Dependent-related Tax Updates:
• Earned Income Tax Credit (EITC)
For 2021, the maximum EITC amount available is $1,502 with no children, $3,618 with one child; $5,980 with two children; $6,728 with three or more children.
Phaseouts begin at $16,480 for single taxpayers with no children and end at $59,187 for married filing jointly taxpayers with three or more children.
• Child Tax Credit
For 2021, this credit is increased to $3,000 per qualifying child under 17. A $500 credit is now available for all other dependents.
• Additional Child Tax Credit
For 2020, this refundable portion of the Child Tax Credit is up to $1,400 per qualifying child under the age of 17.
• Kiddie Tax
For 2020, the threshold for the kiddie tax – meaning the amount of unearned income before taxation at the parents' rate – is $2,200.
Unearned income between $1,100-$2,200 is taxed at the child's tax rate of 10%. Unearned income below $1,100 is not subject to tax.
• Adoption Credit
For 2020, the credit allowed for an adoption of a child with special needs is $14,300. The maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $14,300.
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Current Tax News
General Tax Updates/News:
• Moving Expenses
Moving expenses are now only deductible for military. Employer payments or reimbursements may be taxable.
• Net Investment Income TaxTaxpayers may be subject to the net investment income tax (NIIT) — a 3.8% tax on the lesser of net investment income or the excess of MAGI over $250,000 ($200,000 if single or head of household, $125,000 if married filing separately). The NIIT does not apply to nonresident aliens.• Alternative Minimum Tax (AMT) Exemption AmountsThe AMT exemption has increased to $71,700 for individuals, $111,700 for married couples filing jointly, and $55,580 for married couples filing separately.
• American Opportunity Tax Credit
The American Opportunity Tax Credit provides a maximum credit of $2,500 per eligible student.
The credit applies ONLY to four years of a student’s undergraduate education, and up to $1,000 of said credit is refundable.
• Advantages for Small Businesses
Certain qualifying property purchased and placed into service after 9/27/17 and before 1/1/2023, may use the new 100% bonus depreciation rate.
Rates for Tax Year 2021
Personal Exemption:There is NO personal exemption for 2021.
Standard Deduction Rates:$25,100 for married taxpayers filing jointly
$18,800 for head of household
$12,550 for single taxpayers
$12,550 for married taxpayers filing separate.
The additional standard deduction amount for the aged (65 or older) or the blind is $1,350; that amount is increased to $1,700 if the taxpayer is single or head of household, and not a surviving spouse.
2020 Standard Mileage Rates:
Business: 56 cents
Medical/Moving: 16 cents
Charitable: 14 cents
2020 Income Tax Brackets
There are 7 tax brackets for federal income tax:
10%, 12%, 22%, 24%, 32%, 35%, and 37%
The amount of tax you owe is based on your filing status and income level
Effective beginning in 2019: The Tax Cuts and Jobs Act (HR 1, “TCJA”), enacted by Congress in December 2017, eliminates the individual health insurance mandate under the Affordable Care Act (popularly called Obamacare).
However, if you had coverage through the Healthcare Marketplace in 2021:
--You will still be issued a 1095-A by the Marketplace that must be presented to your preparer
--You are still required to reconcile your Premium Tax Credit on your return
Social Security Tax Updates:
Social Security AND Medicare combined withholding rate is:
The 2021 maximum taxable earnings for Social Security wage limit of $142,800. There is no earnings limit for Medicare.
- 7.65% for Employees
- 15.3% for Self-Employed
Changes to Itemized Deductions:
• Limitation on Itemized Deductions.Limitation for itemized deductions is suspended for years 2018-2025.• Medical and Dental Expenses.Taxpayers can deduct only the part of their medical and dental expenses that exceeds 7.5% of the amount on line 7. This deduction does not apply to nonresident aliens.• Home Mortgage InterestFor acquisition indebtedness incurred as of 12/15/17 or later, the home mortgage interest deduction is limited to the first $750,000 of home loans combined.
For mortgages before 12/15/17, interest is limited to the first $1,000,000 of home loans combined
For tax years following 2018, interest on home equity indebtedness is only deductible if used to buy, build, or improve the mortgaged home.
• Casualty and Theft Losses
As of 2018, the only casualty and theft losses allowed are those incurred due to a federally declared disaster.
• Miscellaneous Deductions
The 2% miscellaneous deductions are no longer allowed. These include unreimbursed employee expenses (travel, job education, union dues, etc.), tax preparation fees, and other expenses (investment, safe deposit box, etc.)
• Charitable Deductions
The limit for charitable deductions has increased to 60% of the taxpayer's AGI.
• State and Local Taxes
The combined amount is now limited to $10,000.
**Beginning 2018, individuals with "seriously delinquent tax debt" (greater than $59,000, liens, and/or evasion) may have their passports revoked, or applications denied.**
The IRS has extended the individual filing AND payment deadline to
April 18, 2022