What Is IRS Tax Form 1098 (Mortgage Interest Statement)?

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Additional Resources

In an effort to help make filing taxes easier this year, we are breaking down the various IRS tax forms to help you know if you need them, and how to use them.

There’s nothing like a love letter from your mortgage lender with an IRS tax form to make you swoon with joy.

As tax forms go, the 1098 ranks among the simplest as you prepare your tax return. But there are some things you need to know about Form 1098 and how to use it in your tax return.

What Is IRS Tax Form 1098, Mortgage Interest Statement?

The IRS Form 1098 informs you how much interest you paid on your mortgage loan for the last tax year. 

Mortgage lenders send you this document in case you want to itemize your deductions on your tax return. They also send a copy to the Internal Revenue Service for their records, so don’t get any ideas about taking liberties with your interest deduction. 

Far fewer taxpayers itemize their deductions since the standard deduction jumped in the Tax Cuts and Jobs Act of 2017. That makes Form 1098 less relevant to the average American than it once was, though it does contain information you may need.

However, the form remains relevant to real estate investors, who deduct mortgage interest on Schedule E of their tax return. Mortgage interest is an expense for investment properties and comes off their taxable profit. Deducting it from your investment property profit doesn’t require you to itemize your deductions. 


Who Should File Form 1098?

Property owners don’t file Form 1098 as part of their federal tax return. They simply list the amount of mortgage interest in the appropriate place on their return: Schedule A for homeowners, Schedule E for investment property owners.

Mortgage lenders need to file Form 1098 with the IRS if the borrower paid more than $600 in a given year and send you a copy — which you can frame if you so choose. They typically send the form in February with the total mortgage interest paid in the previous year.


How to File IRS Form 1098

While you don’t need to file Form 1098 as a borrower, it helps to be able to read it. 

The most important information lies in Box 1: the amount of mortgage interest paid in the previous year. However, the form contains other useful information, including:

  • Box 2: Outstanding mortgage principal (your remaining loan balance)
  • Box 3: Mortgage origination date (your loan start date)
  • Box 4: Refund of overpaid interest (if applicable)
  • Box 5: Mortgage insurance premiums (if you paid private mortgage insurance for a conforming loan or mortgage insurance premium for a Federal Housing Administration loan, it appears here)
  • Box 6: Points paid on the purchase of the principal residence (you may be able to deduct these as well)
  • Boxes 7-11: Identifying information about your loan, such as the property address

You’ll also find identifying information about yourself, such as your name and Social Security number.


Other 1098 Forms

While the mortgage interest statement is the most common type of 1098 form, it’s not the only brat in the pack. You may also come across the following 1098 forms.

Form 1098-C, Contributions of Motor Vehicles, Boats

If you donated a vehicle — including boats or airplanes — to a charitable organization last year, you’ll receive a 1098-C from the charity. 

Charities often give these vehicles to individuals in need or sell them at below-market rates and use the profit to fund programs. Alternatively, the charity might auction the car to raise money for their cause.

Form 1098-C confirms you weren’t part of that transaction. However, if you donated a beater worth less than $600, you may not receive one of these forms. Read the instructions for Form 1098-C for more information.

Form 1098-E, Student Loan Interest Statement

You may feel like you’ll be paying off your student loans for the rest of your life, but at least you get a tax break. Maybe. 

Each year, you’ll receive a 1098-E detailing how much interest you paid to each loan servicer if it exceeded $600. You can deduct the interest from your taxable income on your 1040 without itemizing your deductions as long as you meet the income requirement.

You can deduct up to $2,500 in student loan interest for loans used to pay for qualified expenses while you were in school. However, the deduction does phase out if your modified adjusted gross income (MAGI) falls between $70,000 and $85,000 (between $140,000 and $170,000 if married filing a joint return). You cannot take a student loan interest deduction if your MAGI exceeds $85,000 or more ($170,000 or more if you file a joint return). 

If you paid less than $600 in student loan interest last year, the servicer may not send you a 1098-E, but you can still deduct this interest as long as you have a record of how much you paid. If you don’t know, ask your servicer and record it in your tax file.

As a bonus, if your parents or someone else pays student loans in your name for you, the IRS considers the money a gift, and you can still deduct the interest on your own taxes. However, if the loan is in someone else’s name, that person is entitled to take the interest deduction as long as he or she is the one paying on it.

Form 1098-T, Tuition Statement

If you or one of your dependents is currently in school, the school will send an IRS Form 1098-T at the end of the year detailing all fees you paid for qualified tuition and other related expenses. Calculate all education-related tax deductions and credits, such as the tuition and fees deduction, the lifetime learning credit, or the American opportunity tax credit.

The amounts on the form encompass all money you paid to the school, even if you paid in advance — the payment appears on the tax form for the year in which you actually paid it. 

For example, if you pay your spring semester tuition in December of the previous year, it will show up on the prior year’s 1098-T. These amounts include any money used from loans to pay for tuition and education expenses and list financial aid like college scholarships and grants separately.

Some expenses, such as college textbooks and school supplies, are not generally reported on the 1098-T, but you can still claim them for higher education tax credits or deductions so long as they’re classified as qualified expenses by the IRS.


Form 1098 FAQs

If you still have burning questions about 1098 tax forms, these answers to frequently asked questions can help clear them up.

How Do I Get a 1098 Form?

Your mortgage lender sends you a Form 1098, Mortgage Interest Statement. If you haven’t received it by late February, blow off some steam by yelling at your lender. (Just kidding. Be nice. They literally still own part of your house. But thinking about yelling at them should make you feel better.)

Form 1098-C comes from the charity you donated a vehicle to, while Form 1098-E comes from your student loan servicer. Form 1098-T comes from your college or university. 

Do I Need to File Form 1098 With My Tax Return?

No, you don’t. You need only include the information in the appropriate field on your tax return.

When in doubt, ask your accountant or tax advisor. Alternatively, you can use an online tax preparation service, which will ask you for the amount you paid and fill it into the right field for you. 

What Happens if I Don’t File a 1098 Form?

The IRS doesn’t require borrowers to file a 1098 form at all. But if you ignore them, you might miss out on valuable income tax deductions and make an involuntary donation to Uncle Sam. 

If you are a lender, charity, student loan servicer, or university, you are required by law to both send a 1098 form to the payer and file it with the IRS. Failure to do so will result in your immediate execution — no, not really, but the IRS may penalize you, audit you, or otherwise make your life unpleasant. 


Final Word

With a higher standard deduction these days, most Americans don’t have to stress over documenting and itemizing every single deduction anymore. It makes filing your tax return that much simpler.

However, homeowners who itemize their personal deductions do still want to include their mortgage interest among them. And the mortgage interest deduction offers another way for real estate investors to lower their taxes while leveraging other people’s money to build their portfolio of properties. Get tax advice from a qualified tax professional if you have any questions about these tax benefits.

Whether you deduct mortgage interest on your tax return or not, keep your 1098 forms in your tax records for at least three years after filing. You never know when Uncle Sam will pay you a nasty visit with an audit, and every deduction could help if he does. 

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G. Brian Davis is a real estate investor, personal finance writer, and travel addict mildly obsessed with FIRE. He spends nine months of the year in Abu Dhabi, and splits the rest of the year between his hometown of Baltimore and traveling the world.

Source: moneycrashers.com

Tax Changes and Key Amounts for the 2022 Tax Year

Now that this year’s tax filing season is over, it’s time to start thinking about next year’s return. After all, the more tax planning you do, the more money you may be able to save. But proper tax planning requires an awareness of what’s new and changed from last year — and there are plenty of tax law changes and updates for the 2022 tax year that savvy taxpayers need to know about.

Big tax breaks were enacted for the 2021 tax year by the American Rescue Plan Act, which was signed into law in March 2021. But most of those tax law changes expired at the end of 2021. As a result, the child tax credit, child and dependent care credit, earned income credit and other popular tax breaks are different for the 2022 tax year than they were for 2021. Other 2022 tweaks are the result of new rules or annual inflation adjustments. But no matter how, when or why the changes were made, they can hurt or help your bottom line — so you need to be ready for them. To help you out, we pulled together a list of the most important tax law changes and adjustments for 2022 (some related items are grouped together). Use this information now so you can hold on to more of your hard-earned cash next year when it’s time to file your 2022 return.

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Child Tax Credit

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Major changes were made to the child tax credit for 2021 – but they were only temporary. The credit amount was increased, the credit was made fully refundable, children up to 17 years of age qualified, and half the credit amount was paid in advance through monthly payments from July to December last year. President Biden and Congressional Democrats tried to extend these enhancements for at least one more year, but they haven’t been able to get that done so far (and probably won’t be able to later).

As a result, the child tax credit reverts back to its pre-2021 form for the 2022 tax year. That means the 2022 credit amount drops back down to $2,000 per child (it was $3,000 for children 6 to 17 years of age and $3,600 for children 5 years old and younger for the 2021 tax year). Children who are 17 years old don’t qualify for the credit this year, because the former age limit (16 years old) returns. For some lower-income taxpayers, the 2022 credit is only partially refundable (up to $1,500 per qualifying child), and they must have earned income of at least $2,500 to take advantage of the credit’s limited refundability. And there will be no monthly advance payments of the credit in 2022.

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Child and Dependent Care Tax Credit

picture of form for the child and dependent care tax creditpicture of form for the child and dependent care tax credit

Significant improvements were also made to the child and dependent care credit for 2021. But, again, the changes only applied for one year.

By way of comparison, the 2021 credit was worth 20% to 50% of up to $8,000 in eligible expenses for one qualifying child/dependent or $16,000 for two or more. The percentage decreased as income exceeded $125,000. When you combine the top percentage and the expense limits, the maximum credit for 2021 was $4,000 if you had one qualifying child/dependent (50% of $8,000) or $8,000 if you had more than one (50% of $16,000). The credit was also fully refundable in 2021.

For 2022, the child and dependent care credit is non-refundable. The maximum credit percentage also drops from 50% to 35%. Fewer care expenses are eligible for the credit, too. For 2022, the credit is only allowed for up to $3,000 in expenses for one child/dependent and $6,000 for more than one. When the 35% maximum credit percentage is applied, that puts the top credit for the 2022 tax year at $1,050 (35% of $3,000) if you have just one child/dependent in your family and $2,100 (35% of $6,000) if you have more. In addition, the full child and dependent care credit will only be allowed for families making less than $15,000 a year in 2022 (instead of $125,000 per year). After that, the credit starts to phase-out.

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Earned Income Tax Credit

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More workers without qualifying children were able to claim the earned income tax credit (EITC) on their 2021 tax return, including both younger and older Americans. The “childless EITC” amounts were higher, too. However, once again, those enhancements expired at the end of last year.

Without the 2021 improvements in place, the minimum age for a childless worker to claim the EITC jumps back up to 25 for 2022 tax returns (it was 19 in 2021). The maximum age limit (65 years of old), which was eliminated for the 2021 tax year, is also back in play for 2022. The maximum credit available for childless workers also plummets from $1,502 to $560 for the 2022 tax year. Expanded eligibility rules for former foster youth and homeless youth that applied for 2021 are dropped as well. In addition, the rule allowing you to use your 2019 earned income to calculate your EITC if it boosted your credit amount no longer applies.

There are also several inflation-based adjustments that modify the EITC for the 2022 tax year. For example, the maximum credit amount is increased from $3,618 to $3,733 for workers with one child, from $5,980 to $6,164 for workers with two children, and from $6,728 to $6,935 for workers with three or more children. The earned income required to claim the maximum EITC is also adjusted annually for inflation. For 2022, it’s $10,980 if you have one child ($10,640 for 2021), $15,410 if you have two or more children ($14,950 for 2021), and $7,320 if you have no children ($7,100 for 2021).

