With the 2021 Income Tax filing season quickly approaching, now it the time to be aware of Major changes for 2021. These many major tax code changes will result in longer preparation times and require our tax preparers to spend more time being updated on the new tax codes. But be prepared, as politicians are making noise in preparation for another fun-filled year of late-breaking changes to the tax codes.  Here is what we know now.

  • The IRS will be mailing out Important Letters in early January 2021 
All taxpayers that have children, received the 3rd $1,400 Economic Impact Payment last February or had subsidized health insurance premiums through the Market Place will receive these letters. YOU  MUST  BRING  THESE  LETTERS IN  with your other tax documents when you come in.

  • Tax filing deadline is Monday  April 18th, 2022  
For Federal, Wisconsin and most other states, because the April 15th is a religious holiday (Good Friday) the filing date has been moved to Monday, April18th, 2022.

  • Child Tax Credits have been Dramatically  Enhanced
The old child tax credit remains at $2,000 per child with income phase-outs of $200,000 single and $400,000 married.  But you for those taxpayers with MAGI income of $75,000 for single, $112,500 for HOH and $150,000 MFJ the CTC has been increased to $3,000 per child ($3,600 for children under 6yrs).  The CTC is also fully refundable if taxpayers qualify. The CTC also is available for children 18yrs and younger. 

  • Earned Income Credits has also been Expanded
The requirement to be an eligible individual has to be at least 25 years old, but not 65 years has been changed. The age requirement is now 18yrs or older with qualifying requirements.  Investment Income limits raised to $10,000. Taxpayers can use their earned income from either 2019 or 2021 – whichever is greater. New rules for Separated Spouses and for taxpayers with qualifying children without the required identification requirement.

  • Child and Dependent Care has been Dramatically Enhanced
The amount taken into account has been raised to $8,000 for one child and $16,000 for 2 or more children and the percentage eligible for Child Care Credit raised to 50% to those who qualify and is fully refundable.

  • Changes to Education Credits
Tuition and Fees deduction has been eliminated.  Lifetime Learning Credit phaseouts  Increased dramatically.

  • Mortgage Insurance Premiums and Medical Related Expense 
Both the mortgage insurance premiums and the medical related expenses deduction remain for those taxpayers who itemize their deductions.  For those that do not itemize their deductions the Above-the-line deductions for charitable contributions $300 -$600 also remains for 2021 tax year.

  • The Third ($1,400.00 Economic Impact Payment received back in March-May 2021, was just an Advance Payment for the 2021 Recovery Rebate Credit that will be available when you complete your 2021 Tax Return.  This Economic Impact Payment was based on your 2020 or 2019 tax return.  While you are not required to report the Third Economic Impact Payment on your 2021 tax return, you should if:
    • (a) You weren’t qualified to receive it on your 2019/2020 tax return.
    • (b) Did not receive the full amount of the Third Economic Impact Payment
    • (c)  You had changes in your life (change in income, change in number of dependents you claim).
In order to receive your $1,400 credit(s), you need to claim the 2021 Recovery Rebate Credit on your 2021 tax return.

There are other changes to the federal and state tax codes that might affect your taxes this year.  According to the IRS, in 2017 up to 1.4 million individuals had $1.35 Billion in Unclaimed refunds or unclaimed tax credits turned over to the US Treasury after the three year filing due date.  Make sure you get all of your Credits, have American Tax Service prepare your taxes.