This Year's New Pandemic-Driven Tax Benefits
If you didn't get your stimulus check, you can still claim it on your taxes, and that's not the only new benefit for tax season 2021.
The stimulus bills passed last year included a slew of tax changes that could add up for discerning filers. They were added to support taxpayers after the pandemic detonated economy. Benefits range from child tax credits to flexible health care spending.
First off, the IRS said it’s done distributing stimulus checks, but the funding can still be obtained through the Recovery Rebate Credit. You do have to file taxes for to get the cash, regardless of whether you normally do so or not. Other highlights include:
- Child Tax Credit (CTC): Families can claim up to a $2,000 credit for each child under 17 years old. The credit begins to phase out at $400,000 of adjusted gross income for most couples and $200,000 for most singles. Some low- or moderate-income earners who don’t owe anything or enough to claim the entire credit may be able to get a refund of $1,400 per child through the Additional Child Tax Credit (ACTC). Normally, these credits would be based on income in the filing year, but Congress passed legislation allowing for a “lookback” provision that allows filers to choose between 2019 and 2020 income—whichever one most benefits the taxpayer.
- Earned Income Tax Credit (EITC): This one can really pay off because working families with three or more qualifying children that earn less than $56,854 could be eligible for up to $6,660 in tax credits. Note that unemployment benefits do not count towards earned income. Again, these credits would normally be based on income in the filing year, but Congress passed legislation allowing for a “lookback” provision that allows filers to choose between 2019 and 2020 income.
- Charitable cash contribution deductions: Donations of up to $300 made by the end of 2020 to qualifying organizations are available this year for those who take the standard deduction. Previously, charitable contributions were only available to people who itemized deductions, but the government wanted to encourage gift-giving last year as millions struggled amid the pandemic. The deduction can lower both adjusted gross income and taxable income and lead to tax savings.
- Flexible spending arrangements (FSA) and dependent care programs: Because of the pandemic, employees are more likely to have unused, pre-tax health FSA dollars or dependent care assistance program amounts. Normally, people would lose unused funds. Employers can allow workers to carry over unused amounts.
- Early retirement withdrawal: Coronavirus-related distributions of up to $100,000 from tax-deferred retirement funds or IRAs in 2020 won’t be subject to the 10% additional tax. You can also choose to report the distribution as income in 2020 and pay the taxes on it at once or do it the usual way and pay over three years. If you repay the distribution within three years, you won’t owe a thing.