The EITC phase-out ranges are adjusted each year to account for inflation, too. For 2022, the credit starts to phase out for joint filers with children if the greater of their adjusted gross income (AGI) or earned income exceeds $26,260 ($25,470 for 2021). It’s completely phased out for those taxpayers if their AGI or earned income is at least $49,622 if they have one child ($48,108 for 2021), $55,529 if they have two children ($53,865 for 2021), or $59,187 if they have three or more children ($57,414 for 2021). For other taxpayers with children, the 2022 phase-out ranges are $20,130 to $43,492 for people with one child ($19,520 to $42,158 for 2021), $20,130 to $49,399 for people with two children ($19,520 to $47,915 for 2021), and $20,130 to $53,057 for people with more than two children ($19,520 to $51,464 for 2021). If you don’t have children, the 2022 phase-out range is $15,290 to $22,610 for joint filers ($14,820 to $21,920 for 2021) and $9,160 to $16,480 for other people ($8,880 to $15,980 for 2021).

Finally, the limit on a worker’s investment income is increased to $10,300 ($10,000 for 2021).

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Recovery Rebate Credit

picture of a tax form, government check, and one-hundred dollar billpicture of a tax form, government check, and one-hundred dollar bill

Americans were thrilled last March to hear they were getting a third stimulus check in 2021. Those checks were for up to $1,400, plus an additional $1,400 for each dependent in your family. (Use our Third Stimulus Check Calculator to see you how much money you should have gotten.) But some people who were eligible for a third-round stimulus check didn’t receive a payment or got less than what they should have received. For those people, relief was available in the form of a 2021 tax credit known as the recovery rebate credit.

However, there are no stimulus check payments in 2022. As a result, there is no recovery rebate credit for the 2022 tax year.

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Tax Brackets

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Although the tax rates didn’t change, the income tax brackets for 2022 are slightly wider than for 2021. The difference is due to inflation during the 12-month period from September 2020 to August 2021, which is used to figure the adjustments.

2022 Tax Brackets for Single/Married Filing Jointly/Head of Household

Tax Rate

Taxable Income (Single)

Taxable Income (Married Filing Jointly)

Taxable Income (Head of Household)

10%

Up to $10,275

Up to $20,550

Up to $14,650

12%

$10,276 to $41,775

$20,551 to $83,550

$14,651 to $55,900

22%

$41,776 to $89,075

$83,551 to $178,150

$55,901 to $89,050

24%

$89,076 to $170,050

$178,151 to $340,100

$89,051 to $170,050

32%

$170,051 to $215,950

$340,101 to $431,900

$170,051 to $215,950

35%

$215,951 to $539,900

$431,901 to $647,850

$215,951 to $539,900

37%

Over $539,900

Over $647,850

Over $539,900

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Long-Term Capital Gains Tax Rates

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Tax rates on long-term capital gains (i.e., gains from the sale of capital assets held for at least one year) and qualified dividends did not change for 2022. However, the income thresholds to qualify for the various rates were adjusted for inflation.

In 2022, the 0% rate applies for individual taxpayers with taxable income up to $41,675 on single returns ($40,400 for 2021), $55,800 for head-of-household filers ($54,100 for 2021) and $83,350 for joint returns ($80,800 for 2021).

The 20% rate for 2022 starts at $459,751 for singles ($445,851 for 2021), $488,501 for heads of household ($473,751 for 2021) and $517,201 for couples filing jointly ($501,601 for 2021).

The 15% rate is for filers with taxable incomes between the 0% and 20% break points.

The 3.8% surtax on net investment income stays the same for 2022. It kicks in for single people with modified AGI over $200,000 and for joint filers with modified AGI over $250,000.

For more on long-term capital gains tax rates, see What Are the Capital Gains Tax Rates for 2021 vs. 2022?

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Standard Deduction

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The standard deduction amounts were increased for 2022 to account for inflation. Married couples get $25,900 ($25,100 for 2021), plus $1,400 for each spouse age 65 or older ($1,350 for 2021). Singles can claim a $12,950 standard deduction ($12,550 for 2021) — $14,700 if they’re at least 65 years old ($14,250 for 2021). Head-of-household filers get $19,400 for their standard deduction ($18,800 for 2021), plus an additional $1,750 once they reach age 65 ($1,700 for 2021). Blind people can tack on an extra $1,400 to their standard deduction ($1,350 for 2021). That jumps to $1,750 if they’re unmarried and not a surviving spouse ($1,700 for 2021).

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1099-K Forms

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Starting with the 2022 tax year, third-party payment settlement networks (e.g., PayPal and Venmo) will send you a Form 1099-K if you are paid over $600 during the year for goods or services, regardless of the number of transactions. Previously, the form was only sent if you received over $20,000 in gross payments and participated in more than 200 transactions. The gross amount of a payment doesn’t include any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts.

This change to the reporting threshold means more people than ever will get a 1099-K form next year that they will use when filling out their income tax returns for the 2022 tax year. However, remember that 1099-K reporting is only for money received for goods and services. It doesn’t apply to payments from family and friends.

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Charitable Gift Deductions

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The “above-the-line” deduction for up to $300 of charitable cash contributions ($600 for married couple filing a joint return) expired at the end of 2021. As a result, it isn’t available for the 2022 tax year (it was available for 2020 and 2021). Only people who claimed the standard deduction on their tax return (rather than claiming itemized deductions on Schedule A) were allowed to take this deduction.

The 2020 and 2021 suspension of the 60%-of-AGI limit on deductions for cash donations by people who itemize also expired, so the limit is back in place starting with the 2022 tax year.

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Retirement Savings

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Here’s some good news for retirees: The IRS updated the table used to calculate required minimum distributions (RMDs) to account for longer life expectancies beginning in 2022. That means RMDs should be a bit smaller starting in 2022 than they were before.

For people who are still saving for retirement, many key dollar limits on retirement plans and IRAs are higher in 2022. For example, the maximum contribution limits for 401(k), 403(b) and 457 jumps from $19,500 to $20,500 for 2022, while people born before 1973 can once again put in $6,500 more as a “catch-up” contribution. The 2022 cap on contributions to SIMPLE IRAs is $14,000 ($13,500 in 2021), plus an extra $3,000 for people age 50 and up.

The 2022 contribution limit for traditional IRAs and Roth IRAs stays steady at $6,000, plus $1,000 as an additional catch-up contribution for individuals age 50 and up. However, the income ceilings on Roth IRA contributions went up. Contributions phase out in 2022 at adjusted gross incomes (AGIs) of $204,000 to $214,000 for couples and $129,000 to $144,000 for singles (up from $198,000 to $208,000 and $125,000 to $140,000, respectively, for 2021).

Deduction phaseouts for traditional IRAs also start at higher levels in 2022, from AGIs of $109,000 to $129,000 for couples and $68,000 to $78,000 for single filers (up from $105,000 to $125,000 and $66,000 to $76,000 for 2021). If only one spouse is covered by a plan, the phaseout zone for deducting a contribution for the uncovered spouse starts at $204,000 of AGI and ends at $214,000 (they were $198,000 and $208,000 for 2021).

More lower-income people may be able to claim the “saver’s credit” in 2022, too. This tax break can be worth up to $1,000 ($2,000 for joint filers), but you must contribute to a retirement account and your adjusted gross income (AGI) must be below a certain threshold to qualify. For 2022, the income thresholds are $34,000 of adjusted gross income (AGI) for single filers and married people filing a separate return ($33,000 for 2021), $68,000 for married couples filing jointly ($66,000 for 2021), and $51,000 for head-of-household filers ($49,500 for 2021).

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Teacher Expenses

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For the 2022 tax year, teachers and other educators who dig into their own pockets to buy books, supplies, COVID-19 protective items, and other materials used in the classroom can deduct up to $300 of these out-of-pocket expenses ($250 for 2021). The maximum deduction for 2022 jumps to $600 for a married couple filing a joint return if both spouses are eligible educators – but not more than $300 each.

An “eligible educator” is anyone who is a kindergarten through 12th grade teacher, instructor, counselor, principal, or aide in a school for at least 900 hours during a school year. Homeschooling parents can’t take the deduction.

This is an “above-the-line” deduction. So, you don’t have to itemized to claim it.

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Kiddie Tax

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The kiddie tax has less bite in 2022. The first $1,150 of a child’s unearned income is tax-free if the child is 18 years old or younger, or a full-time student under 24. The next $1,150 is taxed at the child’s rate. Any excess over $2,300 is taxed at the parent’s rate. (For 2021, only the first $1,100 was exempt and the next $1,100 was taxed at the child’s rate.)

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Adoption of a Child

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For 2022, the adoption credit can be taken on up to $14,890 of qualified expenses ($14,440 for 2021). The full credit is available for a special-needs adoption, even if it costs less. The credit begins to phase out for filers with modified AGIs over $223,410 and disappears at $263,410 ($214,520 and $254,520, respectively, for 2021).

The exclusion for company-paid adoption aid was also increased from $14,440 to $14,890 for 2022.

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Bonds Used for Education

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The income caps are higher in 2022 for tax-free EE and I bonds used for education. The exclusion starts phasing out above $128,650 of modified AGI for couples and $85,800 for others ($124,800 and $83,200 for 2021). It ends at modified AGI of $158,650 and $100,800, respectively ($154,800 and $98,200 for 2021). The savings bonds must be redeemed to help pay for tuition and fees for college, graduate school or vocational school for the taxpayer, spouse or a dependent.

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Parking and Transportation Benefits

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Employers can provide a little more to their workers in 2022 when it comes to parking and transportation-related fringe benefits. The 2022 cap on employer-provided tax-free parking goes up from $270 to $280 per month. The 2022 exclusion for mass transit passes and commuter vans is also $280 ($270 in 2021).

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Americans Working Abroad

picture of woman holding a U.S. passport and an airplane boarding passpicture of woman holding a U.S. passport and an airplane boarding pass

U.S. taxpayers working abroad have a larger foreign earned income exclusion in 2022. It jumped from $108,700 for 2021 to $112,000 for 2022. (Taxpayers claim the exclusion on Form 2555.)

The standard ceiling on the foreign housing exclusion is also increased from $15,218 to $15,680 for 2022 (although overseas workers in many high-cost locations around the world qualify for a significantly higher exclusion).

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Payroll Taxes

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The Social Security annual wage base is $147,000 for 2022 (that’s a $4,200 hike from 2021). The Social Security tax rate on employers and employees stays at 6.2%. Both workers and employers continue to pay the 1.45% Medicare tax on all compensation in 2022, with no cap. Workers also pay the 0.9% Medicare surtax on 2022 wages and self-employment income over $200,000 for singles and $250,000 for couples. The surtax doesn’t hit employers, though.

The nanny tax threshold went up to $2,400 for 2022, which was a $100 increase from 2021.

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Standard Mileage Rates

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The 2022 standard mileage rate for business driving rose from 56¢ to 58.5¢ a mile. The mileage allowance for medical travel and military moves also increased from 16¢ to 18¢ a mile in 2022. However, the charitable driving rate stayed put at 14¢ a mile — it’s fixed by law.

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Long-Term Care Insurance Premiums

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The limits on deducting long-term care insurance premiums are higher in 2022 for one age group. Taxpayers who are age 61 to 70 can deduct up to $4,510 for 2022, which is a $10 decrease from the 2021 amount.

The 2022 deduction limits for all age groups are the same as the 2021 amounts. Here’s the complete list of limits by age:

  • 40 years old or less = $450
  • 41 to 50 years old = $850
  • 51 to 60 years old = $1,690
  • 61 to 70 years old = $4,510
  • 71 years of age or older = $5,640

For most people, long-term care premiums are medical expenses deductible only by itemizers on Schedule A. However, self-employed people can deduct them on Schedule 1 of the 1040.

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Health Savings Accounts (HSAs)

picture of piggy bank next to HSA savings jarpicture of piggy bank next to HSA savings jar

The annual cap on deductible contributions to health savings accounts (HSAs) rose in 2022 from $3,600 to $3,650 for self-only coverage and from $7,200 to $7,300 for family coverage. People born before 1968 can put in $1,000 more (same as for 2021).

Qualifying insurance policies must limit out-of-pocket costs in 2022 to $14,100 for family health plans ($14,000 in 2021) and $7,050 for people with individual coverage ($7,000 in 2021). Minimum policy deductibles remain at $2,800 for families and $1,400 for individuals.

