This tax season, there are changes to tax laws related to events that occurred and relief provided in 2021 that may impact your federal tax return. We are here to break down some of the events of 2021 along with the relief provided to help you get ahead of what changed for the tax year 2021 and guide you to filing your taxes this year.
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You also don’t need to remember all of this when you file your tax returns. If you have questions about anything below, you can connect live via one-way video with a TurboTax Live tax expert to get help along the way and have your taxes reviewed before you file. You can also just hand over your taxes to a TurboTax Live tax expert and have them file for you from start to finish.
First, let’s get some basics out of the way like when you can file your return, when is the filing deadline for your 2021 tax return, and what the standard deduction is for this year. Once we have those out of the way, we can dig into some of the topics related to the events that occurred in 2021 and the tax implications like deductions for charitable contributions, medical expenses, and tax implications of stimulus payments.
When can I file my 2021 tax return? (the taxes you file in 2022)TurboTax is open and ready to help you prepare your tax return. IRS e-file opened on January 24th, so you can start filing today!
When is the deadline for filing my 2021 tax return? The deadline for filing your 2021 is midnight on April 18, 2022, unless you file for an extension.
*For tax year 2021, Emancipation Day falls on Saturday and is recognized on Friday, so the tax day gets pushed due to the holiday to Monday, April 18th. If you live in Maine or Massachusetts, you have until April 19, 2022, to file your tax return due to the Patriots’ Day holiday in those states.
What is the standard deduction for 2021 tax returns? The standard deduction for single taxpayers (and married individuals filing separately), increased $150 from the previous year and rose to $12,550 ($25,100 for those married filing jointly). While for heads of households, the standard deduction will be $18,800, up to $150.
What are the tax implications of some 2021 events and the tax relief provided?Charitable Deductions Under the CARES Act, close to 90% of taxpayers who claim the standard deduction and weren’t able to deduct charitable contributions following tax reform can still reduce their taxable income by up to $300 in cash contributions. For the tax year 2020, you were able to deduct up to $300 per tax return of qualified cash contributions. For 2021, this amount is up to $600 per tax return for those filing married filing jointly and is still $300 for all other filing statuses.
These contributions can be in the form of cash, check, or credit card. Keep in mind that you will need proper documentation like receipts or donation letters. If you gave more than $250 to one organization, you will need a letter of acknowledgment from the charity. Unfortunately, if you made non-monetary contributions – like donating used clothing, you won’t be able to deduct that unless you claim itemized deductions.
Under the CARES Act, if you claim itemized deductions there is also a provision that eliminates the limit placed on the number of cash contributions you can deduct if you itemize your deductions. Previously, cash donations that you could deduct were limited to a range from 20% to 60% of your adjusted gross income (AGI), but the law still allows you to apply an increased limit of up to 100% of your AGI.
You can use TurboTax ItsDeductible to accurately track and value your charitable donations year-round, and then the information can be transferred directly to your TurboTax tax return.
Medical Expenses and Health Insurance Deductions This year you, your spouse, or dependents may have spent some time in the hospital or paying some substantial medical bills. You may find some relief in knowing that you can deduct medical expenses more than 7.5% of your adjusted gross income if you are able to itemize your deductions.
The IRS announced that personal protective equipment (PPE) can be claimed as a medical expense deduction if it was purchased with the primary purpose to prevent the spread of coronavirus. PPE includes items such as masks, hand sanitizer, and sanitizing wipes.
Don’t worry about figuring out that math. When you file with TurboTax you will be asked simple questions to see if you qualify based on your entries. Also, be sure to pull together the receipts from medical bills for you and your spouse or dependents.
If you were self-employed, you may be eligible to take a deduction for self-employed health insurance deduction on your 2021 tax return. This includes premium costs to cover you and your spouse and your dependents.
Under the Families First Coronavirus Response Act, you also may be eligible for qualified sick and family leave credits if you were sick or took care of a family member for both eligible self-employed and small business owners.
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Third Stimulus Check and the Recovery Rebate CreditThis year on your tax return, you may receive a credit known as the Recovery Rebate Credit. It’s possible to get this credit if your adjusted gross income on your 2021 tax return is smaller than the one that was used to calculate your third stimulus check, if you have more dependents, or if you didn’t receive all of what you were eligible for.
You should take care to NOT mix information from your 2020* and 2021 tax years. Do not include information regarding the first and second stimulus payments received in 2020, or the 2020 Recovery Rebate Credit, on your 2021 tax return.
New this year, the IRS is sending Letter 6475 now through March 2022 with the total amount of your stimulus payment issued by the IRS in 2021. This letter has all the info you need to report the correct amount of the third stimulus you received. Hold on to this letter because you will need it when filing your tax return. If you are married filing jointly, you and your spouse will need both letters when completing your tax return.
