • Paid Leave Credit – The American Rescue Plan Act of 2021 (ARP) allows small and midsize employers, and certain governmental employers, to claim refundable tax credits that reimburse them for the cost of providing paid sick and family leave to their employees due to COVID-19, including leave taken by employees to receive or recover from COVID-19 vaccinations. The ARP tax credits are available to eligible employers that pay sick and family leave for leave from April 1, 2021, through September 30, 2021.
06
Charitable Contributions
  • Taxpayers who don't itemize deductions may qualify to take a charitable deduction of up to $600 for married taxpayers filing joint returns and up to $300 for all other filers for monetary contributions made in 2021.
07
Foreign Earned Income Exclusion
  • The foreign earned income exclusion increases to $108,700
08
Alternative Minimum
  • In 2021 the exemption from the alternative minimum tax increased to $73,600 with a phase out at $523,600 for single Taxpayers ($114,600 for Married Filing Jointly with a phase out at $1,047,200)
  • The AMT exemption amount for certain individuals under 24 equals their earned income plus $7,950
09
Standard Deduction
  • Singles and Married filing Separately $12,550
  • Married Filing Joint $25,100
  • Head of Household $18,800
10
Qualifying Relative Dependents Standard Deduction
  • The gross income limitation for a qualified relative is $4,300
  • Lives with or is related to you,
  • Is supported (generally more than 50%) by you, and
  • Is neither your qualifying child nor the qualifying child of anyone else.
(Not applicable if full-time students under the age of 24)
11
Contributions to Retirement Accounts
  • HSA contributions:
    • Self-only coverage: $3,600
    • Family coverage: $7,200
    • HSA catch-up contributions (age 55 or older): $1,000
  • 457
    • Limit: $19,500
    • Age 50 Catch-up Limit: $6,500
    • ○ Pre-Retirement Catch-up limit: $19,500
  • 401 (a)
    • Limit: $58,000
  • 401 (k)
    • Limit: $19,500
    • Age 50 Catch-up Limit: $6,500
  • 403 (b)
    • Limit: $19,500
    • Age 50 Catch-up Limit: $6,500
    • Pre-Retirement Catch-up limit: $15,500 lifetime cap
  • IRA
    • Limit: $6,000
    • Age 50 Catch-up Limit: $1,000
12
Gift Exclusion
  • The 2021 annual exclusion for gifts is $15,000.
  • For tax years beginning in 2021, § 6039F authorizes the Treasury Department and the Internal Revenue Service to require recipients of gifts from certain foreign persons to report these gifts if the aggregate value of gifts received in the tax year exceeds $16,815
13
Adoption Credit
  • The maximum credit allowed for adoptions for tax year 2021 is the amount of qualified adoption expenses up to $14,440
14
Tax Filing requirements
  • Generally, you must file a return if your gross income from worldwide sources is at least the amount shown for your filing status as follows:
    • Single $12,550
      • Age 65and older: $14,250
    • Married filing Jointly: $25,100
      • One spouse is 65 and older: $26,450
      • Both spouses 65 and older: $27,800
    • Married Filing Separately: $5
      • Head of Household: $18,800
      • Age 65 and older: $20,500
    • Qualifying Widower: $25,100
      • 65 and older: $26,450
    • Independent Contractors
      • Net earnings from self-employment of at least $400

    • Note: Students under age 24 years of age, can file taxes completely independent or as a dependent by someone else.