For 2023 HSA-related amounts, see HSA Contribution Limits for 2023 Are Out.

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Flexible Spending Accounts (FSAs)

picture of a notebook with "flexible spending account" written on the pagepicture of a notebook with "flexible spending account" written on the page

For 2022, the limit on employee contributions to a healthcare flexible spending account (FSA) is $2,850, which is $100 more than the 2021 limit. If the employer’s plan allows the carryover of unused amounts, the maximum carryover amount for 2022 is $570 ($550 for 2021).

On the other hand, workers can’t contribute as much to a dependent care FSA in 2022 as they could in 2021. Last year, as a COVID-relief measure, a family could sock away up to $10,500 in a dependent care FSA without paying tax on the contributions. But for 2022, the normal limit of $5,000-per-year on tax-free contributions applies once again.

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Alternative Minimum Tax (AMT)

picture of wealthy couple on a boatpicture of wealthy couple on a boat

There’s good news for anyone worried about getting hit with the alternative minimum tax: AMT exemptions ticked upward for 2022. They increased from $114,600 to $118,100 for couples and from $73,600 to $75,900 for single filers and heads of household. The phaseout zones for the exemptions start at higher income levels for the 2022 tax year as well — $1,079,800 for couples and $539,900 for singles and household heads ($1,047,200 and $523,600, respectively, for 2021).

In addition, the 28% AMT tax rate kicks in a bit higher in 2022 — above $206,100 of alternative minimum taxable income. The rate applied to AMTI over $199,900 for 2021.

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Tax “Extenders”

picture of scissors cutting paper with "tax" written on itpicture of scissors cutting paper with "tax" written on it

There’s a group of tax breaks that are constantly scheduled to expire, but that keep getting extended by Congress for another year or two. These tax breaks are collectively referred to as “tax extenders.”

But so far, Congress hasn’t passed legislation to renew the “tax extender” deductions and credits that expired at the end of 2021. Most of the expired tax breaks were for businesses, but the following expired tax breaks impacted individual taxpayers:

  • Mortgage insurance premiums deduction;
  • Health coverage tax credit for medical insurance premiums paid by certain Trade Adjustment Assistance recipients and people whose pension plans were taken over by the Pension Benefit Guaranty Corporation;
  • Nonbusiness energy property credit for certain energy-saving improvements to your home (e.g., new energy-efficient windows and skylights, exterior doors, roofs, insulation, heating and air conditioning systems, water heaters, etc.);
  • Fuel cell motor vehicle credit;
  • Alternative fuel vehicle refueling property credit; and
  • Two-wheeled plug-in electric vehicle credit.

At some point, lawmakers may swoop in and extend some or all of these tax breaks once again as they have in the past. They sometimes even make the extensions retroactive, so the tax breaks list above could still be available for the 2022 tax year. We’ll just have to wait and see what Congress decides to do with these “tax extender” deductions and credits – stay tuned for future developments.

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Self-Employed People

picture of self-employed businessmanpicture of self-employed businessman

If you’re self-employed, there are a couple of 2022 tax law changes that could impact your bottom line. First, a key dollar threshold on the 20% deduction for pass-through income was increased for 2022. Self-employed people (along with owners of LLCs, S corporations and other pass-through entities) can deduct 20% of their qualified business income, subject to limitations for individuals with taxable incomes in excess of $340,100 for joint filers and $170,050 for others ($329,800 and $164,900, respectively, for 2021).

Second, tax credits that were allowed for self-employed people who couldn’t work for a reason that would have entitled them to pandemic-related sick or family leave if they were an employee have expired and aren’t available for the 2022 tax year.

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Estate & Gift Taxes

picture of estate tax formpicture of estate tax form

The lifetime estate and gift tax exemption for 2022 jumped from $11.7 million to $12.06 million — $24.12 million for couples if portability is elected by timely filing IRS Form 706 after the death of the first-to-die spouse.

The special estate tax valuation of real estate also increases for 2022. For the estate of a person dying this year, up to $1.23 million of farm or business real estate can receive discount valuation (up to $1.19 million in 2021), letting the estate value the realty at its current use instead of fair market value.

More estate tax liability qualifies for an installment payment tax break, too. If one or more closely held businesses make up greater than 35% of a 2022 estate, as much as $656,000 of tax can be deferred and the IRS will charge only 2% interest (up to $636,000 for 2021).

Finally, the annual gift tax exclusion for 2022 rises from $15,000 to $16,000 per donee. So, you can give up to $16,000 ($32,000 if your spouse agrees) to each child, grandchild or any other person in 2022 without having to file a gift tax return or tap your lifetime estate and gift tax exemption.

Source: kiplinger.com

2021 Tax Returns: What’s New on the 1040 Form This Year

Time is running out if you haven’t already filed your 2021 federal tax return. For most people, the tax return filing deadline is April 18 this year (residents of Maine and Massachusetts get one extra day). So, for all you tax procrastinators out there, it’s time to get moving. One of the first things you should do is collect and organize your tax records. If you’re going to file your own 1040, you should also check out tax software options. If you need more time to file your return, request a tax filing extension (although you’ll still have to pay any tax you expect to owe). And, no matter when you fill out your 2021 tax return, you first want to familiarize yourself with the tax law changes that may impact it.

Many (but not all) of the new items on the 2021 1040 form come from the American Rescue Plan Act, which was enacted last March. This Covid-relief bill made changes to the child tax credit, child and dependent care credit, earned income tax credit, and more. Other changes stem from the expiration of earlier Covid-related provisions that expired at the end of 2020. There are a few modifications to some of the main 1040 schedules, too. And, of course, there are the normal inflation-based adjustments that occur every year.

There are many reasons why you should know and understanding these changes up front. First and foremost, it very well may result in a larger tax refund or a smaller tax bill. You’re also likely to get through your return faster if you’re already aware of any new twists and turns. If someone else prepares your 1040, it will be easier to catch any errors when you review the return. But since “Tax Day” is right around the corner, you don’t have much time left to get up-to-speed on what’s new and changed for your 2021 tax return. So take a look at our list below and study up now so you know what to look for before tackling your 1040.

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Due Date

picture of a calendar page for April 18 laying on stacks of one-hundred dollar billspicture of a calendar page for April 18 laying on stacks of one-hundred dollar bills

“Tax Day” is the day that federal personal income tax returns are due. It was delayed the past two years because of COVID-19. In 2020, Tax Day was pushed back to July 15, and last year it was moved to May 17. This year, however, the tax return filing deadline is moved back to its normal spot on the calendar…well, sort of.

Federal income tax returns are normally due on April 15. But this year most 2021 tax returns aren’t due until April 18. That’s because of a holiday in the District of Columbia. If you live in Maine or Massachusetts, your federal return isn’t due until April 19, thanks to a local holiday in those states. Victims of certain recent natural disaster can wait even longer to file their return.

For more information, see Tax Day 2022: When’s the Last Day to File Taxes?

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Form 1040 and Main Schedules

picture of a woman shrugging while she holds a tax formpicture of a woman shrugging while she holds a tax form

There are some subtle, but important, changes to the 1040 form itself for 2021 tax returns. Generally, they’re needed to account for changes to the tax laws that are discussed below. For instance, the line on page 1 of the 1040 used for reporting the $300 deduction for charitable cash contributions was moved down on the form so that the deduction no longer impacts your federal adjusted gross income (AGI). This is important because your federal AGI is used to calculate several other tax breaks and obligations. It’s also used by many states as the starting point for determining your state income tax liability.

Lines 19 and 28 on page 2 of the 1040 form were also adjusted to account for the fact that the child tax credit is fully refundable for the 2021 tax year. Line 27 was also modified and expanded (including a new check box) to satisfy changes to the earned income tax credit. (See more about changes to the child tax credit and earned income credit below.)

The idea of having a postcard-size tax form has been totally abandoned, too. We see this in the expansion of Schedules 1, 2, and 3 that go with the 1040 form. For 2020 returns, each of these schedules fit on one page. Now, for 2021 tax returns, they’re each two pages long. The extra length is due to various additions to income, “above-the-line” deductions, extra taxes, and less common credits now getting their own line on these forms instead of being lump together as an “other” item to include.

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Standard Deduction

picture of a person writing "tax deduction" on glass and underlining it in redpicture of a person writing "tax deduction" on glass and underlining it in red

Approximately 90% of all taxpayers claim the standard deduction instead of itemized deductions. Fortunately, the standard deduction amounts you’ll use on your 2021 tax return are larger than last year, thanks to the annual adjustment for inflation. For the 1040 form you’ll complete this year, married couples filing a joint return can claim a $25,100 standard deduction. That’s a $300 increase over the 2020 tax year amount. For each spouse 65 years of age or older, you can tack on an additional $1,350 ($1,300 for 2020).

Single filers can claim a $12,550 standard deduction on their 2021 tax return ($12,400 for 2020). That jumps to $14,250 if you’re at least 65 years old ($14,050 for 2020).

For head-of-household filers, the standard deduction for 2021 tax returns is $18,800 ($18,650 for 2020), plus an additional $1,700 if they’re at least 65 years old.

Regardless of their filing status, blind people can add an additional $1,350 to their 2021 standard deduction ($1,700 if they’re unmarried and not a surviving spouse).

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Tax Brackets

picture of "tax brackets" typed using an old-style typewriterpicture of "tax brackets" typed using an old-style typewriter

The tax rates you’ll see on your 2021 tax return are the same as they were last year: 10%, 12%, 22%, 24%, 32%, 35% and 37%. However, the income ranges that apply to each tax rate bracket have changed. Use the tables below to find the appropriate tax bracket for your 2021 return. It’s based on your filing status and taxable income (Line 15 of your 1040 form).

Remember, though, that the tax rate associated with the bracket you fall into doesn’t apply to all your income. It only applies to the amount of your taxable income that’s within the bracket’s range. So, for example, if you’re single with $50,000 of taxable income in 2021, only the last $9,475 of your taxable income is taxed at the 22% rate ($50,000 – $40,525 = $9,475). The rest is taxed at either the 10% or 12% rate.

2021 Tax Brackets for Single Filers and Married Couples Filing Jointly

Tax Rate

Taxable Income
(Single)

Taxable Income
(Married Filing Jointly)

10%

Up to $9,950

Up to $19,900

12%

$9,951 to $40,525

$19,901 to $81,050

22%

$40,526 to $86,375

$81,051 to $172,750

24%

$86,376 to $164,925

$172,751 to $329,850

32%

$164,926 to $209,425

$329,851 to $418,850

35%

$209,426 to $523,600

$418,851 to $628,300

37%

Over $523,600

Over $628,300

2021 Tax Brackets for Married Couples Filing Separately and Head-of-Household Filers

Tax Rate

Taxable Income
(Married Filing Separately)

Taxable Income
(Head of Household)

10%

Up to $9,950

Up to $14,200

12%

$9,951 to $40,525

$14,201 to $54,200

22%

$40,526 to $86,375

$54,201 to $86,350

24%

$86,376 to $164,925

$86,351 to $164,900

32%

$164,926 to $209,425

$164,901 to $209,400

35%

$209,426 to $314,150

$209,401 to $523,600

37%

Over $314,150

Over $523,600

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Capital Gains Tax Rate Thresholds

picture of a notebook with the definition of "capital gains tax" written on a pagepicture of a notebook with the definition of "capital gains tax" written on a page

If you hold on to a capital asset (e.g., stocks, bonds, real estate, art, etc.) for at least one year, any gains from the sale of the asset are taxed at a lower capital gains rate – either 0%, 15%, or 20%. The same rates apply to qualified dividends. Which rate applies to you depends on your taxable income.

For your 2021 federal income tax return, the 0% rate applies if you’re single with taxable income up to $40,400 ($40,000 for 2020), a head-of-household filer with taxable income up to $54,100 ($53,600 for 2020), or a married couple filing a joint return with up to $80,800 of taxable income ($80,000 for 2020).

