There Are Seven Tax Credits That Can Reduce Your Federal Tax Bill or Increase Your Refund by Up to $37,500 if You Qualify.
By taking advantage of tax credits, Americans can reduce their federal income tax bill or increase their refund by more than $37,000 in 2021, according to the IRS.
Most of them require you to submit a claim, so it is your responsibility to ensure that you do not miss out.
Individual taxpayers in the United States have a tax year that extends from January 1 to December 31 of each year.
However, because of the Covid pandemic, the deadline to file your 2020 tax return has been pushed back from April 15 to May 17.
Meanwhile, the deadline to file taxes for the year 2021 in 2022 is currently in April of the following year.
We’ve compiled a list of seven tax credits that you can use to reduce your income tax burden for the tax year 2021.
In the event that you are eligible for all of them, your tax bill will be reduced by $37,442.
Tax credits reduce your tax bill dollar to dollar, whereas tax deductions reduce the amount of your income that is subject to tax by a fixed percentage of your income.
Child tax credit of $3,600 is available.
This year, the expanded child tax credits are worth $3,600 for every child under the age of six and $3,000 for every child between the ages of six and seventeen.
Additionally, parents who have dependents between the ages of 18 and 24 who are enrolled full-time in college can earn a $500 scholarship for each of their children.
If you filed a tax return between July and December, the cash was distributed in monthly advance installments between July and December, unless you opted out.
If you choose not to participate, you will receive the funds as a lump sum in 2022 after the IRS has processed your 2021 tax return, or the funds may be used to offset any taxes owed that year.
Non-filers who did not file a tax return by the deadline will also be required to file a tax return the following year in order to receive the funds.
Credit for recovery rebates – $1,400
It is possible to claim a recovery rebate credit if you did not receive the third stimulus check or receive less than you were owed.
Even if you don’t file tax returns on a regular basis, you must do so in 2022 in order to qualify.
The three stimulus cheques were worth $600, $1,200, and $1,400, respectively, according to the Federal Reserve.
This amount should have been claimed as a recovery rebate credit on your 2020 tax return if you were not eligible for the first two stimulus checks that were issued.
Single-family households with annual incomes of less than $75,000 were awarded the full amount of the third stimulus check in full.
Meanwhile, heads of households may earn up to $112,500, and married couples filing jointly could qualify if they earned less than $150,000 in taxable income.
Earned income tax credit of $1,502 is available.
The earned income tax credit (EITC) will be increased in 2021 in order to assist workers who do not have children.
The maximum credit was previously worth $543, but it has now been increased to $1,502 for the remainder of the fiscal year.
Increases have also been made to the income criteria, which have been raised from $16,000 to around $21,000 each year for taxpayers who file their returns separately.
According to the Tax Policy Center, married couples can now earn a combined income of up to $27,000 per year, an increase over the previous limit of $22,000 per year.
The EITC is used to balance any taxes owing, or you will receive a refund if the amount you receive is greater than the amount you owe the IRS.
You must file a tax return in order to be eligible for it, even if you do not owe any taxes or are not required to do so.
The Child and Dependent Care Tax Credit is worth $8,000 in total.
If you pay someone to care for your child so that you may go to work or look for work, you may be eligible to claim the child and dependent care credit on your tax return.
Previously, you could claim expenditures of up to $3,000 each year to cover the costs of hiring someone to care after your child.
In the case of more than one person, you could claim up to $6,000 (20 percent to 35 percent of the total).
Following the epidemic, you can now claim up to 50 percent of these expenses, with a maximum of $8,000 for one child and $16,000 for two or more dependents, depending on your situation.
If you have multiple children, you can reduce your tax bill by up to $4,000 per child, or up to $8,000 if you have more than one.
Despite the fact that this tax subsidy can be claimed when you file your taxes each year, you will not be able to claim the most recent deduction until you file your taxes in 2021.
For the time being, maintain a careful record of all childcare charges. After that, you’ll need to fill out Form 2441 and include it with your tax return as an attachment.
Credit for adoption – $14,440
Families who adopt children will be eligible for a non-refundable tax credit of up to $14,440 per child in 2021 to help cover the costs of adoption.
Adoption fees, court charges, and attorney fees, as well as travel expenditures, are all examples of expenses that qualify for reimbursement.
Even if you did not incur any qualified expenses in the process of adopting a child with special needs, you may be eligible for a tax credit for your adoption expenses.
Because it is nonrefundable, you will not receive a refund, but it will be used to offset any taxes that may be payable.
A reduction in the credit is applied to some taxpayers who have a modified adjusted gross income (MAGI) in excess of $214,520.
It is possible for taxpayers to claim a credit when they file their taxes.
Credit for the elderly and the disabled is worth $7,500 dollars.
The credit for the elderly and disabled is available to taxpayers who are 65 years old or older, as well as those who are younger and disabled, depending on their age.
In order to qualify for it as a handicapped individual, you must have been retired due to “permanent and total incapacity,” which means you are no longer employable.
In addition, you must have received taxable disability income during the calendar year.
In any case, you must have an adjusted gross income (AGI) or nontaxable social security, pension, annuity, or disability income that does not exceed certain restrictions in order to qualify.
Depending on your filing status, your AGI might range from $12,500 to $25,000, and your social security and pension payments can range from $3,750 to $7,500 every year.
On the IRS website, you can determine whether or not you qualify for the credit.
In 2021, the credit will be worth between $3,750 and $7,500.
In order to be eligible for the benefit, you must include “Schedule R: Elderly and Disabled Tax Credit” with your federal tax return when you file it.
$1,000 in credit for being a good saver
Savings credit, also known as the retirement savings contributions credit, is a tax break provided to low-income people who contribute money to a retirement account during their working years.
Qualifying accounts include individual retirement accounts (IRAs), employer-sponsored retirement plans, and funds for Achieving a Better Life Experience (ABLE) scholarships.
Individuals who qualify can claim a credit of up to $1,000, and married couples who file jointly can claim a credit of up to $2,000 in total.
You are eligible if you are 18 years of age or older, are not enrolled in a full-time course of study, and are not classified as dependent on another person’s tax filing.
It is only available to married couples filing jointly, heads of household, and those earning less than $66,000 per year. All other filers must earn less than $33,000 per year to be eligible.
Fill out IRS Form 8880 and include it with your tax return if you want to claim the credit on your taxes.
Also read: Omicron Variant Update: Biden Administration Is Distributing 500 Million At-Home Corona Virus Test Kits
We also describe how to make up to $10,000 in additional income in 2021 without having to pay federal income tax on that money.
In addition, take a look at the steps you should take now before the tax year comes to an end on Friday.
Meanwhile, there are two possible reasons why your tax refund will be smaller next year.