Things You Should Know About 2021 Taxes

As you prepare to file your 2021 Federal Tax return, be aware of a few changes in deductibility of expenses, and distribution requirements.  The Virginia United Methodist Foundation is not a professional tax agency.  Please consult your tax advisor to determine how these changes may affect you.

• No punishment for student loan help. If your student loans have been forgiven, cancelled or discharged in 2021 – you’re doubly lucky. In the past, student loan forgiveness was considered taxable income.  Starting in 2021, loan cancellation for post-secondary education is no longer considered taxable income. This perk is expected to last through 2025 and it may be permanent.  If your employer helped you pay down your student debt faster, you can exclude up to $5,250.
• Higher deductions for medical expenses. Unreimbursed medical expenses that exceed a certain percentage of your income are tax deductible.  For 2021 taxes this number if 7.5% of your AGI (Adjusted Gross Income).
• A boosted Child Tax Credit. In 2020, eligible taxpayers could claim a $2,000 credit per child 16 years old or under. The credit increased to $3,000 per child 17 and under and $3,600 for children 5 and under in 2021. These credits are fully reimbursable with no $2,500 earned income requirements.  Eligibility rules have changed.  To receive the maximum credit, your Adjusted Gross Income must be under:
  • $75,000 for single filer
  • $112,500 for head of household filer
  • $150,000 for married couples filing jointly
• Higher Standard Deductions – When you pay taxes you can either take the standard deduction to reduce your tax bill or itemize your deductions.
  • $12,550 for singles or filing separately
  • $18,800 for heads of households
  • $25,000 for married couples filing jointly

If you’re 65 or older tack on another $1,350 per person if married, or an extra $1,700 if single.

• Required Minimum Distributions are back. Once you reach 72, the IRS says you must start withdrawing money annually from tax-advantaged retirement accounts, including traditional IRA’s and 401(k)’s.  The withdrawals help insure that people don’t use retirement accounts to avoid taxes.
• You’ll get a $300 charitable deduction, even if you don’t itemize. Government encourages Americans to lend a hand to those in need.  This is a $300 deduction per person.  If you file jointly you can deduct $600 for charitable donations.  Before 2020, you could deduct charitable contributions up to 60% of your Adjusted Gross Income (AGI).  The CARES Act raised the limit, allowing you to deduct 100% of your AGI and this change was extended through 2021.