The 20% rate kicks in at $445,851 of taxable income for single filers ($441,451 for 2020), $473,751 for head-of-household filers ($469,051 for 2020), and $501,601 for joint filers ($496,601 for 2020).

If your taxable income falls between the 0% and 20% thresholds for your filing status, then the 15% rate applies.

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Deduction for Cash Donations to Charity

picture of a man putting cash in a donation boxpicture of a man putting cash in a donation box

As mentioned above, the $300 deduction for cash contributions to charity no longer affects your federal AGI. There’s also another important change to this deduction for 2021 tax year returns – married couples can now deduct up to $600. For 2020 returns, married couples who filed jointly could only deduct $300. However, one deduction is allowed per person now, which means each spouse can deduct up to $300 on a joint 2021 return.

Note that this deduction is only available if you claim the standard deduction. It also expired at the end of 2021, so you won’t be able to claim it on your 2022 return.

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Earned Income Tax Credit

picture of a bartender pouring a beerpicture of a bartender pouring a beer

Several significant upgrades to the 2021 earned income tax credit (EITC) were made by the American Rescue Plan Act. The biggest changes will allow more childless workers to claim the EITC on their 2021 tax return. For one thing, the minimum age for claiming the credit without a qualifying child is lowered from 25 to 19 (except for certain full-time students). Workers over the age of 65 can claim the credit on their 2021 return, too. The maximum credit available for workers without a qualifying child also jumps from $543 to $1,502. Expanded eligibility rules for former foster youth and homeless youth were put in place for the 2021 tax year as well.

While the modified rules listed above for childless workers only apply for the 2021 tax year, the American Rescue Plan Act made a few other changes to the EITC that are permanent. For example, the $3,650 limit on a worker’s investment income is bumped up to $10,000, and the cap will be adjusted for inflation each year going forward. In addition, certain married couples who are separated can now claim the credit on separate tax returns. And certain workers who can’t satisfy the EITC identification requirements for their children can now qualify for the credit as a childless worker.

Finally, as with the 2020 EITC, you can use your 2019 earned income to calculate your 2021 EITC if it’s more than your 2021 earned income. Since this can increase or decrease your EITC, calculate the credit using both your 2019 and 2021 earned income to see which method will save you the most money.

To calculate your EITC, complete the worksheets associated with Lines 27a, 27b, and 27c of Form 1040 in the instructions for Form 1040. If you have a qualifying child, also complete Schedule EIC and attach it to your 1040 form.

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Child Tax Credit

picture of parents and three children cooking together in the kitchenpicture of parents and three children cooking together in the kitchen

As with the earned income tax credit, the American Rescue Plan Act made major improvements to the child tax credit for the 2021 tax year. For instance, the credit amount for 2021 tax returns was increased from $2,000-per-child to $3,000-per-child six to 17 years of age and to $3,600-per-child five years old and younger. However, the extra $1,000 or $1,600 is phased out for single filers with a federal AGI above $75,000, head-of-household filers with a federal AGI above $112,500, and joint filers with a federal AGI above $150,000. The credit is further reduced under pre-existing rules for single and head-of-household filers with a federal AGI above $200,000 and married couples filing jointly with a federal AGI above $400,000.

Any child tax credit claimed on your 2021 return is also fully refundable for most parents, even if you don’t have any earned income (normally, the credit is only partially refundable – up to $1,400-per-child – and you must have at least $2,500 of earned income). Children who are 17 years old also qualify for the 2021 credit (child normally must be 16 or younger to qualify). Finally, unless you opted-out of the payments, families received 50% of their estimated 2021 child tax credit amount in advance through monthly payments sent between July 15 and December 15 last year.

To calculate the child tax credit allowed on your 2021 tax return, you must subtract the monthly payments you received last year from the total credit that you’re otherwise entitled to claim for the 2021 tax year. (The IRS will send you a Letter 6419 showing the amount paid to you in monthly payments.) If the total child tax credit amount is more than your combined monthly payments, you can claim the excess amount as a credit on your return. However, if the total credit amount is less than your payments, you might have to pay back the extra child credit payments.

Use Schedule 8812 to reconcile the advance payments you received last year with the actual child tax credit you’re entitled to claim on your 1040 form, and to see if you need to pay back any payments (they will be paid back in the form of an additional tax calculated Part III of the schedule).

For more information about claiming the 2021 credit, see Child Tax Credit FAQs for Your 2021 Tax Return.

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Child and Dependent Care Credit

picture of a childcare teacher with two children playing with blockspicture of a childcare teacher with two children playing with blocks

Parents benefiting from the child tax credit enhancements may be able to cut their 2021 tax bill even further because of big changes to the child and dependent care credit made by the American Rescue Plan Act. For example, the maximum credit is increased from 35% to 50% of eligible expenses for the 2021 tax year. Plus, the credit percentage won’t be reduced for families making less than $125,000 a year (instead of $15,000 per year), and all taxpayers earning less than $438,000 can claim at least a partial credit on their 2021 return.

The 2021 credit applies to more child or dependent care expenses, too. The credit percentage is applied to as much as $8,000 of eligible expenses for one child/disabled person and up to $16,000 of expenses for two or more (the amounts are usually $3,000 and $6,000, respectively). That means the total credit amount can be as high as $4,000 if you have just one child/disabled person and $8,000 if you have more ($1,050 and $2,100, respectively, for 2020).

The child and dependent care credit for the 2021 tax year is also fully refundable for most people (it’s usually a nonrefundable credit). Form 2441 is used to calculate the credit.

See Your Child Care Tax Credit May Be Bigger on Your 2021 Tax Return for details.

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Premium Tax Credit

picture of a stethoscope on a medical insurance claim formpicture of a stethoscope on a medical insurance claim form

The American Rescue Plan Act improved the premium tax credit for 2021 and 2022 to lower premiums for people who buy health insurance through an Obamacare exchange (e.g., HealthCare.gov) on their own. The credit amount was increased for eligible taxpayers by reducing the percentage of annual income that households are required to contribute toward their health insurance premium. The law also allowed the credit to be claimed by people with an income above 400% of the federal poverty line.

For certain people who purchase health insurance through an exchange, an estimated premium tax credit amount is paid in advance to the insurance company. If advance payments are made on your behalf, you must reconcile the credit and the advance payments when you file your tax return. If the advance payments are greater than the actual allowable credit, the difference (subject to certain repayment caps) usually must be paid back. However, the American Rescue Plan Act eliminated the repayment requirement – but only for the 2020 tax year. As a result, excess advance payments made in 2021 will have to be repaid when you file your 2021 tax return.

Use Form 8962 to calculate your premium tax credit and reconcile it with any advance payments. Also make sure you submit Form 8962 with the rest of your 2021 tax return.

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Adoption Credit

picture of an adopted child in the kitchen with his adopted familypicture of an adopted child in the kitchen with his adopted family

The nonrefundable credit for expenses related to the adoption of a child is a little larger for the 2021 tax year. For 1040 forms filed this year, the credit can be worth up to $14,440 ($14,300 for 2020). Plus, the full credit is available for a special-needs adoption, even if it costs less.

The credit begins to phase out if your modified AGI is over $216,660 and it’s eliminated altogether if your modified AGI reaches $256,660 ($214,520 and $254,520, respectively, for 2020). To claim the credit, complete Form 8839 and report the credit amount on Line 6c of Schedule 3. Also submit Form 8839 with the rest of your 2021 tax return.

The income tax exclusion for company-paid adoption aid was also increased from $14,300 to $14,440 for the 2021 tax year.

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Alternative Minimum Tax

picture of a wealthy couple looking at their mansionpicture of a wealthy couple looking at their mansion

The alternative minimum tax (AMT) was originally designed to hit only wealthier Americans. However, the AMT exemption amount wasn’t always adjusted annual for inflation – but it is now. For the 2021 tax year, the AMT exemption jumped from $113,400 to $114,600 for married couples filing a joint return and from $72,900 to $73,600 for single and head-of-household filers.

The phase-out ranges for the AMT exemption are adjusted for inflation each year, too. For 2021 tax returns, the exemption is gradually reduced and can ultimately be eliminated if alternative minimum taxable income (AMTI) on a joint return is between $1,047,200 and $1,505,600 ($1,036,800 and $1,490,400 for 2020). For single and head-of-household filers, the 2021 phase-out range is $523,600 to $818,000 of AMTI ($518,400 to $810,000 for 2020). The 2021 range for married people filing a separate return is $523,600 to $752,800 ($518,400 to $745,200 for 2020).

In addition, the 28% AMT tax rate doesn’t kick on 2021 tax returns until you hit $199,900 of AMTI. That’s an increase over the 2020 threshold, which was AMTI of $197,900 or more.

Use Form 6251 to calculate your AMT and file the form with your 2021 Form 1040.

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Tax Breaks for Education

picture of a tuition check with a graduation tassel on itpicture of a tuition check with a graduation tassel on it

Say goodbye to the tuition and fees deduction, which was worth up to $4,000 per year. It was repealed starting with the 2021 tax year.

On the bright side, the phase-out thresholds for the lifetime learning credit were increased. They’re now the same as the phase-out amounts for the American Opportunity credit. So, beginning with 2021 tax returns, the lifetime learning credit is gradually reduced to zero for joint filers with a modified AGI from $160,000 to $180,000 ($118,000 to $138,000 for 2020) and single filers with a modified AGI between $80,000 to $90,000 ($59,000 and $69,000 for 2020). If you’re claiming either the lifetime learning credit or the American Opportunity credit, you must first complete Form 8863 and then attach it to your 1040 form.

The phase-out ranges are also higher in 2021 for the exclusion of interest on Series EE and I savings bonds redeemed to help pay for tuition and fees for college, graduate school, or vocational school. For 2021 tax returns, the exclusion starts to phase out for joint filers with a modified AGI exceeding $124,800 and for other people with a modified AGI of $83,200 or more ($123,550 and $82,350, respectively, for 2020). The exclusion is totally phased-out for joint filers with a modified AGI of $154,800 or more and for other taxpayers with a modified AGI of at least $98,200 ($153,550 and $97,350, respectively, for 2020). You must compete Form 8815 to claim the exclusion and then report the exclusion amount on Line 3 of Schedule B.

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Recovery Rebate Credit

picture of a government check with "Stimulus Check" stamped on itpicture of a government check with "Stimulus Check" stamped on it

The recovery rebate credit is back, but with one important change. As you may recall, this credit made its first appearance on the 2020 Form 1040 and was available for people who didn’t receive a first or second stimulus check, or who didn’t receive the full stimulus check amount they were entitled to.

For 2021 tax returns, the credit is for people who didn’t receive a third stimulus check (or didn’t receive the full amount). Those payments were for up to $1,400, plus an additional $1,400 for each dependent in your family. Similar to the monthly child tax credit payments the IRS sent last year, your third stimulus check was an advance payment of the recovery rebate credit. As a result, when you file your 2021 return, you must reduce the recovery rebate credit you’re entitled to claim by the amount of your third stimulus check. (The IRS will send you a Letter 6475 showing the amount of your third stimulus check.) For most people, your third stimulus check payment will equal the 2021 recovery rebate credit allowed. If that’s the case for you, the credit will be reduced to zero. But if your third stimulus check was less than the credit, your recovery rebate credit will equal the difference. And what if your third stimulus check was more than your 2021 recovery rebate credit? You get to keep the difference!

Use our Third Stimulus Check Calculator to see you how large your third stimulus check should have been.

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Tax Breaks for Retirement Savings

picture of a jar with "retirement" written on it filled with coinspicture of a jar with "retirement" written on it filled with coins

Two tax breaks that encourage saving for retirement were tweaked for the 2021 tax year. In both cases, the changes are the result of annual adjustments for inflation.

The first retirement-related change for 2021 tax returns is to the deduction for contributions to a traditional IRA. If either you or your spouse was covered by an employer retirement plan, your IRA deduction may be reduced (potentially to zero), depending on your filing status and income. The income levels that trigger a reduction for 2021 returns have been adjusted. For married couples filing a joint return, the deduction is gradually phased out if you’re modified AGI is between $105,000 and $125,000 (between $104,000 and $124,000 for 2020 returns). For single and head-of-household filers, the phase-out range is from $66,000 to $76,000 ($65,000 to $75,000 for 2020).

