Because of the pandemic, the last two tax seasons have been anything but normal. Stimulus payments were haphazard and confusing, there were numerous tax law changes, the filing deadline was extended, and millions of taxpayers experienced refund delays. To make matters worse, you’ll likely still be impacted by COVID when you do your taxes in 2022. Here are some things that may make your return more complicated.
The third stimulus check
A third round of Economic Income Payments was issued in March 2021 to eligible taxpayers. This time around it was worth $1,400 for you plus $1,400 for each qualifying dependent. The payments were automatically issued based on the information on your 2020 tax return (2019 if you hadn’t filed yet). If you didn’t receive a third payment or got less than the full amount, you may be able to claim the Recovery Rebate Credit when you file your 2021 tax return. Be sure to keep track of all payments and keep any notices you receive regarding the third stimulus check because you’ll need the information to claim the credit.
The expanded Child Tax Credit
The Child Tax Credit got a facelift for 2021. It is now fully refundable, it’s worth more money, and the age limit for qualifying children has increased. Previously, the credit was worth $2,000 per child and up to $1,400 was refundable. Now, the value has increased to $3,600 for children aged 5 and under, and $3,000 per child aged 6-17 at the end of 2021. From July through December, the IRS will be issuing monthly advance payments of the Child Tax Credit. Eligible taxpayers will receive half of the credit now and the remaining portion when they file their tax return. The IRS is expected to send out a notice in January stating the amount you received. Keep the notice in a safe place you remember because you’ll need to report the information on your tax return.
Unemployment benefits
Traditionally, the IRS has considered unemployment benefits taxable income. But the American Rescue Plan provided a much-needed tax break for workers who lost their jobs in 2020. Under the new law, workers didn’t have to pay taxes on up to $10,200 of unemployment compensation. So far, it doesn’t look like they’ll be getting another tax break for benefits received this year. As a result, millions of taxpayers may receive a surprise bill or owe more than they anticipated. If you’re currently receiving unemployment benefits, the best thing to do is have taxes withheld from your pay. Another option is to make quarterly estimated tax payments.
Home office expenses
Many workers haven’t returned to the office full-time yet. As a remote worker, you may be wondering if you can deduct some of the home office expenses you’ve accumulated during the year. For most people, the answer is no. Taxpayers can only claim their home office expenses if they’re self-employed or own a business. To claim the deduction, the space must be used regularly and exclusively for your business.
Child and Dependent Care Credit
The maximum for the Child and Dependent Care Credit has been increased for 2021 only. If you paid someone to watch your dependent while you went to work, you claim up to $8,000 of qualifying expenses for one person and $16,000 for two or more people. If your adjusted gross income is $125,000 or less, you can receive 50% of your expenses as a credit. Use ezTaxReturn to ensure you get every tax credit and deduction you deserve, so you get the biggest possible refund, guaranteed.
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