Tax News

What’s New for 2021

Tax Changes and Key Amounts for the 2021 Tax Year

The American Rescue Plan, which was enacted in March 2021, provides a dramatic, one-year expansion of the child tax credit for the 2021 tax year. One of the biggest changes is to the amount of the credit. For 2021, it jumps from $2,000 to $3,000 for most children.

The American Rescue Plan also made significant improvements to the child and dependent care credit. But, again, the changes only apply to the 2021 tax year (although President Biden wants to make the enhancements permanent).

Although the tax rates didn’t change, the income tax brackets for 2021 are slightly wider than for 2020. The difference is due to inflation during the 12-month period from September 2019 to August 2020, which is used to figure the adjustments.

Americans were thrilled to learn that the American Rescue Plan Act authorized a third round of stimulus checks. If you did not get it, we can explore that.

Required minimum distributions (RMDs) are back for 2021. Seniors were allowed to skip their RMDs in 2020 without having to pay a penalty. But the RMD suspension only applied for one year. So, anyone who is at least 72 years old by the end the year is required to take an RMD for 2021. There are other changes also.

More workers without qualifying children will be able to claim the earned income tax credit (EITC) on their 2021 tax return, including both younger and older Americans. The “childless EITC” amounts will be higher, too. Plus, there are other changes that will help the bottom line for lower-income Americans as well.
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 2021. However, the income thresholds to qualify for the various rates were adjusted for inflation.
The 2021 standard mileage rate for business driving fell from 57.5¢ to 56¢ a mile. The mileage allowance for medical travel and military moves also declined from 17¢ to 16¢ a mile in 2021. However, the charitable driving rate stayed put at 14¢ a mile — it’s fixed by law.

These are just a few of the changes to Tax Returns for 2021. If you need more information, please call, or email me.

Thanks,
Bob Snyder