If only one spouse is covered by a retirement plan at work, the deduction is reduced if the couple’s modified AGI exceeds $198,000, and it’s totally eliminated if their modified AGI hits $208,000 ($196,000 and $206,000, respectively, for 2020). (NOTE: If you made any nondeductible contributions to a traditional IRA for 2021, report them on Form 8606.)

The second change is to the “Saver’s Credit,” which encourages lower- and middle-income people to save for retirement. The credit is allowed for either 10%, 20%, or 50% of the first $2,000 ($4,000 for joint filers) you contribute to retirement accounts, depending on your filing status and income. The lower your income, the higher the percentage you can use to calculate the credit. For 2021 tax returns, single filers, married people filing a separate return, and qualified widow(er)s can claim a 50% credit if their AGI is $19,750 or less ($19,500 for 2020). They can claim a 20% credit if their AGI is from $19,751 to $21,500 ($19,501 to $21,250 for 2020), and the 10% credit is available if their AGI is from $21,501 to $33,000 ($21,251 to $32,500).

For married couples filing a joint return, the 50% credit is available if their AGI doesn’t exceed $39,500 ($39,000 for 2020), the 20% credit is available if their AGI is from $39,501 to $43,000 ($39,001 to $42,500 for 2020), and the 10% credit is available if their AGI is from $43,001 to $66,000 ($42,501 to $65,000 for 2020).

The 50% credit can be claimed by head-of-household filers with an AGI of $29,625 or less ($29,250 for 2020), while they can claim the 20% credit with an AGI from $29,626 to $32,250 ($29,251 to $31,875 for 2020) and the 10% credit with an AGI from $32,251 to $49,500 ($31,876 to $48,750 for 2020).

To claim the credit, complete Form 8880 and send it to the IRS with your 1040 form.

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Standard Mileage Rates

picture of an odometer in an antique carpicture of an odometer in an antique car

For 2021 tax returns, standard mileage rate for business driving is 56¢ a mile – that’s less than the 57.5¢ per mile for 2020. The rate for medical travel and military moves also dropped for the 2021 tax year from 17¢ to 16¢ a mile.

The mileage rate for charitable driving doesn’t change from year-to-year. So, it stayed put at 14¢ a mile for 2021 returns.

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Self-Employed Taxpayers

picture of a food truck owner in her truckpicture of a food truck owner in her truck

Self-employed taxpayers can claim some tax breaks that other people can’t. And some of those tax breaks are tweaked for 2021 tax returns. For instance, the sick or family leave credits self-employed people could claim on their 2020 tax return if they missed work for Covid-related reasons was extended for 2021 – but not for the full year. For 2021 returns, the credits are only available for qualified absences through September 30, 2021. In addition, the family leave credit can only be claimed for 50 days missed from January 1 to March 31, 2021, but it can be claimed for up to 60 days missed from April 1 to September 30, 2021. Self-employed people should use Form 7202 to calculate the sick and family leave credits they’re entitled to claim on their 2021 1040 form.

The income threshold for limits on the 20% deduction for qualified business income were also adjusted for the 2021 tax year. The taxable income threshold is $329,800 for married couples filing a joint return, $164,925 for married people filing a separate return, and $164,900 for all others ($326,600 for joint filers and $163,300 for all others for 2020 returns). Use Form 8995 or Form 8995-A to figure your qualified business income deduction.

Self-employed people who are wining and dining clients can take advantage of another perk for both the 2021 and 2022 tax years. The deduction for business meals at a restaurant is increased from 50% to 100%. This deduction is claimed on Line 24b of Schedule C.

If a self-employed person had a Paycheck Protection Program (PPP) loan forgiven in 2021, the canceled debt is not taxable income and doesn’t have to be reported on Form 1040. However, if you have tax-exempt income resulting from the discharge of a PPP loan last year, you must attach a statement to your 2021 tax return that includes certain information related to your PPP loan (see the instructions to Form 1040 for details). You should also write “RP2021-48” at the top of the statement.

Unfortunately, there are also a couple of negative changes that may increase the 2021 tax bill for some self-employed taxpayers. First, none of the self-employment taxes owed for the 2021 tax year can be deferred as they could on 2020 returns. In fact, half of any 2020 tax deferred had to be paid by the end of 2021, while the rest is due by the end of 2022. Second, the cap on deductible business losses is back after being suspended for the 2018 to 2020 tax years. For 2021 tax returns, the inflation-adjusted limit is $262,000 ($524,000 for married couples filing a joint return). Form 461 is used to calculate a self-employed taxpayer’s limitation on business losses.

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Unemployment Benefits

picture of an unemployment benefits application formpicture of an unemployment benefits application form

The $10,200 exemption for unemployment compensation in effect for the 2020 tax year is no more. Under the American Rescue Plan Act, which authorized the exemption for families with a federal AGI less than $150,000, the tax break was for one year only.

As a result, any unemployment compensation you received last year will be fully taxed on your 2021 tax return. Report the benefits on Line 7 of Schedule 1.

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Long-Term Care Insurance Deduction

picture of a nurse helping an elderly resident of a nursing homepicture of a nurse helping an elderly resident of a nursing home

If you’re paying for long-term care insurance, you might be able to deduct a portion of your premiums – and the deduction maximums, which are based on age, are higher for the 2021 tax year. Taxpayers age 71 or older can deduct up to $5,640 per person on their 2021 tax return ($5,430 for 2020). If you’re 61 to 70 years old, you can deduct as much as $4,520 of your premiums ($4,350 for 2020). Anyone 51 to 60 years old can write-off up to $1,690 ($1,630 for 2020). For people 41 to 50 years of age, the max is $850 ($810 for 2020). And, finally, the maximum deduction is $450 if you’re 40 or younger ($430 for 2020).

Long-term care insurance premiums are only deductible as medical expenses for most people, which means they must itemize deductions on Schedule A to claim the tax break. However, self-employed people can deduct their premiums on Line 17 of Schedule 1 without having to itemize.

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Student Loan Discharge

picture of a blackboard with "student loan debt relief" written on itpicture of a blackboard with "student loan debt relief" written on it

Before the 2021 tax year, canceled or forgiven student loan debt was considered taxable income. However, from 2021 to 2025, most canceled student loan debt that was incurred for a post-secondary education is tax-free. Therefore, you shouldn’t report qualified student loan debt that was canceled last year on Line 8c of Schedule 1.

The IRS has also told lenders and student loan servicer providers not to file Form 1099-C or submit payee statements for qualified student loan debt that’s discharged, canceled, or otherwise forgiven through 2025. So, if you do receive a 1099-C form reporting discharged student loan debt that you believe is not taxable, contact the lender or loan service provider that issued the form and ask them to send a corrected form.

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Foreign Earned Income Exclusion

picture of a man holding a U.S. passport while standing on a map of the worldpicture of a man holding a U.S. passport while standing on a map of the world

Americans working abroad may be able to exclude all or a portion of their foreign-earned income from taxable income on their U.S. tax return. For 2021 returns, the maximum exclusion amount is $1,100 higher than it was for the 2020 tax year – it jumped from $107,600 to $108,700.

In addition to the foreign earned income exclusion, taxpayers living abroad may also be able to claim an exclusion or deduction for their foreign housing. For the 2021 tax year, the maximum foreign housing exclusion is generally $15,218 ($15,064 for 2020), although it can be higher in certain high-cost areas.

Use Form 2555 to figure both your foreign earned income exclusion and foreign housing exclusion/deduction.

Source: kiplinger.com

There’s Still Time to Contribute to Your IRA and Cut Your Taxes

As we approach the end of this year’s tax filing season, make sure you haven’t overlooked one of the best ways to cut your tax bill and secure your future — contributing to a traditional IRA. (There is no upfront tax break for funding a Roth IRA.)

You can make an IRA contribution for the 2021 tax year up until this year’s tax return filing deadline, which is April 18 for most people. That doesn’t leave much time, but if you have some extra income go ahead and deposit it into an IRA account today before time expires. (Just make sure the IRA administrator knows it’s for the 2021 tax year.)

And what about those tax savings? Well, depending on your income, you may be able to deduct your IRA contribution on your 2021 tax return. To contribute to a traditional IRA, you or your spouse must have earned income from a job. But, otherwise, you may be able to deduct contributions to an IRA even if you or your spouse are covered by another retirement plan at work. Plus, starting in 2020, seniors age 70½ and older with earned income can now contribute to a traditional IRA, too.

Here’s some more good news: The IRA deduction is an “above the line” deduction, meaning you don’t have to itemize your deductions to claim it. It will reduce your adjusted gross income (AGI) dollar-for-dollar, lowering your tax bill. And your lower AGI could make you eligible for other tax breaks, which are tied to income limits.

Who Qualifies for the IRA Deduction

If you’re single and don’t participate in a retirement plan at work, you can make a tax-deductible IRA contribution for 2021 of up to $6,000 ($7,000 if you’re 50 or older) regardless of your income. If you’re married and your spouse is covered by a workplace-based retirement plan but you’re not, you can deduct your full IRA contribution as long as your joint AGI doesn’t top $198,000 for 2021. You can take a partial tax deduction if your combined income is between $198,000 and $208,000.

But even if you do participate in a retirement plan at work, you can still deduct up to the maximum $6,000 IRA contribution ($7,000 if you’re 50 or older) if you’re single and your 2021 income is $66,000 or less ($105,000 if married filing jointly). And you can deduct some of your IRA contribution if you’re single and your income is between $66,000 and $76,000, or if you’re married and your income is between $105,000 and $125,000.

Spouses with little or no earned income for 2021 can also make an IRA contribution of up to $6,000 ($7,000 if 50 or older) as long as their spouse has sufficient earned income to cover both contributions. The contribution is tax-deductible as long as your household income doesn’t exceed the limits for married couples filing jointly.

Double Tax Break with the Saver’s Credit

Some low- and moderate-income taxpayers get an extra tax break on their 2021 return for contributing to an IRA or other retirement account.

In addition to the usual IRA deduction, you may qualify for a Retirement Savers tax credit of up to $1,000 ($2,000 for joint filers) for contributions to an IRA or other retirement tax plan. (A tax credit, which reduces your tax bill dollar-for-dollar, is more valuable than a deduction, which merely reduces the amount of income that is taxed.)

The actual amount of the credit depends on your income. It ranges from 10% to 50% of the first $2,000 contributed to an IRA or other retirement account. To be eligible, your 2021 income can’t exceed $33,000 if you’re single, $49,500 if you’re the head of a household with dependents, or $66,000 if you’re married filing jointly. The lower your income, the higher the credit. But you can’t claim the Retirement Savers credit if you’re under 18, a student, or can be claimed as a dependent on someone else’s tax return.

File an Amended Return

What if you already filed your 2021 tax return? No problem – just file an amended tax return after April 18 to claim your new or increased tax breaks. You generally have three years from the date you filed your original return or two years from the date you paid any tax due to file an amended return (go with whichever date is later).

Use Form 1040-X to file an amended return. You can mail in a paper return or file electronically. We recommend e-filing your amended return, since it will be processed much faster. If you’re changing your IRA deduction, make sure you write “IRA deduction” and the amount of the increase or decrease in Part III of the form. Once you file an amended return, you can track its status online using the IRS’s “Where’s My Amended Return?” tool or by calling 866-464-2050.

Source: kiplinger.com

Claim Your 2018 Tax Refund Now – Or Lose It Forever

The IRS is looking for about 1.5 million people who didn’t file a 2018 tax return and who might be owed a refund of taxes that were withheld or otherwise prepaid. In fact, Uncle Sam has almost $1.5 billion of potential refunds waiting to be claimed. The median potential refund is estimated to be $813. Is any of that money yours?