    • Parents or guardians can still claim adult children as a dependent to benefit from educational credits. I.e. without a Bachelor’s degree, you can claim the following: your tuition, textbooks, supplies, hardware, and software. (Master’s degree you can only claim Tuition)
      • If you have earned income under $4,300 (exact amount varies yearly) you may qualify to be claimed as dependent by someone else
      • If you have earned income under $4,300 (exact amount varies yearly) you may qualify to be claimed as dependent by someone else
      • If you are a U.S. citizen or resident alien living or traveling outside the United States, you generally are required to file income tax returns, estate tax returns, and gift tax returns and pay estimated tax in the same way as those residing in the United States
15
Dependent Tax Filing requirements:
  • Single 65+
    • Unearned income of: $2,800 ($4,500 if 65 or older and blind)
    • Earned income $14,250 ($15,950 if 65 or older and blind)
    • Gross income was more than the larger of
      • $2,800 ($4,500 if 65 or older and blind)
      • Earned earned income (up to $12,200) plus $2,050 ($3,750 if 65 or older and blind
  • Single and under 65
    • Unearned income of: $1,100
    • Earned income $12,550
    • Gross income was more than the larger of
      • $1,100 or
      • Earned income plus (up to $12,550) plus $350
  • Married 65+
    • Unearned income was over $2,450 ($3,800 if 65 or older and blind)
    • Earned income was over $13,900 ($15,250 if 65 or older and blind)
    • Gross income was at least $5 and your spouse files a separate return and itemizes deductions
    • Gross income was more than the larger of
      • $2,450 ($3,800 if 65 or older and blind), or
      • Earned income (up to $12,200) plus $1,700 ($3,050 if 65 or older and blind)
  • Married and under 65
    • Unearned income was over $1,100
    • Earned income was over $12,550
    • Gross income was at least $5 and your spouse files a separate return and itemizes deductions
    • Gross income was more than the larger of
      • $1,100, or
      • Earned income (up to $12,200) plus $350
  • You must file a return if any of the seven conditions below apply for 2021
    • Owe any special taxes, including any of the following
      • Alternative minimum tax
      • Additional tax on a qualified plan, including an individual retirement arrangement (IRA), or other tax-favored account. But if you are filing a return only because you owe this tax, you can file Form 5329 by itself
      • Household employment taxes. But if you are filing a return only because you owe this tax, you can file Schedule H by itself
      • Social security and Medicare tax on tips you didn't report to your employer or on wages you received from an employer who didn't withhold these taxes
      • Write-in taxes, including uncollected social security and Medicare or RRTA tax on tips you reported to your employer or on group-term life insurance and additional taxes on health savings accounts. See the instructions for Schedule 2, line 8
      • Recapture taxes. See the instructions for line 16 and Schedule 2, lines 7b and 8
    • You (or your spouse, if filing jointly) received health savings account, Archer MSA, or Medicare Advantage MSA distributions
    • You had wages of $108.28 or more from a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes
    • Advance payments of the premium tax credit were made for you, your spouse, or a dependent who enrolled in coverage through the Marketplace. You or whoever enrolled you should have received Form(s) 1095-A showing the amount of the advance payments
    • Advance payments of the health coverage tax credit were made for you, your spouse, or a dependent. You or whoever enrolled you should have received Form(s) 1099-H showing the amount of the advance payments
    • You are required to include amounts in income under section 965 or you have a net tax liability under section 965 that you are paying in installments under section 965(h) or deferred by making an election under section 965(i)

2021 Income Tax Brackets

2021 Federal Income Tax Brackets
Tax Rate Single Married, filing jointly Married, filing separately Head of Household
10% $0 to $9,950 $0 to $19,900 0 to $9,950 $0 to $14,200
12% $9,951 to $40,525 $19,901 to $80,050 $9,951 to $40,525 $14,201 to $54,200
22% $40,526 to $86,375 $81,051 to $172,750 $40,526 to $86,375 $54,201 to $86,350
24% $86,376 to $164,925 $172,751 to $329,850 $86,376 to $164,925 $86,351 to $164,900
32% $164,926 to $209,425 $329,851 to $418,850 $164,926 to $209,425 $164,901 to $209,400
35% $209,426 to $523,600 $418,851 to $628,300 $209,426 to $314,150 $209,401 to $523,600
37% $523,601 or more $628,301 or more $314,151 or more $523,601 or more