You may have also received Notice 1444-C from the IRS during 2021 after each payment, but you should use the information on IRS letter 6475. Review this information on your IRS online account to report the correct amount received and claim the recovery rebate credit you are eligible for.
To claim any remaining credit for 2021, eligible people must file a 2021 tax return, even if they usually do not file taxes.
*Note: If you were eligible and did not receive all of your first and second Economic Impact Payments in 2020, you can receive those amounts only by filing a 2020 tax return (or amending a previously filed return) and claiming the 2020 Recovery Rebate Credit. You can review the Recovery Rebate Credit page to determine your eligibility.
Advance Child Tax Credit Beginning with your tax year 2021 taxes (the ones filed in 2022), the age limit and the amount of the Child Tax Credit (CTC) increased and are now fully refundable – meaning you’ll be eligible for the benefits even if you don’t owe taxes.
Eligible families may have received advance CTC payments of up to $300 per month for each child under age 6 and up to $250 per month for each child age 6 and above from July 2021 to December 2021. These payments were sent in advance and represent a portion of the tax year 2021 Child Tax Credit.
New this year, families who received advance CTC payments should receive Letter 6419 with the total amount of advance CTC payments received from July 2021 to December 2021. If you filed as married filing jointly on your prior-year tax return, then both you and your spouse will receive a Letter 6419.
For couples married filing jointly, you need both letters when filing your tax return as both amounts will need to be added to your tax return. Make sure you have IRS letter 6419 in front of you when you file, so you can accurately report the amount of Advanced Child Tax Credit payments you received and get the rest of your 2021 Child Tax Credit you are eligible for.
Expanded Earned Income Tax Credit Under the American Rescue Plan, the Earned Income Tax Credit was expanded to workers without kids and nearly tripled the maximum credit. Also, eligibility has been expanded to include taxpayers between age of 19 – 25 and those who are over age 65. This tax credit is worth up to $6,728 in 2021.
Expanded Child and Dependent Care CreditThe American Rescue Plan also made changes to the Child and Dependent Care Credit for tax year 2021 only. If you sent your kids under 13 (no age limit if disabled) to daycare, aftercare, summer camp, or even sports camps so you can work, you may be able to claim an increased Child and Dependent Care Credit of up to $8,000 for two or more kids and up to $4,000 for one child. The new provision also makes the credit fully refundable, meaning you can still get the credit even if you don’t owe any taxes.
Unemployment Benefits Last year, coronavirus left millions of Americans without a job for most or part of the year. If you received help from unemployment insurance, you will need to pay taxes on payments received from unemployment benefits. You should receive 1099-G reporting unemployment benefits received.
Remember if you earned lower income last year due to unemployment or reduced hours, you may now be eligible for income-based deductions and credits that you weren’t before like the Earned Income Tax Credit.
Business and at Home Deductions If you’re self-employed, there are plenty of deductions that you can claim, from your business travel mileage to the portion of your home dedicated to your home office. TurboTax Self-Employed will guide you and search industry-specific deductions to make sure you don’t miss business deductions related to your self-employed income.
If you are one of the many Americans with an employer who has been working from home because of coronavirus regulations, you won’t be able to claim a deduction for your home expenses. Unfortunately, this deduction is for self-employed workers only.
What tax forms and documents should I gather?If 2021 was the first year that you worked a side gig, received unemployment benefits, or traded stock you may get more tax forms than you have before.
Here are some common tax forms where your income will be reported and you can expect to receive if any of these scenarios apply to you:
1099-G: If you received unemployment benefits. 1099-DIV/1099-INT: If you were paid dividends or earned interest over $10. 1099-NEC: This is a new form where self-employment income or nonemployee compensation is reported.1099-MISC: If you earned rental or other income, but self-employment income is no longer reported on this form.1099-K: If you earned income from credit card payments, debit cards, or pre-paid cards via side gig, for example, and had over $20,000 in sales and more than 200 individual transactions through a third-party processor. 1099-SA: If you got health savings account distributions. 1099-R: If you received distributions from a retirement plan or IRA. 1099-B: If you sold stock W-2: If you earned wages from an employer. Don’t worry about knowing these tax laws. TurboTax will ask you simple questions about you and give you the tax deductions and credits you’re eligible for based on your answers.
If you have questions you can connect live via one-way video to a TurboTax Live tax expert with an average of 12 years experience to get help along the way and have your taxes reviewed before you file, or you can be matched to the right TurboTax Live tax expert experienced in your specific tax situation who can fully do your taxes for you. TurboTax Live tax experts are available in English and Spanish, year-round to answer your questions.