Claim Your Refund By April 18

Act now if you think some of that cash could belong to you. In cases where a federal tax return was not filed, the taxpayer generally has a three-year window of opportunity to claim a refund. That means you must file your 2018 tax return with the IRS no later than this year’s tax filing deadline to collect the money. For most people, that’s April 18 (April 19 for residents of Main or Massachusetts). If you don’t file a 2018 return in time, the U.S. Treasury gets the money and you’re out of luck.

Missing W-2 and Other 2018 Tax Forms?

If you’re missing W-2, 1098, 1099 or 5498 forms from 2018, try getting copies from your employer, bank or other payer. If that doesn’t work, you can go on the IRS website and order a free wage and income transcript or request one by filing Form 4506-T. The transcript will show data from information returns received by the IRS. This information can be used to file your 2018 tax return.

What If You Have a Tax Debt or Didn’t File Other Returns?

The IRS could hold your 2018 refund check if you didn’t file a 2019 or 2020 return, either. In addition, the IRS may also apply your 2018 refund to any federal or state taxes you owe for other years — or to offset unpaid child support or past due federal debts, such as student loans.

Eligibility for 2018 Earned Income Tax Credit

By filing a 2018 tax return, many low- and moderate-income workers may also be eligible for the earned income tax credit for that year. The credit was worth as much as $6,431 for 2018. The credit helps individuals and families whose incomes are below certain thresholds. The thresholds for 2018 were:

  • $49,194 ($54,884 if married filing jointly) for people with three or more qualifying children;
  • $45,802 ($51,492 if married filing jointly) for people with two qualifying children;
  • $40,320 ($46,010 if married filing jointly) for people with one qualifying child; and
  • $15,270 ($20,950 if married filing jointly) for people without qualifying children.

Source: kiplinger.com

9 Tax Breaks Parents Can Get for Claiming Kids on Taxes

Does the thought of doing your taxes on top of caring for your kids make your head spin?

Take a deep breath: We found nine tax breaks for parents.

Whether your children are swaddled newborns or seeking college degrees or whether you’re single, married with kids or adopted this year, you’re eligible to get some money back on tax day.

9 Benefits and Tax Credits for Parents

Here are the top tax credits and deductions for parents to keep in mind.

1. Out-of-Pocket Medical Expenses Related to Pregnancy

If you had a baby last year, paid out of pocket for medical expenses during your pregnancy and were never reimbursed, you’ll be able to itemize those amounts as deductions.

As of 2021, this tax code requires the expenses exceed 7.5% of your adjusted gross income. That might seem unreachable, but since you’ll be billed item by item for prenatal care and childbirth, it can start to add up.

2. Child Tax Credit

As soon as your child is born, you’re eligible for the Child Tax Credit, which pays up to $3,600 for every child under the age of 17, depending on your income.

This might seem obvious, but it’s important to note: Even if your child is born on Dec. 31, you can still claim them for that year.

The credit is between $2,000 to $3,000 per child for children between the age of six and 17, and from $2,000 to $3,600 for children under the age of six. All working families will get the full credit if they make up to $150,000 per couple or $112,500 for a single-parent family.

3. Adoption Tax Credit

The adoption process is notorious for being lengthy and expensive.

The Adoption Tax Credit is worth up to $14,440 to help you alleviate that financial strain. This credit covers adoption fees, court costs and attorney fees, travel expenses and related expenses.

4. Earned Income Tax Credit

If you earned income last year but didn’t exceed certain thresholds, you may qualify for the Earned Income Tax Credit, which can significantly reduce your tax bill.

The income limits depend on your filing status and how many children you have. For example, if you’re filing as single or head of household and have one qualifying child, you must have earned less than $42,158. If you’re filing jointly with your spouse and have three qualifying children, you must have earned less than $57,414.

The maximum amounts of credit vary slightly each year. For the 2021 tax year, the maximum amounts of credit were:

  • $6,728 for three or more qualifying children
  • $5,980 with two qualifying children
  • $3,618 with one qualifying child

Note: You can also qualify for the Earned Income Tax Credit without having a child.

5. Child Care Tax Credit

The cost for center-based daycare can range anywhere between $199 per week for a family care center to $213 per week for a daycare or child care center, according to a survey by Care.com.

If you’re paying for child care, you may be able to get a chunk of that back on your taxes.

If your child is 13 years old or younger and you pay for child care while you’re either working or looking for work, you qualify for the Child and Dependent Care Tax Credit. According to the IRS, the amount of the credit varies. It is a percentage based on the amount of work-related expenses you paid to a care provider for the care of a qualifying individual.

The amount of expenses you can use to calculate the credit can be no more than $3,000 for one qualifying individual and no more than $6,000 for two or more qualifying individuals.

6. Head-of-Household Status

If you’re single and have a child, don’t overlook this crucial item: your status.

If you file as a head of household, you’re automatically eligible for a lower tax rate than if you file as single.

To be considered the head of household, you must:

  • Be unmarried or considered unmarried on Dec. 31.
  • Contribute more than 50% of the financial support of the household.
  • Have a dependent who lives with you for more than six months of the year.

We have more details about head-of-household status affects plus answers to frequently asked questions

7. American Opportunity Tax Credit

During the first four years of your child’s college education, you can claim up to $2,500 for tuition and related expenses under the American Opportunity Tax Credit.

Your child must attend college at least part time. The income threshold for individual parents is $80,000; married couples must earn no more than $160,000.

8. Lifetime Learning Credit

Unlike the American Opportunity Tax Credit, there is no limit to the number of times you can claim the Lifetime Learning Credit for education costs to lower your tax bill.

Worth up to $2,000, the LLC covers tuition and related expenses.

To qualify, your modified adjusted gross income must be less than $69,000 (or $138,000 if you’re filing jointly with your spouse).

Note: You can’t claim the AOTC and the LLC for the same person in a single year. Also, the AOTC is per student, while the LLC is per family.

9. State Tax Credits for Parents With Kids in Elementary or High School

Some states offer benefits for certain items or activities during the school year.

In Arizona, for example, if your kids attend public school, you’re eligible for a tax credit for any fees related to extracurricular activities, including sports equipment or uniforms. You can even qualify for the credit if you spent money on their SAT/ACT tests or prep classes.

While it won’t affect your federal return, you should check to see if your state offers any tax credits, before filing your state taxes.

Other Parent-Child Tax Items to Consider

Ask yourself two more questions before filing your return, putting up your feet and enjoying a well-deserved break.

Which Parent Should Claim the Child?

A tricky part of being separated or divorced is figuring out who is supposed to claim the child on their tax return.

To make the call, the IRS typically looks at where the child sleeps for more than half the year, but there are some special exemptions as to who can claim the child and when.

It gets a bit tricky, but this IRS chart answers a variety of questions you might have.

Does Your Child Work?

If your child has a job, make sure they file their own tax return.

Teens who work while in school usually don’t make enough money to have a liability. So, even though their employers have likely withheld taxes throughout the year, they’ll get them back in a refund check, which is a nice incentive.

Plus, it’s a great way to continue teaching them about money.

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Source: thepennyhoarder.com

What is Earned Income Tax Credit and How to Qualify

At tax time, most of us have a similar goal: minimize our liability, and maybe even get some money back in the process. The Earned Income Tax Credit, or EITC, is a tax incentive that might be able to help.

You may be eligible for the EITC if you earned a relatively low income in the previous tax year — especially if you have children. In this article, we’ll explore exactly how to qualify, how much credit you can get, and how to claim it on your tax return. Then we’ll follow up with some frequently asked questions about the Earned Income Tax Credit.

What Is Earned Income Tax Credit?

The Earned Income Tax Credit (EITC) is a refundable tax credit available for low- to moderate-income individuals and families — especially those with children. The EITC is claimed when you file your tax return. The maximum amount available for 2021 taxes is $6,728, though the amount of credit you’ll receive depends on income, filing status, and how many qualifying children you have.

The EITC is a credit, not a deduction, which means it directly reduces the tax dollars you owe. A deduction, on the other hand, reduces how much of your income is subject to taxation. In practice, this means it’s even better than a tax deduction in most cases, and could substantially lower your tax liability or get you a bigger refund.

Who Qualifies for the Earned Income Tax Credit?

The basic qualification for the EITC is simple, but as with all things IRS, there are lots of nitty-gritty specifics that can make or break your eligibility. The first requirement is right there in the name: you must have earned income. You’ll also need to:

  • Have a Social Security number.
  • Have been a U.S. citizen or resident alien for the entirety of the tax year in question.
  • Be at least 25 years old, but not over 65.

If you don’t have children, you may be eligible based solely on a low income. In the 2021 tax year, you’ll need to have earned an adjusted gross income, or AGI, of:

  • Less than $21,430 as a single filer.
  • Less than $27,380 for married couples filing jointly.

Otherwise, the income limits depend on the number of children you have — and the children must meet all qualifications, which include age and residency requirements, and a Social Security number of their own.

2021 Income Limits for Earned Income Tax Credit

Number of Children Single or Head of Household Married Filing Jointly
No qualifying children $21,430 $27,380
1 qualifying child $42,158 $48,108
2 qualifying child $47,915 $53,865
3+ qualifying child $51,464 $57,414

Additionally, there are some special rules for military and clergy members, as well those who earn select types of disabilities benefits. If you fall into one of these categories, definitely check out the links — these rules will help you determine whether certain monies can be claimed as earned income and applied toward eligibility credit.

How Much Can You Get From the Earned Income Tax Credit?

Although individuals without children have always qualified for a small earned income credit, it’s typically been much less than what’s offered for those with children. The 2021 tax year is different in that this amount has been increased dramatically to help with COVID-19 relief.

Maximum EITC Based on Number of Children

Number of Children Maximum EITC Amount
0 $1,502
1 $3,618
2 $5,980
3+ $6,728

The amount of credit being offered to individuals and families with no children is going back down for the 2022 tax year. The American Rescue Plan Act, which was designed to help alleviate the burden imposed by COVID-19, temporarily increased the EITC for those without children, but this increase will not carry over to the 2022 tax year (as of the time of this writing).

How to Get the Earned Income Tax Credit

If you’re eligible for the Earned Income Tax Credit and ready to see its effect on your return, the first thing you need to do is to file a tax return. You’ll need to do this even if you don’t owe any taxes or are not otherwise required to file — there’s no other way to claim the credit.

You can use U.S. tax forms 1040 or 1040-SR to claim the Earned Income Tax Credit if you don’t have qualifying children, but if you do have children, you’ll need to include Schedule EITC with your 1040. You can also gather all the necessary documentation and have a tax professional do the paperwork for you, or take advantage of the IRS online Free File tool.

Frequently Asked Questions (FAQs) about the Earned Income Tax Credit

You’ve got questions about the Earned Income Tax Credit, don’t worry — we’ve got answers.

What is the Earned Income Tax Credit and How Does it Work?

The Earned Income Tax Credit (EITC) is a credit offered to individuals and families that earned a low income during the previous tax year. The amount of credit offered is determined by your filing status (single or married filing jointly) and the number of children you have — generally, the more kids you have, the larger the credit you’ll be eligible for.

What is an Example of Earned Income Tax Credit?

Since the EITC is a credit, rather than a deduction, it comes directly off your tax liability. In other words, if you are getting back $2,000 and get an Earned Income Tax Credit of $2,000, you would receive a total refund of $4,000.

What are the Qualifications for Earned Income Credit?

To qualify for the EITC for the 2021 tax year, you must:

  • Have earned an income under $57,414.
  • Have investment income below $10,000.
  • Have a valid Social Security Number.
  • Be a U.S. citizen or resident alien.
  • You can qualify for the EITC using any of the following tax filing statuses:

  • Married filing jointly
  • Head of household
  • Married filing separate
  • Qualifying widow or widower
  • Single
  • What Disqualifies You from Earned Income Credit?

    Several things can disqualify you from receiving EITC, including:

  • Earning more than $57,414.
  • Having investment income over $10,000.
  • Filing a Form 2555 with the IRS, which is related to foreign income.
  • There may be other disqualifying factors. If you’re not sure whether you qualify, it’s best to consult with a tax professional. The IRS has a Qualification Assistant tool to help determine your eligibility.

