Taxes can be tricky, and if you don’t stay up to date on the latest changes, you could end up missing out on thousands of dollars in returns. As tax day approaches (April 18, 2022), time is running out to get up to speed on the changes that could impact you. A good tax software is a great resource to help ensure you’re getting the biggest returns, but it’s also a good idea to educate yourself on the tax law changes to be aware of.
From expanded child tax credits to updated income brackets to account for inflation, here are five 2021 tax law changes to know before you file in 2022.
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1. Expanded Child Tax Credit
As part of The American Rescue Plan’s COVID-19 relief efforts, the child tax credit has been boosted to $3,000 for families with children ages 17 and under, along with an additional $600 for each child under the age of 6.
In order to qualify for the full credit, single filers need a gross income of less than $75,000 while married couples filing together must earn under $150,000. Keep in mind that because the IRS may have already issued up to half of an eligible taxpayer’s credit as an advance disbursement between July and December, you may end up owing some of it back if your annual income exceeds $75,000 for single filers, and $150,000 for those married and filing jointly.
2. Updated Income Brackets
While tax rates remain unchanged for 2021, the brackets themselves expanded to account for inflation. The 2021 tax brackets are as listed:
- 37% for incomes over $523,600 ($628,300 for married couples filing jointly).
- 35%, for incomes over $209,425 ($418,850 for married couples filing jointly).
- 32% for incomes over $164,925 ($329,850 for married couples filing jointly).
- 24% for incomes over $86,375 ($172,750 for married couples filing jointly).
- 22% for incomes over $40,525 ($81,050 for married couples filing jointly).
- 12% for incomes over $9,950 ($19,900 for married couples filing jointly).
- 10% for incomes of $9,950 or less ($19,900 for married couples filing jointly)..
3. An End to Retirement Plan Penalty Waivers…
When the CARES ACT was introduced in 2020 as part of the government’s COVID-19 relief, taxpayers were allowed to withdraw up to $100,000 of retirement funds without getting hit with the standard 10% early withdrawal fee. However, this withdrawal fee waiver only applies to 2020 unless reenacted by new legislation from Congress.
4. … and Having to Itemize Charitable Donations
In order to claim charitable donations, taxpayers usually need to itemize each donation to deduct charitable contributions. However, for 2021, single taxpayers can deduct up to $300 for cash donations to qualifying charities (and up to $600 for joint filers), whether they’re itemized or not.
5. The “Gift” Tax
Note that this is a tax strategy designed for higher-income families that may want to pass on wealth to children or grandchildren without being taxed on that gift. Single filers are able to “gift” another person up to $15,000 per person, and joint and married filers can gift up to $30,000 per person in 2021 without having to pay tax on that gift.
Knowing the ins and outs of taxes, and their ever-changing laws, can be a full-time job. If you’re unsure where you stand, it’s recommended to consult with a tax professional to ensure you file correctly, and don’t miss out on any potential returns.
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