Video: 5 Biggest Changes for Tax Year 2021 Explained
There were a number of important tax law changes for tax year 2021. CPA and TurboTax tax expert Lisa Greene-Lewis shares with TheStreet an overview of the essential info for taxpayers.
Video Transcript:
Tracy Byrnes: So there were a ton of tax changes in 2021, enough to make your head spin, but you got to keep them in order because you deserve a lot of this stuff. Lisa Greene-Lewis, CPA and TurboTax expert, is here with us right now to stop our heads from spinning. Lisa, I want to break this down because there's COVID relief, and then there was the American Rescue Plan. Let's start with the COVID relief that was carried forward.
Lisa Greene-Lewis: Yes, so there were some provisions that carried forward from tax year '20 that were in COVID relief. So the first one that people need to remember is that 90% of taxpayers who claim the Standard Deduction, can still claim cash contributions up to $300. And then new for the tax year 2021, if you're married filing jointly, that's cash contributions up to $600. And then the second provision that carried forward, there's a special look back for earned income tax credit, and what that means is they're letting you look back to your 2019 income and use that to qualify for earned income tax credit instead of using your 2021 income, if that helps you qualify for more or if it helps you qualify at all. And then the next provision that carried forward if you were self-employed and you were impacted by COVID and you were sick, or even if you were taking care of a family member, you're able to get qualified, sick and family leave credits, which can be huge for a self-employed person.
Tracy Byrnes: Yeah, for sure. And the look back to 2019 makes me laugh because the IRS is admitting that we should all forget about 2020, right. Under the American Rescue Plan, there's a bunch of stuff that is carried over as well. Can you start with those? I know the child tax credit is a huge deal for a lot of people.
Lisa Greene-Lewis: Yes, the child tax credit was huge. They expanded it in many ways. So before, the child tax credit was $2,000 per dependent. And now it's increased to up to $3,600 for each of your children under six. And then your children from 6 to 17, it's increased to $3,000. And then this is the first time that if you have a child that's 17, you're able to claim the child tax credit. So that's pretty huge. And then it's also fully refundable, meaning, you don't need to owe taxes in order to get this credit.
Tracy Byrnes: Right, which is great, the child and dependent care credit too were carried forward or increased, I should say.
Lisa Greene-Lewis: Yes, so this is the first time that the child and dependent care credit has been changed in decades, and they increased that credit up to $8,000 if you have two or more kids that you take to daycare or summer day camp. So that's huge. Before the amount was up to $2,100. And then if you have one child, it's up to $4,000, as opposed to the previous up to $1,050. So that's really huge to help parents.
Tracy Byrnes: It sure is. And then finally, that third stimulus. What do people need to know about that?
Lisa Greene-Lewis: So the third stimulus was $1,400 that people were able to get, and you also received $1,400 for your dependent. And it also included adult dependents this time. The other stimulus relief did not include adult dependents. If you did not receive the full amount of the stimulus or didn't receive it at all or you had a baby in the tax year 2021, you're able to claim that in the form of a recovery rebate credit when you file your taxes. So that's one thing to remember. Another thing to remember, the IRS began issuing letters, letter 64-75 five, and it reports the correct amount of stimulus payment that you received. You want to have that form in front of you when you file so that you report the correct amount if you're eligible for more, just to avoid any holdups with your return and most importantly, your tax refund. We have specific guidance related to all of these provisions in our program. You could do your taxes yourself, or get help along the way from a TurboTax Live tax expert. Or you can fully hand over your taxes to a TurboTax Live expert for free if you have a simple tax situation.
Tracy Byrnes: Right, which is super helpful because this stuff gets really confusing. I want to reiterate that letter-number again so that when it comes in the mail, people don't throw it out. It's 64-75. So as stuff starts to come, stuff it in an envelope or a shoebox because you're going to need a lot of documentation to get all the credits you deserve. Lisa Greene-Lewis, CPA and TurboTax expert, thank you so much for clearing this up.
Lisa Greene-Lewis: Thank you for having me.
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