    Penny Hoarder contributor Dave Schafer has been writing professionally for nearly a decade, covering topics ranging from personal finance to software and consumer tech. Reporting by Jamie Cattanach is included in this story.

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    Source: thepennyhoarder.com

    11 Reasons to File a Tax Return Even If You Don’t Have To

    Filling out tax forms is a pain in the you-know-what. So why on earth would anyone file a tax return if they don’t have to? Well, actually, there’s one very important reason why – you might get a big, fat tax refund check in the mail.

    People with income under a certain amount (see table below) aren’t required to file a tax return because they won’t owe any tax. But if you qualify for certain tax credits or already paid some federal income tax, Uncle Sam might owe you a refund that you can only get by filing a return. Think about that for a minute!

    If you want to know more, here are 11 reasons why you might want to file a tax return even if you don’t have to. Although dealing with taxes can be a real drag, it’s probably worth it if you wind up with a much fatter wallet in the end. (Note that the IRS won’t penalize you for filing a late return if you’re getting a refund.)

    Who Has to File a Tax Return?

    Here are the federal tax return filing requirements for the 2021 tax year:

    Filing Status and Age at End of 2021 

    Filing Required If Income is At Least 

    Single; Under 65

    $12,550

    Single; 65 or Older

    $14,250

    Married Filing Jointly; Both Spouses Under 65

    $25,100

    Married Filing Jointly; One Spouse 65 or Older

    $26,450

    Married Filing Jointly; Both Spouses 65 or Older

    $27,800

    Married Filing Separately; Any Age

    $5

    Head of Household; Under 65

    $18,800

    Head of Household; 65 or Older

    $20,500

    Qualifying Widow(er); Under 65

    $25,100

    Qualifying Widow(er); 65 or Older

    $26,450

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    Withheld Taxes

    picture of IRS Form W-4picture of IRS Form W-4

    If an employer withheld federal income taxes from your paycheck last year, or taxes were withheld from other sources of income in 2021, you might be entitled to a refund if you file a 2021 tax return. If you don’t owe any tax – and, therefore, aren’t required to file a return – then it only makes sense that any taxes you already paid should be refunded to you. But you won’t get that money back if you don’t file a 1040 form.

    You may also be entitled to a refund if too much Social Security or Tier 1 Railroad Retirement taxes were withheld from your 2021 paychecks. This could happen if you had multiple employers for 2021 and total wages of more than $142,800. If that’s the case, you can claim a refundable tax credit on your 2021 return for the amount withheld in excess of $8,853.60. (If a “refundable” credit is worth more than the income tax you owe, the IRS will issue you a refund check for the difference. With a “nonrefundable” credit, you don’t get a refund because the tax you owe isn’t reduced below zero.)

    If you had only one employer last year that withheld more than $8,853.60, you can’t claim the credit. Instead, the employer should adjust the tax for you. If you can’t get the employer to make an adjustment, you can claim a refund using Form 843.

    2 of 11

    Taxes Paid

    picture of lettered blocks spelling out &quot;Estimated Tax&quot;picture of lettered blocks spelling out &quot;Estimated Tax&quot;

    Withholding isn’t the only way you could have already paid taxes for 2021 to Uncle Sam. For instance, if you received income as an independent contractor or were otherwise self-employed, you may have made estimated tax payments last year. If you filed a 2020 tax return, you may have applied your refund from that return to your 2021 taxes (it’s optional). If you’re filing an extended return, you should have paid the amount of tax you expect to owe when you requested the extension with Form 4868.

    If you paid 2021 taxes in advance in one of these three ways, make sure you file a tax return even if your overall income is below the applicable filing threshold amount. That will allow you to get that money back.

    3 of 11

    Earned Income Tax Credit

    picture of a woman delivering pizzapicture of a woman delivering pizza

    The Earned Income Tax Credit (EITC) is for lower income working people. If you qualify for this refundable credit, then you definitely want to file a tax return. For the 2021 tax year only, more workers without children qualify for the EITC. Plus, if your child doesn’t have a Social Security number, you can now claim the EITC that’s available to childless workers for 2021 and beyond. So, even if you weren’t eligible for the credit in previous years, make sure you check it out this year because you may qualify now.

    For 2021 tax returns, the maximum EITC ranges from $1,502 to $6,728 depending on your income and how many children you have. So, it’s well worth the time it takes to complete a tax form if you qualify for the credit.

    The income limits to qualify for the EITC are fairly low. For example, if you don’t have kids, you can qualify if your 2021 earned income and adjusted gross income (AGI) are each less than $21,430 for singles and $27,380 for joint filers. If you have three or more children and are married, though, your 2021 earned income and AGI can be as high as $57,414. Plus, you can use your earned income from 2019 to determine the EITC for the 2021 tax year if it results in a higher credit amount. There are many exceptions and other rules, but the IRS has a handy online tool to help you figure out if you’re eligible for the credit.

    4 of 11

    Child Tax Credit

    picture of mother watch one child playfully smashing a cupcake into another child's facepicture of mother watch one child playfully smashing a cupcake into another child's face

    There are a lot of temporary enhancements to the child tax credit for the 2021 tax year (and only for the 2021 tax year). The credit amounts are higher, more children qualify, and it’s fully refundable on your 2021 tax return. Generally, parents with children 17 years old or younger may qualify for the 2021 child tax credit. The maximum credit amount is $3,000 for each child age 6 to 17, and $3,600 for each child 5 years old and younger. So, like the EITC, you could end up with a nice refund check by filing a return just to claim this credit.

    However, if you received any monthly child tax credit payments from July to December last year, you must subtract the total amount of those payments from the credit amount you’re entitled to claim on your 2021 return. That’s because those monthly payments were simply advance payments of the 2021 credit. (Use our 2021 Child Tax Credit Calculator to see how much you should have received in monthly payments last year and how much you should have left to claim on your 2021 tax return.) For all the details about the 2021 credit, see Child Tax Credit FAQs for Your 2021 Tax Return.

    Not sure if you qualify for the credit? The IRS has an online tool to help with that. But note that you might be able to claim a different tax credit for your dependents if you don’t qualify for the child tax credit. There’s something called the “credit for other dependents,” and it’s worth up to $500 for each qualifying dependent. It’s a nonrefundable credit, though. So, it won’t trigger a refund if you otherwise don’t owe any tax.

    5 of 11

    Child and Dependent Care Credit

    picture of preschool teacher clapping with childrenpicture of preschool teacher clapping with children

    As with the child tax credit, there were several enhancements made to the child and dependent care tax credit that only apply for the 2021 tax year – including making the credit refundable for people who live in the U.S. for more than half of the year, which means you definitely want to file a 2021 tax return if you qualify for the credit.

    The credit helps people who work, are looking for work, or attending school pay for the care of children under 13 or certain other people who can’t care for themselves. In addition to being refundable, credit amounts will be higher and more people will qualify for the credit on their 2021 tax returns.

    For the 2021 tax year, you’re eligible for a 20% to 50% credit for up to $8,000 in care expenses for one child or other qualifying person or up to $16,000 in expenses for two or more. There are income limits, though. You’re eligible for the full credit if your AGI doesn’t exceed $125,000. The percentage is gradually reduced from 50% to 20% if your AGI is between $125,001 and $183,000. It stays at 20% if your AGI is from $183,001 to $400,000, but then it’s gradually reduced again from 20% to 0% if your AGI is between $400,001 and $438,000. You can’t claim the credit if you make over $438,000.

    For more information on the 2021 credit, see Your Child Care Tax Credit May Be Bigger on Your 2021 Tax Return.

    6 of 11

    Recovery Rebate Credit

    picture of man holding sign saying &quot;Stimulus Checks&quot;picture of man holding sign saying &quot;Stimulus Checks&quot;

    If you didn’t get a third stimulus check, or you didn’t get the full amount, you may be able to get paid now by claiming the recovery rebate credit on your 2021 tax return. The third-round stimulus checks (including “plus-up” payments) were actually just advance payments of the credit. So, if you didn’t get the money earlier, you should get it now (assuming you’re eligible).

    You’re generally eligible to claim the recovery rebate credit on your 2021 return if, in 2021, you:

    • Were a U.S. citizen or U.S. resident alien;
    • Can’t be claimed as a dependent on another person’s tax return; and
    • Have a Social Security number valid for employment that’s issued before the due date of your 2021 tax return (including extensions).

    Calculation of the recovery rebate credit is generally the same as the calculation for the third round of stimulus checks, except that the credit is based on information from different sources. The third-round stimulus checks were typically based on information from either your 2019 or 2020 tax return, whichever was most recently filed when the IRS began processing your payment (use Kiplinger’s Third Stimulus Check Calculator to see how much you should have gotten). However, the amount of your recovery rebate credit is based on information found on your 2021 tax return. For more information, see What’s the Recovery Rebate Credit?

    7 of 11

    American Opportunity Tax Credit

    picture of four college students hanging out on some stepspicture of four college students hanging out on some steps

    The American Opportunity credit covers expenses for students who are in their first four years of college. The credit is worth up to $2,500 per eligible student, and it can be claimed by a parent, spouse or student who is not claimed as a dependent for tuition, fees, or textbooks.

    The credit is partially refundable. So, if the credit is worth more than your tax liability for the year, you’ll get a refund check for 40% of the remaining amount – up $1,000 for each qualifying student. That should be enough to get you to complete a tax return if you don’t otherwise have to file one.

    As with the EITC and child tax credit, the IRS has an online tool to help you figure out if you’re eligible for the American Opportunity credit. It will also help you determine if you can claim the non-refundable Lifetime Learning credit, which is available for an unlimited number of years.

    8 of 11

    Premium Tax Credit

    picture of a magnifying glass over a book about ObamaCarepicture of a magnifying glass over a book about ObamaCare

    The premium tax credit helps people pay for insurance they buy through the health insurance marketplace (i.e., Obamacare). Normally, the credit is available for people with household incomes ranging from 100% to 400% of the federal poverty level. However, for the 2021 and 2022 tax years, people with a household income that exceeds 400% of the federal poverty line for their family size may still claim the credit. The amount of the premium tax credit is based on a sliding scale, so that people with a lower income get a larger credit.

    An estimated credit is calculated when you go on a marketplace website such as healthcare.gov to buy insurance. At that point, you can choose to have the credit paid in advance directly to the insurance company to lower your monthly payments, or you can choose to get all the benefit of the credit when you file your tax return for the year. If you elect to have advance premium tax credit (APTC) payments made to the insurer, you must file a tax return and reconcile the amount paid in advance with the actual credit you compute when you file your return. Either way, you’ll need to complete Form 8962 and attach it to your tax return.

    The premium tax credit is another refundable credit. So, if the amount of the credit is more than the amount of the tax you owe, you’ll receive the difference as a refund if you file a tax return. If you owe no tax, you can get the full amount of the credit as a refund. However, if your actual allowable credit is less than your APTC payments, the difference is usually subtracted from your refund or added to the tax you owe.

    Be warned, though, that the IRS typically looks for people who receive advance credits and either don’t file returns or file returns incorrectly reporting the credit. So, monkeying around with the premium tax credit is a good way to get your return audited.

    9 of 11

    Health Coverage Tax Credit

    picture of a stethoscope on money picture of a stethoscope on money

    The health coverage tax credit helps certain displaced workers and pre-retirees pay for health insurance. Specifically, it is available to (1) people eligible for Trade Adjustment Assistance allowances because of a qualifying job loss, and (2) people between 55 and 64 years old whose pension plans were taken over by the Pension Benefit Guaranty Corporation. The credit is worth up to 72.5% of payments for qualified health insurance coverage.

    As with the other credits we’ve mentioned, the health coverage credit is refundable. So, if you can claim the credit, you’ll want to file a tax return just to claim the credit, even if you’re not required to file a return. By doing so, you can get a federal income tax refund check sent to you.

    As with the premiums tax credit, the health coverage credit can be paid in advance. If you received advance payments last year, you must file a 2021 tax return. That also means that your refund will be smaller (or eliminated) if the advance credit payments are greater than your actual allowable credit.

