The year 2021 brought about a wave of significant changes to the tax landscape, impacting individuals and businesses alike. Understanding these new tax laws is crucial to ensure accurate tax filing and avoid potential penalties. This comprehensive guide will delve into the key changes introduced for the 2021 tax year, providing a clear and concise overview of their implications.
Individual Tax Changes
1. Child Tax Credit
- Expansion of Eligibility: The Child Tax Credit (CTC) was expanded to include children up to age 17, whereas previously it was limited to children under 16.
- Increased Credit Amount: The maximum CTC amount was increased to $3,600 per qualifying child under age 6 and $3,000 for children ages 6 to 17.
- Full Refundability: The CTC became fully refundable for eligible taxpayers, ensuring that even those with little to no tax liability can benefit from the credit.
- Advance Payments: Families were eligible to receive half of their CTC payments in advance through monthly payments from July to December 2021.
2. Earned Income Tax Credit (EITC)
- Increased Credit Amount: The maximum EITC amount was nearly tripled for taxpayers without qualifying children, providing a significant boost to low- and moderate-income working individuals.
- Expanded Eligibility: More taxpayers without qualifying children and couples with qualifying children became eligible for the EITC.
- Option to Use 2019 Income: Taxpayers were given the option to calculate their EITC using their 2019 income if it was higher than their 2021 income, potentially resulting in a larger credit.
3. Recovery Rebate Credit
- Third Economic Impact Payment: The American Rescue Plan Act authorized a third round of Economic Impact Payments, providing up to $1,400 per eligible individual and $2,800 for joint filers.
- Advance Payment of 2021 Recovery Rebate Credit: The third Economic Impact Payment was treated as an advance payment of the 2021 Recovery Rebate Credit, which taxpayers could claim on their 2021 tax returns.
4. Child and Dependent Care Credit
- Increased Credit Amount: The maximum Child and Dependent Care Credit was increased to $8,000 for one qualifying individual and $16,000 for two or more qualifying individuals.
- Increased Income Limit: The income limit for claiming the full credit was raised to $150,000 for single filers and $300,000 for joint filers.
- Refundability: The credit became refundable for eligible taxpayers, allowing them to receive a refund even if they owe no taxes.
Business Tax Changes
1. Employee Retention Tax Credit (ERTC)
- Extension of Credit: The ERTC was extended through the end of 2021, providing eligible businesses with a tax credit for wages paid to employees during the COVID-19 pandemic.
- Increased Credit Amount: The maximum ERTC amount was increased to $7,000 per employee per quarter for the first half of 2021.
2. Paid Family and Medical Leave Tax Credit
- Extension of Credit: The Paid Family and Medical Leave Tax Credit was extended through the end of 2021, allowing eligible businesses to claim a tax credit for wages paid to employees taking paid family and medical leave.
3. Net Operating Loss (NOL) Carryback
- Temporary Suspension: The NOL carryback was temporarily suspended for losses incurred in tax years beginning after December 31, 2017, and before January 1, 2021.
Other Notable Changes
1. Unemployment Compensation
- Temporary Exclusion: The first $10,200 of unemployment compensation received in 2020 was excluded from taxable income for most households with modified adjusted gross incomes below $150,000.
2. Excess Advance Premium Tax Credit (APTC)
- Repayment Suspension: The requirement to repay excess APTC for 2020 was suspended, providing relief to taxpayers who received too much APTC in advance.
The tax landscape for 2021 underwent significant transformations, introducing a range of new laws and provisions. Understanding these changes is essential for accurate tax filing and maximizing potential tax benefits. By staying informed about the latest tax regulations, individuals and businesses can navigate the complexities of the tax code and ensure compliance.
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FAQ
What are the tax changes from 2021 to 2022?
At what age is Social Security no longer taxed?
What is the extra standard deduction for seniors over 65?
What is the difference between 2021 and 2022 child tax credits?
How much money can you deduct from taxes in 2021?
Like last year, single filers can still claim a maximum tax deduction of $300 for cash contributions made to qualified public charities. The biggest tax change comes for married couples filing jointly, who can now deduct up to $600 ($300 per person) on their 2021 tax return. 3. Unemployment benefits no longer tax-free in 2021
What tax changes are coming in 2021?
Recent legislation includes several provisions to help individuals and businesses who give to charity. The new law generally extends four temporary tax changes through the end of 2021. Here’s an overview of these changes. Usually taxpayers who take the standard deduction cannot deduct their charitable contributions.
What is the 2021 income tax credit?
For 2021, the threshold amount is $329,800 for married filing joint returns, $164,925 for married filing separate returns, and $164,900 for all other returns. To claim this credit, the taxpayer’s modified adjusted gross income (MAGI) must not be more than $33,000 for Single, Married Filing Separately, or Qualifying Widower (increase of $500).
What is the tax limit for a 2021 tax return?
For contributions made in 2021, the limit is increased to 25%. For C corporations, the 25% limit is based on their taxable income. For other businesses, including sole proprietorships, partnerships, and S corporations, the limit is based on their total net income for the year.