Important IRS Tax Information for 2021: What You Need to Know
The Internal Revenue Service (IRS) makes changes to tax laws every year, and it’s essential to stay updated so you can prepare and file your taxes correctly. This guide will provide you with the necessary information you need to know about IRS tax changes for 2021:
Stimulus Check
The IRS distributed two rounds of stimulus checks to help Americans cope with the financial strain of the COVID-19 pandemic. The third round is yet to be released. This stimulus check is different from the first two as it is twice the amount. It’s vital to keep track of IRS communications regarding stimulus checks to ensure you receive them promptly.
Filing Deadline Extension
The IRS has extended the tax filing deadline for individuals from April 15th to May 17th, 2021. It’s prudent to use the extension period to double-check your tax return for errors or omissions before you file.
Unemployment Benefit Exclusion
The American Rescue Plan, approved in March 2021, exempts the first $10,200 of unemployment benefits from federal income tax. This exemption applies to those who earned less than $150,000 in 2020 by themselves or with a spouse filing jointly.
Child Tax Credit Expansion
The American Rescue Plan also expanded the Child Tax Credit. The maximum annual credit increased to $3,600 for children under six years old and $3,000 for older children. This credit is refundable, meaning you can receive the reimbursement as a refund if your tax liability is less than the credit.
Retirement Account Contribution Limits
The IRS has increased the contribution limits for retirement accounts in 2021. If you’re under fifty years of age, the contribution limit for an individual retirement account (IRA) is $6,000, while it’s $7,000 if you’re fifty or older. For a 401(k) account, the contribution limit increased to $19,500, and for those fifty and older, the catch-up contribution limit is $6,500.
Conclusion
Keeping up with the annual IRS tax changes is essential for every taxpayer. It’s vital to be aware of the new tax laws applicable to your income bracket and situation to file taxes correctly and minimize the risk of penalties and fines. The above 2021 IRS tax changes are some of the most significant that taxpayers should pay attention to, but keep in mind that this list isn’t exhaustive. It’s always best to consult with a tax professional if you have any questions or concerns.
