Three law changes in 2021 that give more money to the unemployed, the self-employed and parents
THREE key tax law changes will give unemployed Americans, the self-employed and parents more money in 2021.
Money has started to land in bank accounts as the United States reopens after the coronavirus crisis.
Among the measures are refunds for unemployed Americans who have paid more taxes than they should and the child tax credit for parents.
These relate to the temporary measures introduced this year only.
Meanwhile, the self-employed were able to defer tax payments for a set period of time, giving them more money for the time being.
Below we explain the tax changes in more detail and how they affect you.
Unemployment refunds for tax relief of $ 10,200
Households can get a refund if they filed their 2020 tax returns before the important American Rescue Plan Act tax break became law.
Signed by President Joe Biden on March 11, this included a tax exemption of $ 10,200 for 2020 unemployment benefits.
The exemption, which applied to federal taxes, meant that unemployment checks sent out during the pandemic were not counted as earned income.
But because the change happened after some people filed their taxes, the IRS either refunds overpayments or can use it to pay other taxes owed.
The figure of $ 10,200 is the amount that taxpayers can exclude from their income, with the average refund being around $ 1,265.
The Internal Revenue Service (IRS) said the latest batch landed in accounts last week, with direct deposits starting July 14.
Meanwhile, households that receive the cash reimbursement by paper check could expect it from July 16.
The IRS has already issued refunds in May and June as well, and it will continue to issue the remaining refunds through the rest of the summer.
We have explained how to get and track your payment.
Child tax credit up to $ 3,600
The IRS also began issuing child tax credit advance payments last week, July 15.
These are worth up to $ 3,600 per child, but are automatically issued as monthly payments of up to $ 300 per child, unless you opt out.
Monthly payments will arrive on or around the 15th of each month until December.
The remaining money, worth up to $ 1,800, is then paid out as a lump sum in 2022 after the IRS processes your 2021 tax return.
The credits are worth $ 3,600 for each child under six and $ 3,000 for each child between the ages of 6 and 17.
In addition, those with dependents between the ages of 18 and 24 who are enrolled full-time in college can receive $ 500 for each.
Should you opt out of monthly child tax credit payments?
Whether monthly payments or a lump sum is preferable depends on your personal situation.
If you opt out, full payment will arrive with your tax refund, or it could be used to offset any taxes you owe.
In other words, if you are having financial difficulty right now, it is worth getting the monthly payments.
On the other hand, if you’re worried about being overpaid, you might want to opt out so you don’t have to worry about having to pay it back.
It can also come in handy if you’re expecting a big tax bill next year, as it will eliminate the temptation to spend the monthly payments.
This could be handy if you expect your salary to increase as well, which may affect how much you receive.
Additionally, divorced parents with children may wish to opt out if their ex-spouse is about to claim their children on their tax return.
The entire credit is fully refundable for 2021, which means qualifying families can get it even if they owe no federal income tax.
Previously, the reimbursable portion was limited to $ 1,400 per child.
The maximum credit is available to taxpayers with a modified adjusted gross income (AGI) of:
- $ 75,000 or less for singles,
- $ 112,500 or less for heads of household and
- $ 150,000 or less for married couples filing a joint return and eligible widows and widowers.
If you earn more than that, the additional amount above the original $ 2,000 credit – either $ 1,000 or $ 1,600 per child – is reduced by $ 50 for every $ 1,000 of AGI changed.
Social security payment deferrals
The CARES law, which was enacted last year, allows self-employed workers to delay the payment of social security contributions by two years.
More specifically, you can defer 50% of the social levy on the income of self-employed persons received from March 27, 2020 until December 31, 2020.
This is handy if you are having financial difficulties, but keep in mind that the relief is only temporary and tax has to be paid down the line.
In fact, half of any deferred tax is due on December 31, 2021 and the balance must then be paid before December 31, 2022.
You are generally not entitled to a refund of the deferred amount, as you will still have to pay tax in the future.
The IRS has warned households eligible for the child tax credit against scammers who try to steal their money.
We explain why your child tax credit payments may be larger than you expected – and if they need to be refunded.
If you have not yet filed a tax return, we will explain the procedure to you.