2021 Tax Year Changes

Expanded child tax credit

The American Rescue Plan boosted the child tax credit to $3,000 for families with kids 17 and under for 2021, with an extra $600 for children under age 6.

While millions of Americans have received advanced credits, filers who earned more than expected may need to pay some of it back, experts say.

To qualify for the full credit, single filers need a modified adjusted gross income of less than $75,000 and married couples filing together must earn under $150,000.

Recipients may tally advanced credits by comparing bank statements to IRS records in the Child Tax Credit Update Portal. And they may receive a letter in January summarizing payments.

After that, filers can try to estimate 2021 adjusted gross income to see if they still qualify for the payments they received.

However, if there are missing credits, KMR Tax suggests starting the filing process early as many taxpayers had 2020 refund delays related to stimulus payments.

Get your return filed as quickly as possible due to the possibly of another slow year for IRS processing.

Charitable deductions

Taxpayers eyeing a year-end charitable donation may take advantage of a special write-off for cash gifts in 2021, even if they don’t itemize deductions on their federal tax return.

For 2021, single filers may claim a tax break for cash donations up to $300 and married couples may get up to $600, according to the IRS, an extended coronavirus relief measure from 2020.

Required minimum distributions

Another change for 2021 is the return of required minimum distributions — amounts that must be withdrawn from most retirement accounts by a certain age — after being waived in 2020.

“You need to get it out before Dec. 31 and if you don’t, the penalties are pretty severe,” Harris said, with someone owing levies of 50% of the amount they needed to take.

For example, if someone needed to take out $50,000 and skipped the distribution, they would owe a penalty of $25,000, he said.

The IRS covers the rules, including ages, deadlines and requirements by plan here.