26 May Looking Ahead to 2021 Tax Season
Its not too early to look ahead to what’s in store for tax season 2021. The American Rescue Plan Act means lasting impacts from COVID for tax returns! Here is a list of a few key updates for 2021:
Child and Dependent Care Credit
The new law increases the amount of the credit and eligible expenses for child and dependent care, modifies the phase-out of the credit for higher earners and makes it refundable.
For 2021, the top credit percentage of qualifying expenses increased from 35% to 50%.
In addition, eligible taxpayers can claim qualifying child and dependent care expenses of up to:
- $8,000 for one qualifying child or dependent, up from $3,000 in prior years, or
- $16,000 for two or more qualifying dependents, up from $6,000 before 2021.
Under the new law, more people will qualify for the new maximum 50% credit rate. That’s because the adjusted gross income (AGI) level at which the credit percentage is reduced is raised substantially from $15,000 to $125,000. For 2021, the credit is fully refundable!
Dependent Care FSA
If your employer offers a dependent care FSA, your employer can provide tax-free benefits of $10,500, up from $5,000!. Your employer, however, must adopt this change, so if this applies to you, speak with your HR department.
Childless EITC Credit
In 2021, the maximum EITC for those with no dependents is $1,502, up from $538 in 2020. Available to filers with an AGI below $27,380 in 2021, it can be claimed by eligible workers who are at least 19 years of age. Full-time students under age 24 don’t qualify. In the past, the EITC for those with no dependents was only available to people ages 25 to 64. Other EITC credits are expanding for future years, so stay tuned!
Child Tax Credit
Currently, the credit is worth up to $2,000 per eligible child. The new law increases it to as much as $3,000 per child for dependents ages 6 through 17 (17 year olds now included!), and $3,600 for dependents ages 5 and under. The maximum credit is available to taxpayers with a modified AGI of:
- $75,000 or less for singles,
- $112,500 or less for heads of household and
- $150,000 or less for married couples filing a joint return and qualified widows and widowers.
Additionally, low and moderate income families may be eligible for an advance on this credit for the last half of year! The IRS will soon share materials and information on social media and by email on this, but you can read more now on their website!
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