If Your Life Changed in 2021, Watch for Income Tax Surprises | Personal-finance

If you were affected by COVID-19

Perhaps 2021’s most discouraging surprise was the persistence of COVID-19, which continued to sicken Americans throughout the year.

Even as vaccinations blunted some of the worst outcomes, many suffered from serious illness and significant medical costs. But if you spent more than 7.5% of your income on medical care, it may be possible to write off any expense beyond that threshold.

If you have kids

Anyone with kids – whether or not they joined your family in 2021 – will have to navigate the child tax credit, which saw a one-time expansion under the COVID-19 relief measures enacted early last year.

The federal government distributed payments from the child tax credit in advance based on income tax data from the 2020 tax year. Taxpayers were able to opt out, choosing to claim the deduction on their tax returns instead, but many did not.

The credit, with a maximum of $ 3,600 per child age 5 or younger at the end of 2021 and $ 3,000 for children ages 6 through 17, phases out at higher incomes. That means if you got a raise last year, you might no longer be eligible for the payment you received.

“I think the child tax credit this year is really going to throw a lot of people for a loop,” says Ellis, who runs The Bemused, a financial education program. “It was great when the checks were coming in, [but] some families will find that they need to repay part of that credit. ”

Leave a Comment