Tax Information for Americans At Home
While there has been talk for many years about the possibility of a flat tax or tax returns the size of a postcard, that is not yet the reality. Instead, the tax code has continued to change, evolve and become even more complicated. Every taxpayer’s situation is unique and we are always ready to assist you with individual consults, but the following is a little information on the topics we are addressing most often this year.
- Stimulus Tax Credit—Otherwise known as the Economic Impact Payment, the coronavirus stimulus payments sent out in early 2020 were technically a tax credit for 2021 taxes. This payment is treated as a refundable tax credit and will not be taxed as income on your 2020 tax return, nor will it be deducted from your refund. This item will be of special interest to those who did not receive a stimulus check, whether due to not having filed taxes in 2019 or another reason. It will likely be to your benefit to file for 2021, if you would like to claim this refundable credit.
- Itemized Deductions—The Tax Cuts and Jobs Act increased the individual deduction to $12,550 for 2021 ($18,800 for Head of Household), resulting in the vast majority of taxpayers no longer needing to itemize. Most people breathed a sigh of relief to be able to stop saving every medical receipt and track down annual mortgage interest and property tax statements, because few people have itemizable expenses exceeding this increased deduction. Self-employed individuals, especially those with home offices, may continue to find itemizing beneficial, but for most, taxes have become a little less complex. The individual deduction for 2022 will rise to $12,950.
- Earned Income Tax Credit—This is a refundable credit for low to moderate income working people, which pays a refund, even if taxes are not owed. This credit is available even if you do not have dependent children, as long your income falls below a certain range (for 2021 $21,430 for single filers) and you do not have investment income exceeding $10,000. By law, EITC refunds are never sent out before mid-February.
- Child Tax Credit—This is a credit of up to $3,000 per child ($3,600 per child under 6) and is fully refundable for 2021. This credit doesn’t begin to phase out unless your income is over $75,000 (joint $150,000). Advance payments were a special feature for the second half of 2021, which is not considered taxable income, with the remainder available as a 2021 tax credit. This credit is available only for filers who lived with their child inside the U.S. for more than half the year. The IRS will be sending taxpayers a letter in January 2022 reporting the full amount of the CTC received, which will be important to provide to your tax preparer.
- The ACA and Healthcare—For 2019, the individual mandate was removed so only those with Affordable Care Act health plans are required to report their healthcare coverage. Because these plans are reconciled with your income on your taxes, it is important to accurately estimate your income if you accept subsidies toward your health coverage. If your income was higher than estimated, you will be required to repay any subsidy overpayments at tax time. Make sure you review your subsidy annually with healthcare.gov to ensure you do not get hit with a surprise healthcare reimbursement at tax time.