Monday, January 17, 2022

Planning for Tax Season: Tax Credits

As we close out the year and get ready for tax season, here’s what individuals and families need to know about tax provisions for 2021.

Child and Dependent Care Credit

The Child and Dependent Care Tax Credit was permanently extended for taxable years starting in 2013 and remained under tax reform. As such, if you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) to work or look for work, you may qualify for a credit.

For 2021, the American Rescue Plan Act of 2021, enacted March 11, 2021, made the credit substantially more generous (up to $4,000 for one qualifying person and $8,000 for two or more qualifying persons) and potentially refundable, so you might not have to owe taxes to claim the credit (so long as you meet the other requirements).

Child Tax Credit and Credit for Other Dependents

For the tax year 2021, the Child Tax Credit is increased from $2,000 per qualifying child to $3,600 for children ages 5 and under at the end of 2021 and $3,000 for children ages 6 through 17 at the end of 2021. The Child Tax Credit is fully refundable in 2021. Even if taxpayers do not owe any tax, they can still claim the credit.

Families that received Advanced Child Tax Credit payments will need to reconcile these amounts when filing their 2021 tax returns in 2022. Families generally received about one-half of their tax credit through these advance payments.

The Credit for Other Dependents is also available for dependents who do not qualify for the Child Tax Credit. The $500 credit did not change in 2021 and is nonrefundable. It also covers children older than age 17 and parents or other qualifying relatives supported by a taxpayer.

Earned Income Tax Credit (EITC)

For the tax year 2021, the maximum earned income tax credit (EITC) for low, and moderate-income workers and working families increased to $6,728 (up from $6,660 in 2020). For taxpayers with no qualifying children, the maximum credit is $543.

The maximum income limit (three or more qualifying children) for the EITC increased to $57,414 (up from $56,844 in 2020) for married filing jointly and $51,464 for taxpayers whose filing status is single or head of household. The credit varies by family size, filing status, and other factors, with the maximum credit going to joint filers with three or more qualifying children.

Lindsey Lee is an Enrolled Agent with Tax Fix Now. For more information, contact Lindsey Lee at 972-318-1040 or visit www.TaxFixNow.com. 

(Sponsored Content)

CTG Staff
The Cross Timbers Gazette News Department

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