Here are some specific points to note (and discuss with your accountant) when filing your 2021 tax return. This is an addition to standard tax benefits (e.g. IRA & 401K). This IRS article explains some of the credits listed below.
Note: Usually, when we write about an income limit, it is referring to Adjusted Gross Income (AGI) reported on the tax return.
For 2020 taxes: Covid-Relief and Your 2020 Tax Return
Table of Contents
- Child and Dependent Care Credit
- Stimulus Checks
- Enhanced Child Tax Credit (CTC)
- Earned Income Credit (EIC)
- Paid Leave (FFCRA)
- $250 Educator Expense Deduction
- Charitable Donations Deduction
- PPP
- EIDL Grant
- EIDL Loan
- Unemployment
- ACA Subsidies
- Flexible Spending Account (FSA)
- Businesses with Employees
- Employee Retention Credit (ERC)
- Paid Leave (FFCRA)
Child and Dependent Care Credit
Child and Dependent Care Credit offers families with child and dependent care expenses up to $8,000 per family, for those earning below a certain threshold.
This credit was greatly expanded for 2021, making it much more valuable.
- How much credit:
- Covers up to 50% of expenses (instead of up to 35%)
- Expenses that can be applied:
- $8,000 if you have one child (instead of $3,000), meaning your maximum refundable credit would be $4,000
- $16,000 if you have two or more children (instead of $6,000), meaning your maximum refundable credit would be $8,000
- Income Eligibility:
- Income up to $125,000: Credit is the full 50%.
For each $2k in income over $125k, the credit is reduced by 1% (between $125k and $127k credit is 49% instead of 50% etc)
- Income between $183,000 and $400,000: Credit is 20%
For each $2k in income over $400k, the credit is reduced by 1% (between $400k and $402k credit is 19% instead of 20% etc)
- Income over $438,000: Not eligible.
- Income up to $125,000: Credit is the full 50%.
- How to Claim: You apply for this credit as part of your 2021 tax return. As it is a tax credit, it is not considered taxable income.
- Fully Refundable: Credit is fully refundable, instead of just a credit towards taxes that are owed.
Stimulus Checks
Emergency Impact Payments (EIP) aka Stimulus Checks are three rounds of payments for those earning below a certain threshold.
- How Much Credit
- Income Eligibility
You receive the full amount if your income (AGI) is under a certain amount. Threshold depends on your tax filing type:- Single: $75,000
- Head of Household: $112,500
- Married Filing Jointly: $150,000
If your AGI is higher than the above, the amount will be phased out. See each link above for details.
- How to Claim: All three stimulus checks were automatically sent out based on data that the IRS had on file. If you did not get one of the stimulus checks, or you are eligible for more than you received, then:
- EIP #1 or EIP #2: Request the payments as part of your 2020 tax return.
- EIP #3: Request the payment as part of your 2021 tax return.
Stimulus Checks are not considered taxable income.
- Fully Refundable: If you claim the stimulus as part of your tax return, it is fully refundable, instead of just a credit towards taxes that are owed.
Enhanced Child Tax Credit (CTC)
Child Tax Credit is a fully refundable tax credit for people who have earned income below a certain threshold. $3,000 per child ages 6 to 17 (including 17-year-olds), and $3,600 for each child under age 6.
This credit was greatly expanded for 2021, making it much more valuable.
- How much credit: $3,000 per child ages 6 to 17 (including 17-year-olds), and $3,600 for each child under age 6. (In previous years it was a maximum of $2,000 per child).
- Income Eligibility:
- Married filing jointly with a modified AGI up to $150,000 and “head-of-households” up to $112,500, and single filers up to $75,000 will receive the full amount.
For each $1,000 in income above the limit, the credit is reduced by $50 (5%), until the credit is only $2,000 per child. - Once the credit is $2,000, it stays $2,000 until the following income limits: Married filing jointly: $400k and head-of-household and single filers: $200k
For each $1,000 in income above this limit, the credit is reduced by $50 (5%)
- Married filing jointly with a modified AGI up to $150,000 and “head-of-households” up to $112,500, and single filers up to $75,000 will receive the full amount.
- Earned Income: There is no minimum earned income amount in order to claim the credit in 2021.
- How to Claim:
- The credit is requested as part of the 2021 tax return.
- From July 2021, families were able to collect monthly payments in advance of the refund. $300/month per child under 6 and $250/month per child age 6-17. Over the six months July-December 2021, families collected $1,800 per child under 6 and $1,500 per child aged 6-17. Whatever advanced amounts you received will be deducted from your credit/refund.
- Fully Refundable. The credit is fully refundable. Everyone who qualifies will get the full amount. (In previous years, only $1,400 of the $2,000 was refundable, the rest was a credit only if taxes were owed).
- USA Residents: The “enhanced” child tax credit is only available for USA residents, but non-USA residents can still claim the ‘regular’ Child Tax Credit.
Earned Income Credit (EIC)
Earned Income Credit (EIC) is a tax credit of up to $6,660 for people who have earned income below a certain threshold. Anyone with an income over $57,414 is not eligible.
- Income Eligibility:
- Anyone with an income over $57,414 is not eligible.
- It is a percentage of your earned income and depends on your filing status and other details.
- If your earned income was higher in 2019 than in 2021, you can use your 2019 earned income amount to figure your EIC for 2021. (You cannot use 2020 earned income.).
- Remember, Unemployment is not considered earned income, so you might want to use 2019 even if you had more income in 2021 when including unemployment payments.
