Tax Updates

As we slide into the end of January and people everywhere begin to slice the letter opener through those fresh W-2s, it's clear that tax season is here! Want to know what new crazy things you can expect? Read on for a quick breakdown of the big changes for tax year 2021.

THE BIG ONES

The Child Tax Credit

• The total credit increased to $3,000 per child under 17 and $3,600 for children 5 and under.

• The government has been making advance payment on half of these credits since July 15

• Taxpayers with eligible children will receive a notice in the mail outlining how much of the credit they already received. Hold on to this for your return.

Required Minimum Distributions

• After a brief suspension, required minimum distributions are again required for all owners of qualified plans over age 72

Charitable Deductions

• Back by popular demand, taxpayers can again deduct up to $300 "above the line" for cash charitable contributions, even if they are not itemizing deductions. The deduction is now $300 per taxpayer on the return.

• Those who itemize deductions can now deduct charitable contributions up to 100% of their income, not 60% of their adjusted gross income as was true before.

Unemployment Compensation

• All unemployment compensation is now subject to federal tax again (pandemic-related legislation offered a tax break in 2020 for some unemployment compensation).

GENERALLY COOL THINGS

• Any student loan canceled, forgiven, or discharged in 2021-2025 will not be nontaxable.

• Through 2025, up to $5,250 of payments made by employers to pay down an employee's student loans will be nontaxable to the employee.

• The floor for deducting unreimbursed medical expenses moved to 7.5%, not 10%.

ITEMS THAT INCREASED FOR INFLATION

• Standard deductions for all types of fliers

• General income tax brackets for all filers

• AMT Exemption Limits

• Credits for: Qualified Adoption Expenses ($14,440) and the Lifetime Leaning Credit

• The Child and Dependent Care Credit is now up to $4,000 for one qualifying dependent or $8,000 for two or more qualifying persons.

• The maximum income level for the Earned Income Tax Credit, the Child Tax Credit, the Lifetime Learning Credit, income phase outs for IRAs, the Retirement Savers Credit.

• Maximum salary duction for contributions to health flexible spending accounts (FSAs) is $2,750 for 2021 and $2,850 for 2022.

• Maximum contributions to a qualified employer plan increased to $19,500 for 2021 and $20,500 for 2022, with a $6,500 catch up contribution.

• Simple IRA contributions are set at $13,500 for 2021 and $14,000 for 2022.