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Prepare for Tax Day: Changes You Need to Know

Tax day is only two months away, so now is a good time to start getting your finances in order to file. There are several changes this year that may help nurses, PAs, and NPs.

Tax day is only two months away, so now is an excellent time to start getting your finances to file. There are several changes this year that may help nurses, PAs, and NPs. Here’s what you need to know.

Standard Deduction and Income Bracket Changes

Two of the changes will affect nearly everyone, though they’re modest: an increase in the standard deduction and income brackets to adjust for inflation. The standard deduction—the amount people can choose to take off their income before paying taxes if they aren’t itemizing taxes—has increased an additional $150 to $12,550 for single filers and an additional $300 to $25,100 for those married filing jointly. A deduction for a head of household has also gone up $150 to $18,800. The changes to the income brackets are similarly small, but it might make the difference for those already on the edge of their bracket. For specifics, check out this CNET article reviewing the federal tax rate for each bracket.

Good News for Parents

Two changes are specific to having minor dependents, so parents and other caregivers can get a little extra relief this year. For those who are working or attending school with either a child under 13 or another family member unable to care for themselves, changes to the Child and Dependent Care Credit may benefit you. (See the IRS FAQ here.) In the past, this income-based credit was 35% of childcare or other eligible caregiving expenses. Now it’s 50%, though people making over $125,000 have a lower percentage (depending on their bracket).

The child tax credit has also been temporarily expanded to $3,000 per child aged six to 17 and $3,600 for kids aged five and younger. Another bonus is that this credit is fully refundable, meaning you get all of this deduction even if it’s greater than your overall federal income tax liability for 2021 (potentially increasing your refund). Some people may have already received half this credit through monthly payments from July-December. Expect a letter from the IRS to let you know what you’ve received and what that means for what you owe. For more details, see the IRS FAQ on the child tax credit. Meanwhile, those who earn $57,414 or less may qualify for the Earned Income Tax Credit of up to $6,728. Here are the details from the IRS. 

Workers Without Kids

The IRS is helping out people without kids this year. A childless Earned Income Tax Credit for low-income or moderate-income people may be greater for some households than in the past. To get the maximum credit of $1,502 (triple what it was in the past), your earned income must be under $21,430 for single filing or $27,380 if married filing jointly. The IRS also expanded the ages to qualify for this credit to anyone over 19, including workers 65 and older.

Additional Changes

Other changes may benefit households with or without children, though whether you can take advantage of them depends on your income—the first deals with the recovery rebate credit. If you received a check from the third set of Economic Impact Payments in 2021, expect a letter from the IRS telling you how much you received, which should be reported on your income tax return. If you didn’t receive that third check, you might qualify for claiming the recovery rebate credit. If you did receive the payment, but your income situation changed during the year, check whether you are eligible for more than you received. 

For those who have donated to charity, you can deduct charitable contributions even if you are taking the standard deduction. Previously, you couldn’t itemize charitable donations for tax deductions unless you skipped the standard deduction and itemized everything else. But this year, you can deduct up to $300 in cash donated to qualifying charities or $600 for married filing jointly, even if you’re taking the standard deduction. Use this link from the IRS to search for Tax Exempt Organizations

There’s good news for those with student loans that were forgiven in 2021: you don’t owe taxes on the forgiven amount, a change that occurred with the American Rescue Plan signed into law in March 2021. No taxes on loan forgiveness, per the law, continues through 2025.

Unfortunately, the news isn’t great for anyone who collected unemployment in 2021. During 2020, up to $10,200 of these benefits for single filers weren’t taxed, but that tax break wasn’t renewed for 2021. So if you received unemployment benefits during 2021, you’d owe taxes on all of it. 

Finally, two changes are specific to medical expenses. First, for those with a health flexible spending account, an increase of $100, so tax-free contributions to your FSA can now be up to $2,850. And for those whose medical expenses comprise a hefty proportion of your annual income, you can deduct those exceeding 7.5% of your adjusted gross income instead of the previous 10%. 

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