5 tax changes that can boost your refund this year

This is especially the case if you qualify to receive any of the tax-exempt measures included in the US bailout, which was signed into law last March.

In many cases, tax breaks will also benefit low-income earners who usually don’t have to file a return.

Here are several major breaks you should keep in mind as you gather documents for your 1040 preparation.

1. Most Generous Tax Credit for Child and Dependent Care

If you work or go to school and pay for the care of a child under 13 or any other family member who is not mentally or physically If they are able to take care of themselves, they will likely benefit from temporary increases to the Child and Dependent Care Credit.

“This is huge. It has been greatly expanded,” said Kathy Pickering, chief tax officer for the Tax Institute at H&R Block.

The credit is based on your income and is calculated as a percentage of eligible expenses incurred – which this year was 50%, up from 35% In previous years, although this percentage decreased for those who make more than $125,000.

Eligible expenses minus any dependent care benefits your employer offers (for example, money you put into a tax-benefit flexible spending account).

In general, this year’s credit can reduce your tax bill — or increase your refund — by up to $4,000 per dependent or $8,000 for two or more people. Prior to 2021, the balance would have only made that $1,050 or $2,100, Respectively.

2. Temporary Expansion of the Child Tax Credit

The maximum child tax credit is temporarily $3,000 for each child ages 6 to 17 and $3,600 for each child age 5 or younger.

Unlike previous years, the credit is fully refundable for 2021, which means you can get the maximum amount of the credit even if it exceeds your federal income tax obligations for the year.

With the exception of the wealthiest families, “anyone with children 17 years of age or younger is likely to be eligible to claim the child tax credit,” Pickering said.

For the first time, the IRS made monthly advances on this credit, from July through December. So you may have already received about half of your credit and can claim the other half when you return. To help with this calculation, the IRS will send you a letter (Letter 6419) It details the amount you have already received, which you should use to settle the amount you are owed. The amount may differ from what you expect.

Here’s why: The down payments were calculated based on your 2020 or 2019 income and your family situation. But the final calculation will depend on your information for 2021, which could change how much you qualify for.

For example, if you have another child in 2021, you may be entitled to more than your down payment.

Or you may have been overpaid if, say, you were divorced and changed which parent could claim a child on your tax return. The same may be true if you earn more money in 2021 or if one of your children turns 18. Whether you have to “pay off” your increase — which likely means you’re claiming less credit than the first half of last year — depends on your income.

Those who earn less than $40,000 ($60,000 if married) receive full repayment protection. But if you’re making over $80,000 (or $120,000 if you’re married) You may have to pay. (Here’s the IRS’s FAQ on this issue.)

3. Claim a refund discount

Since the pandemic began, the IRS has sent out three rounds of Economic Impact Payments to eligible Americans, the last of which came out in 2021.

If you get this third payment, the IRS will send you a letter (Letter 6475) detailing how much you paid. You must report this information upon your return.
But if you didn’t get your third payment — or you may now qualify for more than you paid because your income or family situation has changed — you should review whether to claim the refundable reimbursement deduction.

The IRS noted that “individuals who did not qualify for the third economic impact payment or received less than the full amount, may be eligible to claim the 2021 refund deduction based on their 2021 tax year information.”

If you received a stimulus payment but your income for 2021 would have disqualified you, There is good news. “You don’t need to make your third stimulus payment — which was based on your 2019 or 2020 income — if your 2021 income will exclude you from all or part of the payment,” said Mark Luscombe, principal analyst at Wolters Kluwer, in Tax and Accounting.

4. Expansion of the tax credit on earned income

For 2021 only, low- and middle-income earners without qualifying children may be eligible for a greater earned tax credit than before.

The US bailout nearly tripled the maximum amount of credit available to $1,502.

To qualify, your 2021 earned income must be less than $21,430 ($27,380 if applying together). And on a permanent basis for all EITC beneficiaries, the amount of investment income you may have in addition to your salary and still claim the credit has increased to $10,000.

The loan is also available for the first time for childless workers as young as 19 and those aged 65 and over.

For people with eligible children, if they earn $57,414 or less, they may qualify for an EITC. And depending on how many kids they have, they can get the most credit From $6,728.

5. Special for charitable tax deduction

Normally, only tax candidates who itemize deductions can deduct their charitable contributions. But the IRS again allows those who take the standard deduction — which is the majority of taxpayers — to deduct up to $300 in cash for eligible charities. This year, married couples who apply jointly may take a cut of up to $600.

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