Greetings and Happy New Year! There is so much to tell you, but for the purposes of this letter, I will condense much of the information and we can get into more detail on what pertains to you when I see you. Also please note some of these changes are for 2021 only!
Child Tax Credit has increased to $3,000 or $3,600 for a child under age 6. Also, the age limit has increased from 16 to 17. The increase over the $2,000 prior law will phase out for upper incomers. For those that have been receiving the Advanced CTC, you should be receiving IRS Letter 6419 in January, which we will use to reconcile these payments on your return.
Dependent Care Expense Credit has also increased. The $3,000 limit of expense paid for one qualifying person is increased to $8,000, and the $6,000 limit for two or more is increased to $16,000. The credit is worth 50% of eligible costs, this means the maximum credit is $4,000 for one qualifying person and $8,000 for two or more. The phase out limits have been increased, and the Dependent Care Assistance exclusion amount from income, through your employer is increased to $10,500 (up from $5,000).
Earned Income Credit In some circumstances the minimum age of a taxpayer with no qualifying children is lowered from 25 to age 24, 19, or 18. Again, we will get into more detail if this pertains to you. Also, the under age 65 limitation has been eliminated for those with no qualifying children. Further, we can elect to use your 2019 earned income to figure the EIC if it is less than your 2021 earned income.
Economic Impact Payment #3 & Recovery Rebate Credit If you did not receive the 3rd stimulus payment or received less than you were intitled to, then you may be eligible for an RRC. You should be receiving IRS Letter 6475 which we will use to determine your eligibility to claim the RRC.
Premium Tax Credit Under the American Rescue Plan, the percentages have changed to increase the affordability of health insurance for 2021 & 2022. In years prior to 2021 taxpayers with income above 400% of the federal poverty line did not qualify for the PTC. If you receive insurance through MA Health Connector, don't forget to bring Form 1095A. We will use these new percentages to see if you qualify for a PTC.
Charitable Contribution Deduction for Non-Itemizers is modified to increase the max deduction to $600 for married filing joint filers and remains at $300 for all others. It will also be used to reduce taxable income rather than lower adjusted gross income. Further, there is an increased penalty for overstating this charitable contribution deduction. The underpayment tax penalty is increased from 20% to 50% of the understated tax.
Business Meals if provided by a restaurant are not subject to the 50% deduction limitation. If pre-packaged from a store, it is still subject to the 50% limitation. A boost for those of you that are self-employed.
Now for a few bullet items:
Haven't received your refund yet? As of late November, 6.5 million 2020 tax returns and 2.6 million amended returns still needed to be processed by the IRS. Staffing issues, the Pandemic, and the multitude of tax changes contribute to the delay.
I am still located in the Gardner office that I occupied last tax season, and this year I hope to sit down with you for an appointment as we have done in years prior to the pandemic. I miss that one -on -one connection with you, and hope that when it comes time for us to meet, this will still be a viable option! As always, if you choose to do a drop off, that is workable too.