This is especially the case if you were eligible for one of the tax relief measures included in the US bailout package, which was enacted last March.
In many cases, the tax breaks will also benefit low-income people who typically don’t have to file returns.
Here are several key breaks you should keep in mind when gathering documents to prepare for your 1040.
1. More Generous Child and Dependent Tax Credit
If you were working or going to school and paying for the care of a child under 13 or another family member who is not mentally or physically able to care for themselves, you will likely benefit from temporary increases to the Child and Dependent Credit.
“It’s a big deal. It’s been expanded significantly,” said Kathy Pickering, head of tax, The Tax Institute at H&R Block.
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The credit is based on your income and calculated as a percentage of qualifying expenses you incurred — which this year is 50%, down from 35% in previous years, though that percentage is reduced for those earning more than $125,000.
Eligible expenses are reduced by any dependent care benefits provided by the employer (for example, money you put into a tax-advantaged flexible spending account).
In total, this year’s credit could lower your tax bill — or increase your refund — by up to $4,000 for one dependent or $8,000 for two or more. Prior to 2021, the credit would have only made it $1,050 or $2,100, respectively.
2. A temporary extension of the child tax credit
The maximum value of the child tax credit is temporarily $3,000 per child aged 6 to 17 and $3,600 per child aged 5 and under.
Unlike previous years, the credit is fully refundable for 2021, which means you can get the maximum credit amount even if it exceeds your federal income tax for the year.
Except for the wealthiest households, “anyone with children ages 17 and under is likely eligible to claim the child tax credit,” Pickering said.
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And for the first time, the IRS made monthly advance payments on this credit, from July to December. So you may have already received about half of your credit and can claim the other half on your return. To help you with this calculation, the IRS will send you a letter (letter 6419) detailing the amount you have already received, which you should use to reconcile the amount owed to you. The amount may be different from what you expected.
Here’s why: Advance payments have been calculated based on your 2020 or 2019 income and your family situation. But the final calculation will be based on your 2021 information, which may change the amount you are eligible for.
For example, if you had another child in 2021, you might be entitled to more than your advance payments reflect.
Or you may have been overpaid if, for example, you are divorced and have changed the parent who could claim a child on their tax return. The same could be true if you made more money in 2021 or if one of your children turned 18. Whether you have to “pay back” the excess you got — which most likely means you simply claim less credit for the first half of the last year — depends on your income.
Those earning less than $40,000 ($60,000 if married) have full refund protection. But if you earn more than $80,000 (or $120,000 if you’re married), you may have to repay. (Here is the IRS FAQ on the matter.)
3. Claim a recovery rebate credit
Since the start of the pandemic, the IRS has sent three rounds of economic impact payments to eligible Americans, the last of which came out in 2021.
If you received this third payment, the IRS will send you a letter (letter 6475) detailing the amount you were paid. You must report this information in your return.
But if you haven’t received the third payment – or perhaps you’re now entitled to more than you received because your income or family circumstances have changed – you should consider whether you want to apply for the credit. refundable refund.
“Individuals who did not qualify for a third Economic Impact Payment or who received less than the full amount may be eligible to apply for the 2021 Recovery Refund Credit based on their year of payment information. 2021 taxation,” the IRS noted.
If you received a stimulus payment but your 2021 earnings would have disqualified you, there’s good news. “You don’t need to repay the third stimulus payment – which was based on your 2019 or 2020 income – if your 2021 income would have disqualified you from all or part of the payment,” said Mark Luscombe, principal analyst at Wolters Kluwer. Tax accounting.
4. Extension of the earned income tax credit
For 2021 only, low- and modest-income earners who do not have eligible children may be eligible for a larger earned income tax credit than before.
The US bailout nearly tripled the maximum credit available to $1,502.
To qualify, your earned income for 2021 must be less than $21,430 ($27,380 if you are married and filing jointly). And on a permanent basis for all EITC recipients, the amount of investment income you can have on top of your salary and still claim the credit has increased to $10,000.
The credit is also available for the first time to childless workers over age 19 and workers age 65 and over.
For people who have eligible children, if they earn $57,414 or less, they may be eligible for the EITC. And depending on how many children they have, they could get a maximum credit of $6,728.
5. Special tax deduction for charitable donation
Normally, only filers who itemize deductions can deduct their charitable contributions. But the IRS is once again allowing those who take advantage of the standard deduction — that is, the majority of filers — to deduct up to $300 in cash for the benefit of qualifying charities. And this year, married couples filing jointly can deduct up to $600.
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