- How to Claim: You apply for this credit as part of your 2021 tax return. As it is a tax credit, it is not considered taxable income.
Paid Leave (FFCRA)
FFCRA (Families First Coronavirus Response Act) is paid leave for taking off work between April 1 2020 and September 30, 2021, due to an eligible Covid-related reason. This credit is for businesses with W2 employees, self-employed / 1099 workers, and partners in a 1065 Partnership.
- How Much Credit: The amount you get is based on your rate of pay as an employee or your net income if you are self-employed. The maximum credit is $32,220 per person ($64,440 for a couple filing jointly who are both self-employed).
- How to Claim:
- Self-employed people: You apply for this credit as part of your 2021 tax return. As it is a tax credit, it is not considered taxable income. Credit is fully refundable, instead of just a credit towards taxes that are owed.
- Employees: You were paid from your employer. It is considered wages and taxed as normal.
- Employers: Receive a refund on the gross wages which were paid to employees. No taxes are paid on the refund.
$250 Educator Expense Deduction
Education Expense Deduction: If you’re an eligible educator, you can deduct up to $250 ($500 if married filing jointly and both spouses are eligible educators, but not more than $250 for each spouse) for classroom supplies. You don’t have to itemize to take advantage of it and it is an “above the line” reduction, so it reduces your Adjusted Gross Income (AGI).
Educators can claim this deduction, even if they take the standard deduction. Eligible educators include anyone who is a kindergarten through grade 12 teacher, instructor, counselor, principal or aide in a school for at least 900 hours during the school year. Both public- and private-school educators qualify.
Charitable Donations Deduction
For 2021, even if you don’t itemize, you can still deduct up to $300 for donations per person and $600 for joint filers. This is a “below the line” deduction, so it lowers your tax liability but does not lower your Adjusted Gross Income (AGI). (In 2020 it was a maximum of $300 per tax return (even joint filers) and it was an “above the line” deduction thus lowering the AGI)
If you itemize your deductions, for the 2021 tax year you apply up to 100% of AGI, for calendar-year 2021 qualified contributions. Qualified contributions are cash contributions to qualifying charitable organizations. The deduction is typically limited to 20% to 60% of AGI and varies depending on the type of contribution and the type of charity. C corporations can apply up to 25% of taxable income for charitable contributions. Normally, the maximum allowable deduction is limited to 10% of a corporation’s taxable income.
Further details at irs.gov
PPP
PPP offered self-employed and 1099 workers two grants of 20% of their annual net income (totaling 40%), up to a total of $41,666. Businesses with payroll got up to two grants of 2.5 months worth of annual salary (totaling 5 months).
There are no federal taxes on PPP. Most states, including NY and NJ, are not taxing PPP. Even though there are no taxes due, businesses do need to report the PPP on their tax returns.
EIDL Grant
EIDL Grant: of up to $15k for small businesses or self-employed/1099 workers.
There are no federal taxes on the EIDL grant. Most states, including NY and NJ, are not taxing the EIDL grant.
EIDL Loan
EIDL Loan of up to $2MM at 3.75% interest (2.75% for non-profits) for small businesses or self-employed/1099 workers.
The EIDL loan needs to be paid back, so that’s definitely not taxable.
NYS Small Business Grant
The NYS Small Business Recovery Grant is taxed at the federal level. It is not taxable for New York State taxes.
Unemployment
Unemployment offers weekly payments for people who are eligible.
Federal taxes apply to all unemployment payments (standard and bonuses). State taxes depend on the state (NY and NJ both have state taxes on Unemployment).
Note: Unlike 2020, all unemployment payments from 2021 are taxable.
- Standard payments
- Weekly payments, either regular Unemployment (UI) or Pandemic Unemployment Assistance.
- Bonuses
Withholding Taxes
When you apply for Unemployment, you choose whether to have taxes withheld. You generally have the option to have 10% withheld for federal taxes and an additional amount for state taxes (if your state has taxes on Unemployment payments).
The exact amount you owe depends on individual-specific circumstances. If you have the 10% federal taxes deducted and you owe less than that, you will get the difference as a refund. If you owe more, then you will need to pay more.
Filing Taxes – 1099-G Form
Every January, each state’s Unemployment department should prepare a form 1099-G, which includes the total of all your Unemployment payments from the previous year. Whether or not you chose to withhold taxes, you need to include the 1099-G form in your tax return. Here is how to get the 1099-G form in NY.
Note: Being that Unemployment is considered “unearned income”, minors and dependents who received more than $1,100 in Unemployment need to file their own return.
ACA Subsidies
- Households enrolled in an ACA Marketplace plan have their premiums capped at a maximum 8.5% of income, and the less you earn the less % you pay- overpayments are claimed as a credit on the tax return
- Those collecting unemployment for at least one week in 2021 have any income above 133% of FPL disregarded
- Married individuals must file a joint return to be eligible for subsidies
Read more at ChaiPlus1
Flexible Spending Account (FSA)
A Flexible Spending Account (aka Flexible Spending Arrangement) is a pre-tax account to use for certain out-of-pocket health care costs. You don’t pay taxes on this money.
Option to roll over balances from 2020 to 2021 (and balances from 2021 to 2022).
Businesses with Employees
ERC
ERC (Employee Retention Credit) is a Covid-Relief program that gives eligible businesses up to $26k for each employee on payroll.
FFCRA
FFCRA reimburses businesses for the payroll of employees that took off work due to a Covid-related reason.