Tax Changes You Need To Know

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This one is going to be a quick post to point out several tax changes that affect your 2020 tax refund, as well as your taxes for 2021. I have links to articles with other resources if you have additional questions regarding these changes.

Tax Changes That Affect Your 2020 Refunds

First, if you filed your 2020 tax returns before March 11 this year and received unemployment benefits during 2020, the first $10,200 of your unemployment is now not taxable. This is part of the American Rescue Plan (ARP) that was signed in mid-March. If you filed your tax return earlier, you paid tax on 100% of your unemployment.

So far, we don’t have to file amended federal returns. The IRS is supposed to start issuing the difference in your refund starting in May and continuing through the summer.

However, because this affects your AGI, your state tax return is also affected. Here in Oregon, the state sent a notice of the change and will issue the difference. Check with your state if you have to file an amended return in order to receive the additional refund, or if they will calculate it for you.

To read more about this, check out this article from CNBC: Tax refunds on $10,200 of unemployment benefits start in May. Here’s who’ll get them first

Tax Changes That Affect Your 2021 Returns

Also coming up this year due to ARP, there is an increase in the child tax credit!

The credit will vary based on the age of your child: $3,000 for children 6 to 17, and $3,600 for children under 6. Normally, you would receive $2,000 in tax credits per child up to age 16. This is also a temporary credit for the 2021 tax year, for now. We’ll see if this gets extended or made permanent in the future.

This affects the child tax credit you will receive for the 2021 tax year (when you file your return next spring in 2022). Besides the increased amount, the IRS will start issuing the credit beforehand, beginning as early as July. So rather than receive the credit in a lump sum on your tax returns, you’ll get some of the credit in installments to your bank account!

If you’d prefer to only get this credit in the lump sum amount, there will supposedly be a portal later this year through the IRS where you can request that.

There will also be some income limitations as to whether you receive the full credit or not. The income limits are: $75,000 for single filers, $112,500 for head of household, and $150,000 for married filing jointly. The credit starts to phase out for higher earners until the credit is down to the original $2,000 credit.

To read more about this change, see this CNBC article: New $3,000 child tax credit payments set to start in July. Here’s what to know

Conclusion

Be sure to make a plan for any extra money you might receive, either due to an additional refund or getting a child tax credit. If you are paying off debt, this could be a good way to accelerate some extra payments! Also, consider opening a brokerage or retirement account with M1 Finance and start putting that money to work for you now!

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