Congress is offering billions of dollars in future tax deductions for those who file Form 1040 individual tax returns for the tax year 2021. The child tax credit, dependent care credit, and health insurance premium tax credit are among the tax credits that have been temporarily extended.
The numerous credits could potentially place an extra $5,000 or more in your wallet for the tax year 2021. With good tax planning, this money could be all yours.
Child Tax Credit—Current Law
For qualifying children under the age of 17 at the end of the 2020 tax year, you got a $2,000 tax credit. If you had earned income and no net tax obligation, you received up to $1,400 of the credit as a refund.
This credit decreased by $50 per $1,000 over the MAGI threshold.
The MAGI threshold for 2020 is $200k or $400k MFJ.
The entire child tax credit is fully refundable if you or your spouse has a primary residence in the United States for more than half of the tax year.
Employer-Provided Dependent Care Assistance
For tax year 2021 only, the maximum employer-provided dependent care benefit excluded from your income as part of your cafeteria plan goes from $5,000 to $10,500 (or $5,250 for married filing separate).
Premium Tax Credit—Current Law
The Affordable Care Act (Obamacare) created the premium tax credit to help you afford insurance purchased on your state’s health insurance marketplace.
Your premium tax credit is equal to
The percentage of your annual household income you must pay ranges from 2.06 to 9.78 percent in tax year 2020.
Once your household income exceeds 400 percent of the federal poverty level (FPL), you are no longer eligible for the premium tax credit. For example, the 400 percent thresholds outside of Alaska and Hawaii for tax year 2020 are
You can receive advances of the premium tax credit based on information you provide to the health insurance marketplace. On your tax return, you then compare your credit with the advance amounts and pay back any advance payments in excess of the actual credit, subject to limits.
New Law—Good Deal
The American Rescue Plan Act of 2021 (ARPA) retroactively removed the requirement to repay any excess advance premium tax credit payments for tax year 2020.
Premium Tax Credit—Tax Years 2021 and 2022
ARPA made several changes to expand access to the premium tax credit for tax years 2021 and 2022.
For tax year 2021 only, if you receive (or receive approval for) unemployment for any week beginning during tax year 2021, then
The above provision creates larger premium tax credits for most anyone who receives unemployment during tax year 2021.
In addition, for tax years 2021 and 2022 only
As you can see, you have far more opportunities for tax credits in 2021. If you would like to discuss any of the credits, please contact us.
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Spencer Accounting Group, LLC does not provide investment, tax, legal, or retirement advice or recommendations in these blogs. The information presented here is not specific to any individual's personal circumstances.
Keana Spencer is an Accountant, Entrepreneur, and Educator to her clients, with a strong passion. Keana has over 10 years of experience and through her practice, she is a source of knowledge and strategies to her clients.