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
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.
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.