We’re all trying to leave this past horrific year right where it is — in the past. The last hill left to climb is tax season 2021, and the tax season’s almost over.
When is tax season 2021?
Typically, tax season opens on January 27th. The start date to file taxes was February 12th, 2021. Sadly, this didn’t mean that we would get more time for tax document preparations. Taxes are due on April 15th, just as usual.
Why do I owe State taxes this year?
This is a good question. A lot of people were unemployed this year. Several others worked remotely, with jobs spanning across the country. All year, the aid funds were provided by the Federal Government. Why pay taxes to your State? If you want to receive this federal aid, you’re required to have paid taxes the year prior. If you’re holding jobs in several states, you may need to pay taxes to each state.
Are you up to date on the news about tax refunds for this year? Even if you are, there’s no harm in double-checking. Keep reading below to learn about 11 important changes made for this year.
(1) Waiver of Required Minimum Distributions for Retirement Plans
Once a senior citizen has reached the age of 72, the law requires the citizen to make retirement plan withdrawals. The minimum amount that will pass this requirement is called the required minimum distribution (“RMD”). Withdrawals can be higher than the minimum requirement. These withdrawals are considered taxable income. your
In response to COVID, the CARES Act waived RMD requirements.
- Any income tax for withdrawals made during 2020 can be paid over the next three years.
- If you withdrew early — up to $100,000.00 — from an approved retirement plan, the usual 10% tax doesn’t apply. The withdrawal penalty was waived to help citizens negatively impacted by COVID-19.
- If you withdraw funds early, you have three years to pay back the distributions. This allows citizens to rebuild their retirement account balances and recover from the effects of COVID-19.
(2) The $300 Deduction That Everyone Can Get
In an effort to help charities during COVID-19, the IRS offered a donation tax incentive. Contributing up to $300.00 during 2020 to approved charities would qualify you for this deduction.
(3) Larger Standard Deduction Amounts Due to Inflation
Be sure to make note of all the increased standard deduction amounts. These deductions reduce the amount of your income that’s taxable. These deductions are categorized as:
- $12,400.00 — individuals, married couples (separate filing)
- $18,650.00 — heads of households
- $24,800.00 — married couples (joint filing), surviving spouses
Additional deductions include:
- $1,300.00 — aged or blind individuals
- $1,650.00 — unmarried individuals
(4) Broadening of the Gross Income Brackets Due to Inflation
Due to inflation, income brackets were adjusted. So, if you were wondering, “Why am I paying so much tax this year?” The answer is that you probably made much more money this year than the last, and now, you belong in a different bracket than previously.
- Individuals with an income of $9,825.00 or less / Jointly filing married couples with an income of $19,750.00 or less have a 10% tax rate.
- Individuals with an income of over $9,825.00 / Jointly filing married couples with an income of over $19,750.00 have a 12% rate.
- Individuals with an income of over $40,125.00 / Jointly filing married couples with an income of over $80,250.00 have a 22% rate.
- Individuals with an income of over $85,525.00 / Jointly filing married couples with an income of over $171,050.00 have a 24% rate.
- Individuals with an income of over $163,300.00 / Jointly filing married couples with an income of over $326,600.00 have a 32% rate.
- Individuals with an income of over $207,350.00 / Jointly filing married couples with an income of over $414,700.00 have a 35% rate.
- Individuals with an income of over $518,400.00 / Jointly filing married couples with an income of over $622,050.00 have a 37% rate.
(5) Higher Contribution Limits for 401(k)s and a Few Other Retirement Plans
Employees that contribute to a 401(k), 403(b), most 457s, or the Thrift Savings Plan now have a limit of $19,500.00. This contribution limit is up $500.00 from the prior year.
Employees that are 50 years old and older that are catching up on their contributions now have a catch-up limit of $6,500.00. This catch-up contribution limit is up $500.00 from the prior year.
(6) Increase in Contribution Limits for Health Savings Accounts
If you are contributing to a health savings account (“HSA”), the contribution limit for self-coverage was increased to $3,550.00. Coverage for a family has a contribution limit of $7,100.00. Family coverage saw an increase of $100.00 from the prior year.
(7) Rise of Adjusted Gross Income Limits for the Saver’s Credit
The Saver’s Credit applies to employees contributing to a retirement savings plan. This tax credit is based on gross income for low-income and moderate-income workers. The limits are:
- $65,000.00 for married couples (joint filing)
- $48,750.00 for heads of households
- $32,500.00 for individuals and married couples (separate filing)
(8) A Boosted Maximum for the Adoption Tax Credit
The adoption tax credit received a hike of $220.00 this year. The maximum is now $14,300.00.
(9) A Beneficial Earned Income Tax Credit
To qualify for this tax credit, your AGI is less than or equal to:
- $50,594.00 as an individual/a head of household/a surviving spouse/a married couple (separate filing) or
- $56,844.00 as a married couple (joint filing).
The tax credit relies on the number of qualifying offspring you have. For tax season 2021:
- Persons with no qualifying offspring will receive $538.00.
- Persons with 1 qualifying offspring will receive $3,584.00.
- Persons with 2 qualifying offspring will receive $5,920.00.
- Persons with 3 or more qualifying offspring will receive $6,660.00.
(10) Bigger Tax Cap for Social Security Payroll Taxes
If you had a larger 2020 income than $137,700.00, you’re in and out of luck. The good news is that you were able to bear the pandemic more comfortably than most were afforded. However, almost an extra $5,000 is eligible for this tax compared to the prior year’s $132,900 cap.
(11) More Changes for the Saver’s Credit?
Because the AGI limits were expanded, the tax credits are applied on a newly expanded AGI range. The credit rates apply as 50% of the contribution, 20% of the contribution, 10% of the contribution, and 0% of the contribution. The maximum contribution for an individual is $2,000.00 and $4,000.00 for jointly filing married couples. This means that $2,000.00 is the largest this credit can possibly be.
A combination of COVID-19 and inflation has caused a lot of changes to income taxes this year. Tax season almost over and feeling overwhelmed? There’s probably an accountant in your area offering free consultations. Attorneys can also be tax experts. Though people assume that lawyers will be more expensive, there are firms like Moshes Law that also offer free consultations. Check if there are any lawyers in your area that offer the same.
Tax experts can assist you with any qualms you may have. It’s been a stressful year for everyone, and taxes are stressful enough during normal years. Take advantage of these offers for free consultations and get some peace of mind.