    Also note that the health coverage credit expired at the end of 2021, so you won’t be able to claim it next year when you file your 2022 tax return.

    10 of 11

    Credits for Sick and Family Leave

    picture of sick woman in bed taking her temperaturepicture of sick woman in bed taking her temperature

    Many employers provided paid sick and family leave in 2021 for workers affected by COVID-19. However, to shift most of the financial burden for paid leave off the employer’s back, tax credits were also made available to reimburse employers for some of the cost of leave taken through September 30, 2021. Self-employed people who couldn’t work because of certain COVID-related circumstances got similar refundable tax credits, too.

    The credits are generally equivalent to the amount of qualified sick or family leave wages the self-employed person would have received if he or she were an employee. To be eligible for the 2021 self-employment credits, you must have regularly carried on a trade or business during the year and been eligible to receive sick or family leave wages if you had been an employee of an employer (other than yourself). The sick and family leave credits are different depending on whether the leave was taken before or after April 1, 2021. Complete Form 7202 to calculate the credit amounts.

    People who paid household employment taxes might also be able to claim refundable credits for a portion of any sick or family leave wages they paid that were related to COVID-19. The 2021 credit amounts are shown on Schedule H, Lines 8e and 8f.

    As with the other refundable credits discussed, the credits for sick and family leave can lower your tax bill or even result in a tax refund. So, make sure you claim them even if you aren’t required to file a 2021 tax return.

    11 of 11

    Credit for Federal Fuel Taxes

    picture of a farmer driving an old tractorpicture of a farmer driving an old tractor

    The federal government taxes most fuel purchases (e.g., 18.4¢ per gallon tax on gasoline). But some people can claim a credit on their tax return if they burn the fuel during certain non-taxable activities. This credit is typically claimed by businesses, but some individuals can claim it too if they qualify. For example, farmers and fishermen can claim the credit if they’re the ultimate purchaser of gasoline used on a farm for farming purposes or in a boat engaged in commercial fishing.

    The credit is refundable, so you’ll certainly want to file a tax return if you qualify for the credit. You must fill out Form 4136 to calculate the credit amount, and then attached the form to your return.

    Source: kiplinger.com

    How Much Is the Child Tax Credit for 2021?

    The child tax credit is a tax benefit that can reduce the financial burden faced by American families with young kids. While the child tax credit has been present in previous years, the amount eligible taxpayers can receive as a result of this benefit has reached a historic high in 2021. 

    The American Rescue Plan Act of 2021 is an economic stimulus bill designed to help Americans weather the economic turmoil brought about by the COVID-19 pandemic. This piece of legislation increased the child tax credit so that taxpayers receive $3,600 for each qualifying dependent child under the age of six and $3,000 for each qualifying dependent child over the age of six.

    For an in-depth answer to “how much is the child tax credit for 2021?” and more clarification on who qualifies for it, read this article from start to finish. You can also jump to any section in the article using the links below.

    • What Is the Child Tax Credit? 
    • How Much Is the Monthly Child Tax Credit? 
    • Is Everyone Entitled to the Child Tax Credit?
    • When Do Child Tax Payments Come in? 
    • How Does the Child Tax Credit Impact Your Taxes?
    • Create a Financial Plan With Mint
    Child Tax Credit 2021
    The Child Tax Credit was increased in 2021 to $3,000 for children over the age of six and $3,600 for children under the age of six (up to 17 years old). The 2021 Child Tax Credit will be available to nearly all working families with an income of under $150,000 for couples or $112,500 for a single-parent household.

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    What Is the Child Tax Credit?

    The child tax credit is a benefit that reduces your financial burden of Americans who have qualifying dependent children. The child tax credit is designed to ease the burden faced by those with children so that they can better provide for their families. This benefit is a refundable credit—meaning that if you don’t have tax liability to offset, you can get the credit amount in cash to take care of your other expenses.

    How much the child care tax credit amounts to in total will depend on a few factors, such as:

    • Number of qualifying children you have
    • You children’s ages
    • Your income

    In the next few sections, we’ll go into greater depth about who qualifies—as well as who doesn’t—and how much you can expect to receive.

    How Much Is the Monthly Child Tax Credit?

    For 2021, the child tax credit has increased significantly compared to previous years. In 2020, taxpayers could claim a maximum tax benefit of $2,000 for each dependent below the age of 17.

    So, how much is the child tax credit per month? There is no longer a monthly payment at the moment. Congress has not passed laws to extend this payment.

    To help taxpayers support their families, the American Rescue Plan greatly expanded the child tax credit in 2021 so that taxpayers can now receive $3,600 for every dependent child under the age of six and $3,000 for every dependent child over the age of six. The expanded credit benefits roughly 9 in 10 children across the country.

    On a monthly basis, the White House reports that most families were automatically receiving monthly payments of $250 or $300 per child as of July 15th, 2021. Taxpayers who qualified for the child tax credit were receiving monthly payments without having to take action. 

    However, as noted above, there aren’t monthly payments. This may change if laws are passed to extend the payment.

    How Much Is the Child Tax Credit for 2021?

    If you’re wondering “how much is the child tax credit for 2021?”, it was $3,600 for every dependent child under the age of 6 and $3,000 for every dependent child over the age of six. These figures represent the annual tax benefit for the 2021 tax year—$250 or $300 monthly payments are issued depending on the age of your children. 

    This all-time high child tax credit will continue to be distributed via monthly payments through 2022 if the necessary laws are passed. The legislation also permanently allows for families with low or no earnings for the year to claim the full credit in order to battle child poverty in the long-term. 

    How Much Do You Get Per Child?

    The American Rescue Plan increased the child tax credit so that taxpayers who have qualifying dependent children under the age of 6 receive a $3,600 benefit, while those with qualifying dependent children over the age of 6 receive a $3,000 benefit. 

    We’ll walk through an example scenario to better understand what the child tax credit looks like in a real-world situation. Let’s say John and Mary are married and have a 3-year-old son and a 15-year-old daughter. In this scenario, John and Mary are jointly filing their taxes and their adjusted gross income comes out to less than $150,000 per year. 

    This situation would make John and Mary eligible for the full child tax credit in 2021. Thus, they would receive a $3,600 benefit for their son and a $3,000 benefit for their daughter, for a total of $6,600. John and Mary could either claim the full $6,600 when they file their taxes or receive half of the total ($3,300) in monthly installments and then claim the other half when they file their taxes.

    While this may seem like a lot of money, the cost of providing for dependent children can quickly add up. To learn how to make your money last and improve your financial wellbeing, check out our personal finance tips. 

    Is Everyone Entitled to the Child Tax Credit?

    Not everyone is able to claim the child tax credit. In order to be eligible for the child tax credit, you must meet certain criteria. Eligibility hinges primarily on income, but also on whether or not your child meets the definition of a dependent. 

    How Do You Qualify for the Child Tax Credit?

    To qualify for the full child tax credit, your modified adjusted gross income must fall within the following guidelines: 

    Filing status:

    Head of household

    Married filing jointly

    Modified adjusted gross income (MAGI):

    $112,500 or less

    $150,000 or less

    In addition to meeting the corresponding income threshold based on filing status, your child must qualify as a dependent to claim the child tax credit. In order to be considered a dependent, the following must be true:

    • Your child must be 17-years-old or younger 
    • You provided at least half of your child’s financial support over the past year.
    • Your child lived with you for at least half of the past year.
    • Your child is not filing a joint tax return.

    Exceptions do exist for some of these qualifications. Visit IRS.gov to learn more about eligibility criteria for the child tax credit. 

    When Do Child Tax Payments Come in?

    Typically, eligible taxpayers can claim the child tax credit when they file their tax returns. However, 2021 is the first time the IRS has disbursed the child tax credit in monthly payments. 

    Eligible taxpayers automatically received either $250 or $300 per month, spanning from July 15th to December 15th. This means those who qualified for the full child tax credit received either $1,500 or $1,800, and may claim the other half of the benefit when they file their 2021 tax return. 

    While the child tax credit saw an increase in 2021, it may revert back to $2,000 in 2022. The law is set to expire unless Congress takes action and passes a bill to increase the benefit once again. So going forward it’s important to keep asking, “how much is the child tax credit this year?” to make sure you know how much you’ll be getting.

    How Does the Child Tax Credit Impact Your Taxes?

    The child tax credit can provide you with a dollar-for-dollar reduction in your tax liability. 

    If you were one of the taxpayers who received half of your child tax credit in monthly payments spanning from July to December, you’ll be able to claim the other half when you file your tax return in 2022. If you opted out of monthly payments or didn’t receive monthly payments yet qualified for the child tax credit, you’ll likely be able to claim the full benefit on your next tax return.  

    Keep in mind that if you received monthly payments from the child tax credit and you weren’t eligible for the benefit, this can increase your tax burden because you’ll be expected to pay that money back. 

    Create a Financial Plan With Mint

    When it comes to how much the child tax credit is for 2021, taxpayers are receiving a larger benefit than they have in years past. This is good news for Americans who have families to support, as they’ll face a lower tax burden going into 2022. However, to get the most out of that extra money, it’s important to manage it with care. 

    Use the Mint app to easily and effectively manage your family’s monthly budget. With our app, you can set financial goals, track spending, and make sure every dollar you receive from the child tax care credit goes a long way in helping your family. So, whether you’re trying to budget for a baby or access monthly budget templates, the Mint app can enable you to achieve all of your personal finance goals. 

    Download the Mint app and empower yourself to take control of your finances with a helpful tool that provides you with the easy-to-read financial info you need to make decisions and improve your overall fiscal well-being.

    Sources: Center on Budget and Policy Priorities | IRS 1, 2 | White House 

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    The post How Much Is the Child Tax Credit for 2021? appeared first on MintLife Blog.

    Source: mint.intuit.com

    Why Your Tax Refund Could Be Bigger This Year

    At a time when many Americans are paying more for everything from gas to ground beef, tax refunds will provide much-needed cash for many families. And this year, those refunds could be particularly generous.

    Through the March 4, the average federal tax refund was $3,401, up 13.7% from the same period last year, according to the IRS. In 2021, the average refund was $2,815.

    People who expect a big refund tend to file early, so the average for the 2022 tax season may be lower. Still, there are several reasons many taxpayers could get a larger refund this year. Taxpayers who were eligible for a third Economic Impact Payment and didn’t receive a check, or received less than the full amount, will have the opportunity to claim the recovery rebate credit when they file their 2021 tax return. The credit is worth up to $1,400. Likewise, taxpayers who were eligible for the expanded child tax credit, worth up to $3,600 in 2021, will have an opportunity to claim it when they file their 2021 tax return.

    The IRS sent out advance child tax credits in six monthly payments last year, but not everyone who was eligible for the payments received them. If you had a newborn last year, for example, you didn’t receive the advance credits because the IRS didn’t have a record of the addition to your family. But when you file your 2021 tax return, you’ll be able to claim the credit.

    Young adults may also receive a larger-than-expected refund this year because of a provision in the American Rescue Plan that expanded the earned income tax credit, which is designed to help low- and moderate-income workers. The legislation expanded eligibility for the credit to include workers between age 19 and 24 who don’t have children.

    Investing Your Tax Refund

    Nearly 60% of taxpayers expect to receive a refund this year. If you’re interested in investing all or part of your money, many brokerage firms will allow you to open an account for less than $500, and some have no minimum requirements. Coinbase, an online platform for cryptocurrency investors, says taxpayers who file their returns using TurboTax can have their refunds converted into Bitcoin, Ethereum or one of the other cryptocurrencies the company supports.

    Cryptocurrencies are extremely volatile. Risk-averse investors may want to invest their refunds in Series I bonds. I bonds issued from November 2021 through April 2022 yield a composite rate of 7.12%. You can buy up to $10,000 each year in electronic I bonds and apply your tax refund to purchase up to $5,000 in paper bonds.

    Finally, although it’s nice to get a check from the IRS, there are more-effective ways to use your money than giving the government an interest-free loan. The IRS offers a tool on its website that you can use to adjust your withholding.

    Source: kiplinger.com