LAW CHANGES AFFECTING TAX FILING
In response to the pandemic, the government introduced a number of legislative changes that may affect your tax outcomes. We would like to draw your attention to a few items that will affect your personal tax preparation for 2021:
Economic Impact Payments (stimulus). The third stimulus payment ($1,400 issued in 2021) is not taxable but it will need to be reconciled on the 2021 tax return. If you are eligible and did not receive your third stimulus payment, you will be able to claim it on your tax return. Tax returns must include an accurate record of stimulus payments; the use of incorrect amounts could significantly delay refunds, and your tax amount (refund or tax owed) will be adjusted. Please look up the exact amounts you received PRIOR to your tax appointment, as follows:
After issuing stimulus payments, the IRS sent out Letter 6475 showing the exact amounts paid; bring this letter, or confirmation of the amounts paid, to your tax appointment.
If you don’t have the letter and are unsure of the amounts you received, then please check your bank statements or log into your IRS account to verify the correct amounts: View Your Tax Account | Internal Revenue Service (irs.gov).
Child Tax Credit. Effective for 2021 only, the Child Tax Credit was increased to $3,000 per child ($3,600 for children under the age of five) and made fully refundable. Most taxpayers received 50% of the Child Tax Credit monthly in advance between July and December 2021. The IRS is sending out Letter 6419, which contains the total amount of credit payments received in 2021. Please bring this letter to your tax appointment.
Earned Income Credit. The age limitation has been largely eliminated, so taxpayers over the age of 65 with earned income may qualify. The minimum age of 25 has also been reduced. The 2021 investment income limit is increased from $3,650 to $10,000, and certain married taxpayers filing separately may qualify. Like last year, taxpayers have the option to use 2019 earned income amounts when computing the Earned Income Credit if earned income in 2021 was lower. New clients should bring their 2019 and 2020 tax returns to their tax appointment.
Child and Dependent Care Credit. Effective for 2021 only, this credit is refundable, and the dollar limitation on expenses paid for a qualifying person is increased from $3,000 to $8,000. The maximum percentage has also been increased from 35% to 50%. To claim the credit, you will need to bring a statement from your childcare provider.
Donations Deduction. Those taxpayers who normally use the standard deduction will now benefit from an above-the-line charitable contribution deduction. The maximum deduction amount is $300 per taxpayer. This deduction covers only cash contributions, so non-cash donations to Goodwill, Salvation Army, etc. are excluded, but they can still be deducted by those who itemize.
Unemployment Benefits. If you received any unemployment benefits in 2021, please bring Form 1099-G to your appointment. In Florida, these forms are typically not mailed. You need to log into your CONNECT account and download/print the form. If you don’t have a printer, you can send it to us electronically prior to your appointment.
Paid Sick Leave Credit and Paid Family Leave Credit. Self-employed individuals who were unable to work due to Covid between April 1 and September 30, 2021 (or who had to take care of their dependents), may be able to claim a Paid Sick Leave Credit or a Paid Family Leave Credit. If you think you qualify, please calculate the number of days you were unable to work.
If you have any questions, please email or give us a call.