The IRS is encouraging taxpayers to file early due to backlogs and staff shortages, so it’s important to have an early understanding of the tax changes for 2021 and how they may help or hurt the size of your return.
There are a lot of credits this year, and for that reason, you may want to file in 2021 even if you are required to, according to nerd wallet.
Here are the income amounts that would require you to file a tax return if you made at least the amount shown below. If you made less than these amounts, you would not be required to file.
· Single: $12,550
· Married, filing jointly: $25,100 if both spouses are under age 65./ $26,800 if one spouse is under age 65 and one is 65 or older.
· Married, filing separately: $5
· Head of household: $18,800
· Qualifying widow(er): 25,100
· Single: $14,250
· Married, filing jointly: $28,500 if both are 65 or older.
· Married, filing separately: $5
· Head of household: $20,500
· Qualifying widow(er): $26,800
*The rules change for dependents. See IRS 2021 publication 501.
Considering the 7% increase in inflation, the IRS has acted accordingly starting with good news. In 2021, the standard deduction for single filers is $12,550 (an increase of $150) and $25,100 for married couples filing jointly (an increase of $300). The standard deduction for Head of Household will rise to $18,800 (an increase of $150).
Keeping the good news rolling, also in an inflation adjustment, the IRS gave a slight bump to tax brackets. This means if you were at the bottom end of a higher tax bracket in 2020, you might have been notched down into a lower tax rate for 2021.
· 37% for incomes over $523,600 ($628,300 for married couples filing jointly).
· 35%, for incomes over $209,425 ($418,850 for married couples filing jointly).
· 32% for incomes over $164,925 ($329,850 for married couples filing jointly).
· 24% for incomes over $86,375 ($172,750 for married couples filing jointly).
· 22% for incomes over $40,525 ($81,050 for married couples filing jointly).
· 12% for incomes over $9,950 ($19,900 for married couples filing jointly).
· 10% for incomes of $9,950 or less ($19,900 for married couples filing jointly).
For 2021, you can claim a maximum of $3000 per child 17 and under and $3600 for children five and under. There is also no $2500 earned income requirement.
In 2021, the government made advanced payments on half of the credit. The checks were sent out starting July 15 and ended on December 15. Yahoo reports you can claim the other half of the credit on your 2021 tax return. If you didn’t receive any of the advance payments you are eligible for, you could get your full credits on your tax return.
However, eligibility rules have changed. To receive the maximum credit, you must have an adjusted gross income (AGI) under:
· $75,000 for single filers
· $150,000 for married couples filing jointly
· $112,500 for head-of-household filers
Single filers can claim a maximum tax deduction of $300 for cash contributions made to qualified public charities. In 2021, married couples filing jointly can deduct $300 per person, which means a total of up to $600, Tax Act reports. You can also get this deduction even if you don’t itemize your taxes.
The cost of medical services keeps going up, and luckily this year, the deduction for them has gone up as well. You can only deduct the medical expenses that exceeded 10% of your adjusted gross income (AGI) for the past several years. For 2021, you can deduct expenses that exceed 7.5% of your AGI. That means if you had an AGI of $50,000, you could deduct any amount you spent on medical over $3,750.
Kicking off the bad news, some unemployment benefits and 2021 will no longer be tax-free. H&R Block reports that any unemployment compensation you receive in 2021 will be subject to income taxes, H&R Block reports.