Tax Changes that can affect your 2021 return – Part 2
This week, I will give you the final installment of tax changes that will likely affect your 2021 federal tax return. As we close the year, this means that the new tax season begins in a few weeks. And, while working as a tax practitioner for all these years, I have realized that taxpayers that prepare ahead of time file perfect returns and increase their tax refund. The math is simple: An early filer takes tax issues seriously. Therefore, when they prepare ahead of time, they plan their taxes and implement some money-saving tax strategies.
Below, I give you more tax information likely to affect your 2021 federal tax return.
Some employers are eligible for the Employee Retention Credit (ERC).
The ERC was introduced in March 2020 when the CARES Act was signed into law. It was meant to encourage businesses to keep paying their employees during the pandemic. More so, it paved the way for a refundable tax credit equaling 50% of qualified wages paid between March 31 and December 31, 2020. The qualified wages were limited to $10,000 for each employee per calendar quarter of 2020. Qualified wages also included health plan expenses.
When the Consolidated Appropriations Act (CAA) and the American Rescue Plan Act (ARP Act) were signed into law, they extended the ERC to June 30 and December 31, 2021, respectively. This means that it can be claimed through 2021. Moreover, the CAA Act increased the ERC to 70%.
However, some businesses did not utilize this credit both in 2020 and in 2021. Some of you did not claim it in 2020 because at first, beneficiaries of the Paycheck Protection Program (PPP) loan were ineligible for an ERC. And in 2021, you might not have thought about claiming it or felt the process would be cumbersome. Well, the process does not have to worry you because we can help you claim these thousands of dollars. Contact us, and we will help you claim this tax credit in retrospect. To do this, we will submit Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund on your behalf.
The American Rescue Plan Act, 2021 (ARP Act) extended paid sick and family leave credits from April 1, 2021, through September 30, 2021.
The ARP Act also made changes to some details about paid sick and family leave credits. If you employed anyone and allowed them to go on paid sick leave, so they recover from COVID-19 related issues or the effects of the vaccine, you are eligible for credits in question. You are also eligible if your employee accompanied a qualifying individual to receive the COVID-19 vaccine. Or, they provided care for a qualifying individual recovering from any injury or condition related to the COVID-19 vaccine.
Here is what you need to know about the paid sick and family leave credits
From April 1, 2021, employees could offer their employees up to 80 hours of paid sick leave and receive the tax credit.
This extension applied for two quarters of 2021, that is, the second and third quarters of the year. Therefore, check if you have already claimed for these quarters. If you did not claim, contact us to find out how to claim it in retrospect. You may also visit the IRS website for more information regarding how to claim it.
Family changes that can affect your federal tax return
Finally, every family goes through changes, including yours. This applies to both business owners and individual taxpayers. Family changes can lead to changes in the type of tax paperwork and documents you need to file a return. Because of such issues, some taxpayers find themselves unknowingly losing out on some deductions and tax credits. Some find themselves in a different tax bracket and filing altogether.
Here are some family changes that affect how you pay taxes
- Your children or dependents have grown up and no longer qualify for certain credits. The effect is it increases the taxes you owe. To counter this, save more money towards taxes, or increase your withholding tax if you are employed.
- You got married and suddenly have to file as a joint filer. Again, this also changes your filing status, meaning you will now fall in a different tax bracket. It also changes the type of paperwork you submit with your return.
- You got divorced, and the kids are no longer in your custody. This means you go back to being a single filer and can no longer claim any credits based on your child.
In conclusion, tax changes are plenty this year, and other changes unique to you, as an individual, or to your family are also plenty. Therefore, I call on you to be vigilant. Watch out for these changes and prepare in time. Over the years, I have helped many taxpayers navigate through such changes and protected them from wrongly filing taxes based on wrong information. If you went through any changes in your personal life, pause and ask how it affects how you file taxes. Do this remembering that we already have many tax changes for tax year 2021 that have nothing to do with you. If you want to avoid being caught between personal and federal tax changes, contact my team and book a quick tax chat with me. I will help you have a memorable tax season.
People have also asked the following:
1. What will tax rates be in 2021?
2021 tax rates are 10%, 12%, 22%, 24%, 32%, 35% and 37%, depending on your filing status and taxable income. For example, a single person with taxable income under $9,950 will pay 10% of taxable income.
2. What is the standard deduction for 2021 for seniors?
The 2021 standard deduction is $12,550.
3. How much of my Social Security is taxable in 2021?
Single filers with a total income that’s less than $25,000 don’t pay taxes on their Social Security benefits. For those that pay taxes on their Social Security, it must be paid on a maximum of 85% of the Social Security benefits. 15% of the social security benefits is tax-free.
4. What changes are coming to Social Security in 2021?
In 2021, the Social Security taxable maximum is $142,800. This amount is increasing to $147,000 in 2022.
5. How can I avoid paying taxes on Social Security?
To avoid paying social security taxes, you can keep your income below the taxable threshold. You can also save in a Roth IRA because, after age 59 ½, the distributions from a Roth IRA or 401(k) account that’s at least five years old are non-taxable, and they don’t contribute to the taxation of your Social Security benefits.
