2021 Tax Year in Review
After another rollercoaster of a year, now is a good time to consider the tax changes affecting 2021. The most significant changes for individuals came from American Rescue Plan Act enacted in March 2021 and the Consolidated Appropriations Act that was passed in December 2020.
We saw a new round of stimulus payments, more formally known as Economic Impact Payments, that were sent to qualifying individuals. As with last year’s stimulus payments, the EIPs were set up as advance payments of a recovery rebate credit. If you qualified, you should have received these payments already. If you were eligible and didn’t receive a stimulus payment or should have received more, you can claim the difference as a Recovery Rebate Credit on your 2021 tax return.
The American Rescue Plan Act brought big changes to the child tax credit.
The credit amount has increased for certain taxpayers.
It’s now fully refundable (which means taxpayers can receive the credit even if they don’t owe the IRS).
And many taxpayers received the credit in the form of monthly payments for the first time.
Individuals who do not itemize their deductions can take a charitable deduction for cash contributions of up to $300 ($600 for joint filers). These contributions must be made to qualified charitable organizations to be tax-deductible. Previously, taxpayers were required to itemize in order to deduct charitable contributions. This change doesn’t affect the ability of taxpayers who do itemize to deduct their charitable contributions.
In 2020, some taxpayers were able to skip their Required Minimum Distributions from certain types of retirement accounts. There is no such provision for 2021 and taxpayers must take a distribution from certain types of retirement accounts if they will be age 72 or older by the end of the year.
Finally, taxpayers were able to exclude up to $10,200 of unemployment compensation for federal tax purposes last year. There is no such exclusion available in 2021, and unemployment benefits are therefore fully subject to federal income tax in 2021.
Interested in learning more? Want to get a jump start on your 2021 tax preparation? Schreiber Accounting and Advisory can help with tax preparation and planning services. Contact the firm for more information.
Material discussed is for informational purposes only. It is not to be interpreted as investment, tax, or legal advice. Individual situations vary, and this information should only be relied upon when coordinated with individual professional advice.