November 2021 Mailing
American Rescue Plan Information
How do some of these changes affect us
This tax season, and the last year for that matter, has proven to be challenging to say the least. We are processing all returns in the order in which we receive them. We greatly appreciate our clients continued patience while we work through all of the changes. All of the filing delays and changes to the tax code result in added time required to complete returns. As soon as your return is complete we will call you to set up an appointment to finalize and e-file your return.
Unemployment - The first $10,200 per tax payer of unemployment received in tax year 2020 is now nontaxable. For returns that have already been filed the IRS is advising to not do amendments. They are working on a work around to rectify that issue and will likely resolve the reduction in tax on their side and send the additional refunds directly to the tax payers. For returns not yet filed with unemployment we are recommending to hold off on filing until the states decide if they will follow with federal and also make it nontaxable on the state side. As soon as the decision is made we will then begin processing those returns.
2021 Recovery Rebates (also known as economic impact payments) - The 2021 Advance Recovery Rebate payment of $1,400 ($2,800 for MFJ) will be issued to each individual plus $1,400 for each dependent on the return. These payments began going out via direct deposit immediately after The President signed the Act into law. If you don't receive the payment via direct deposit you should get a check or a debit card in the coming weeks. These payments will be reconciled on the 2021 tax return just like the first two payments are on the 2020 returns. These payments are not taxable income. They are reconciled on the returns to ensure that all tax payers receive the full amount they are entitled to. If a tax payer doesn't receive the amount they are entitled to it will be a refundable credit on the tax return. This EIP3 will fully phase out when income reaches $80,000 for single filers, $120,000 for heads of household with one child and $160,000 for joint filers or surviving spouse.
To check the status of your EIP3 follow this link: Get My Payment | Internal Revenue Service (irs.gov)
Child Tax Credit - Special rules for 2021 include an expansion of the credit from $2,000 to $3,000 per eligible child under age 18 ($3,600) per child under 6. The fully refundable credit, with 50% of the credit issued as advance periodic payments starting in July, will be reconciled on the 2021 tax return. The increased credit amount begins to be phased out at $75,000 ($150,000 MFJ and SS and $112,500 for head of household).
Earned Income Credit - For 2021, the minimum age to claim the EIC for taxpayers without children generally is reduced from age 25 to age 19 (except full time students). The maximum age limit of 65 for claiming EIC has been eliminated. The credit and phaseout percentages increase from 7.65% to 15.3% for an individual with no qualifying children. Taxpayers may use their earned income from 2019 tax year to determine their EIC for the 2021 tax year if their 2021 income was less than the 2019 earned income.
Dependent Care Assistance - For 2021, the credit is fully refundable and the dollar limit for eligible expenses increases from $3,000 to $8,000 for one eligible child, and from $6,000 to $16,000 for two or more dependent children. The maximum credit rate increased from 35% to 50% and the AGI limitation increases from $15,000 to $125,000. Taxpayers with and AGI of $125,000 to $400,000 will receive a partial credit.
Premium Tax Credit - This reduces the health care premiums for low and middle income families by increasing the Affordable Care Act's premium tax credit for 2021 and 2022.
