Your Accounting Professionals l Enrolled Agent Representative

 2021 will call for many tax changes. We have compiled the highlights of that bill. If you still have questions, please feel free to contact us. 

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Highlights from the 2021 Tax Legislation: 

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There are seven federal tax brackets for the 2021 tax year: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Your bracket depends on your taxable income and filing status. These are the rates for taxes due in April 2022.

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• ​Recovery Rebate Credit

  • The American Rescue Plan Act authorized a third round of stimulus checks. Those checks were for $1,400, plus an additional $1,400 for each dependent in your family. The payments were phased out for joint filers with adjusted gross incomes above $150,000, head-of-household filers with an adjusted gross income (AGI) above $112,500, and single filers with an AGI above $75,000. If your AGI was above $160,000 (joint filers), $120,000 (head-of-household), or $80,000 (singles), Stimulus checks were reduced to zero. If you think you qualify for the recovery credit and did not receive it, you might be able to make a claim for it when you file your 2021 tax return.                                                  

• Standard Deductions     ​

  • The standard deduction amounts were increased for 2021 to account for inflation.

  • Married Filing Jointly: $25,100, plus $1,350 for each spouse age 65 or older.

  • Singles: $12,550 — $14,250 if they're at least 65 years old.

  • Head-of-household: $18,800, plus an additional $1,700 once they reach age 65.

  • Blind: $1,350 extra to their standard deduction ($1,700 if they're unmarried and not a surviving spouse)                                                                                                       

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•  Earned Income and AGI Limits 

  • The American Rescue Plan expanded the 2021 EITC for childless workers with these changes:

    •  it generally lowers the minimum age from 25 to 19 (except for certain full-time students)

    • eliminates the maximum age limit (65)

    • The maximum credit available increased from $543 to $1,502 for the 2021 tax year                                                                

  • ​Phaseout ends (credit equals zero) amounts if filing Single, Head of Household, or Widowed:                                                          ​

    • Zero:​ $21,430

    • ​One: $42,158

    • Two: $47,915

    • Three: $51,464   ​​                                                                                                                                                          

  • ​Phaseout ends (credit equals zero) amounts if filing Married Filing Jointly                                                                                       

    • Zero:​$27,380

    • One:$48,108

    • Two:$53,865

    • Three:$57,414                  ​​                                                                                                                                                   

• 2021 Child Tax Credit

  • For 2020 the child tax credit was $2,000 per qualifying child (16 years or younger). The credit began to disappear as income rose above $400,000 on joint returns and above $200,000 on single and head-of-household returns.                                                   For 2020, the credit jumps from $2,000 to $3,000 for children 6-17 years old and  $3,600 for children 5 years old and younger. Something to note is that for families with higher income the extra amount of $1,000 or $1,600 will be reduced to potentially zero.  For people filing their tax return as a single person, the extra amount starts to phase-out if their adjusted gross income is above $75,000. The phase-out begins at $112,500 for head-of-household filers and $150,000 for married couples filing a joint return. The credit amount is further reduced under the pre-existing $200,000/$400,000 phase-out rules.

  • For 2021, the child tax credit is fully refundable 

  • Half of the 2021 credit amount is being paid in advance through monthly payments that started on July 15 and will end on December 15. You'll claim the other half of the credit on your 2021 tax return. You will also receive form 6419 and 6419A that you will need to present in your tax appointment. 

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• Retirement Plans

  • Required minimum distributions (RMDs) are back for 2021, anyone who is at least 72 years old by the end the year is required to take an RMD for 2021. Seniors were allowed to skip their RMDs in 2020 without having to pay a penalty, but the RMD suspension only applied for one year.

  • Limits on retirement plans and IRAs remain the same for 2021:

    • 401(k), 403(b) and 457 plans: $19,500, plus an extra $6,500 for people age 50 and up.

    • Simple IRA: 13,500, plus an extra $3,000 for people age 50 and up.

    • Traditional IRAs and Roth IRAs: $6,000, plus an extra $1,000 for people age 50 and up.

 

           

             Source: Tax Changes and Key Amounts for the 2021 Tax Year: by Rocky Mengle, Joy Taylor, September 23, 2021. Published: Kiplinger

 

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