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United States Tax Change Highlights for 2021

Due date of federal return extended to April 18, Child Tax Credit enhanced, Child and Dependent Care Tax Credit increased and now refundable for certain taxpayers, Credits for Sick and Family Leave extended and expanded, Premium Tax Credit (PTC) expanded, changes to the Earned Income Credit (EIC) rules.

Due Date of Return
File Form 1040 or 1040-SR by April 18, 2022. The due date is April 18, instead of April 15, because of the Emancipation Day holiday in the District of Columbia – even if you don't live in the District of Columbia. If you live in Maine or Massachusetts, you have until April 19, 2022. That is because of the Patriots' Day holiday in those states.

Tuition and Fees Deduction Not Available
The tuition and fees deduction is not available after 2020. Instead, the income limitations for the lifetime learning credit have been increased. See Form 8863 and its instructions.

Third Economic Impact Payment (EIP 3)
Any economic impact payment you received is not taxable for federal income tax purposes, but will reduce your recovery rebate credit.

2021 Recovery Rebate Credit
This credit is figured like last year's economic impact payment, EIP 3, except eligibility and the amount of the credit are based on your tax year 2021 information. See the Form 1040 instructions for line 30 and the Recovery Rebate Credit Worksheet to figure your credit amount.

Standard Deduction Amount Increased
For 2021, the standard deduction amount has been increased for all filers. The new amounts are:

Virtual Currency
If, in 2021, you engaged in a transaction involving virtual currency, you will need to answer "Yes" to the question on page 1 of Form 1040 or 1040-SR. The question must be answered by all taxpayers, not just taxpayers who engaged in a transaction involving virtual currency. Don't leave this field blank!

Credits for Sick and Family Leave for Certain Self-employed Individuals
The Families First Coronavirus Response Act (FFCRA) helped self-employed individuals affected by coronavirus by providing paid sick leave and paid family leave credits equivalent to those that employers are required to provide their employees for qualified sick leave wages and qualified family leave wages. The COVID-related Tax Relief Act of 2020 extended the period during which individuals can claim these credits. For more information, see the instructions for Form 7202 and Form 1040 Schedule 3, line 13b.

Extension and Expansion of Credits for Sick and Family Leave
The American Rescue Plan Act of 2021, enacted on March 11, 2021 (ARP) provides that certain self-employed individuals can claim credits for up to 10 days of "paid sick leave," and up to 60 days of "paid family leave," if they are unable to work or telework due to circumstances related to coronavirus. Self-employed individuals may claim these credits for the period beginning on April 1, 2021, and ending September 30, 2021. For more information, see the instructions for Form 7202 and Form 1040 Schedule 3, line 13h.

Form 9000, Alternative Media Preference
Beginning in 2021, taxpayers with print disabilities can use Form 9000, Alternative Media Preference, to elect to receive notices from the IRS in an alternative format including Braille, large print, audio, and electronic. You can attach Form 9000 to your Form 1040 or 1040-SR or you can mail it separately. For more information, see Form 9000.

All Taxpayers now Eligible for Identity Protection PIN
Beginning in 2021, the IRS Identity Protection PIN (IP PIN) Opt-In Program has been expanded to all taxpayers who can properly verify their identity. An IP PIN helps prevent your social security number from being used to file a fraudulent federal income tax return. You can use the Get An IP PIN tool to request an IP PIN, file Form 15227 if your income is $72,000 or less, or make an appointment to visit a Taxpayer Assistance Center.

Direct deposit now Available for Returns Filed Late
You can now receive a direct deposit of your refund even if you file your 2021 return after November 30, 2022.

Expanded Dependent Care Assistance
ARP expanded the child and dependent care tax credit for 2021 by making it refundable for certain taxpayers and making it larger. For 2021, the dollar limit on qualifying expenses increases to $8,000 for one qualifying person and $16,000 for two or more qualifying persons. The rules for calculating the credit have also changed; the percentage of qualifying expenses eligible for the credit has increased, along with the income limit at which the credit begins phasing out. Additionally, for taxpayers who receive dependent care benefits from their employer, the dollar limit of the exclusion amount increases for 2021. For more information, see the instructions for Form 2441 and Publication 503.

Child Tax Credit
Under ARP, the child tax credit has been enhanced for 2021. The child tax credit has been extended to qualifying children under age 18. Depending on modified adjusted gross income, you may receive an enhanced credit amount of up to $3,600 for a qualifying child under age 6 and up to $3,000 for a qualifying child over age 5 and under age 18. The enhanced credit amount begins to phase out where modified adjusted gross income exceeds $150,000 in the case of a joint return or surviving spouse, $112,500 in the case of a head of household, and $75,000 in all other cases.

If you (or your spouse if filing jointly) lived in the United States for more than half the year, the child tax credit will be fully refundable even if you don't have earned income. If you don't meet this residency requirement, your child tax credit will be a combination of a nonrefundable child tax credit and a refundable additional child tax credit, as was the case in 2020. The credit for other dependents has not been enhanced and is figured as it was in 2020.

Changes to Schedule 8812
Because of the changes made by ARP, detailed discussion of the child tax credit, and how to figure your child tax credit and credit for other dependents, which were previously part of the Form 1040 instructions, has been moved to the Instructions for Schedule 8812 (Form 1040). If you are claiming the nonrefundable child tax credit, refundable child tax credit, additional child tax credit, or credit for other dependents, complete Schedule 8812 and attach it to your Form 1040 or 1040-SR.

Premium Tax Credit (PTC)
ARP expanded the PTC by eliminating the limitation that a taxpayer's household income may not exceed 400% of the Federal Poverty Line and generally increases the credit amounts. In addition, in 2021, if you receive unemployment compensation, you are generally eligible to claim the PTC if you meet the other requirements. For more information, see Publication 974 and Form 8962 and its instructions.

Changes to the Earned Income Credit (EIC)
For 2021, the following changes have been made to the EIC.

Forgiveness of Paycheck Protection Program (PPP) Loans
The forgiveness of a PPP Loan creates tax-exempt income, so you don't need to report the income on Form 1040 or 1040-SR, but you do need to report certain information related to your PPP Loan. To find out how to report information related to your PPP Loan, see Forgiveness of Paycheck Protection Program (PPP) Loans in the Form 1040 instructions.

Identity Verification
The IRS launched an improved identity verification and sign-in process that enables more people to securely access and use IRS online tools and applications. To provide verification services, the IRS is using ID.me, a trusted technology provider. The new process is one more step the IRS is taking to ensure that taxpayer information is provided only to the person who legally has a right to the data. Taxpayers using the new mobile-friendly verification procedure can gain entry to existing IRS online services such as the Child Tax Credit Update Portal, Online Account, Get Transcript Online, Get an Identity Protection PIN (IP PIN), and Online Payment Agreement. Additional IRS applications will transition to the new method over the next year. Each online service will also provide information that will instruct taxpayers on the steps they need to follow for access to the service. You can also see IR-2021-228 for more information.


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