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American Rescue Plan May Boost Refunds

In IR–2022–29 the Internal Revenue Service urged Americans to file 2021 federal income tax returns. There are many key benefits in the American Rescue Plan (ARP) and other laws that will help moderate-income families receive refunds. Even families who normally do not file tax returns should file this year to qualify for their refund.

IRS fact sheet FS–2022–10 explains in more detail the benefits of filing. It states, "This is a year when many people who do not normally need to file a return should consider filing so they can take advantage of such expanded benefits as the Recovery Rebate Credit, Child Tax Credit, Credit for Child and Dependent Care Expenses and Earned Income Tax Credit."

Families with a new child in 2021 should all file. They will qualify for a Recovery Rebate Credit of up to $1,400. They may also be able to claim a Child Tax Credit for up to $3,600. The IRS fact sheet offers specific examples of taxpayers who may receive credit refunds.
  1. Recovery Rebate Credit — Some Americans did not receive their third round of Economic Impact Payments and could recover up to $1,400 per person. By filing, a family of four may receive a total payment of $5,600. You may wish to create an IRS Online Account to review your status. The IRS is also sending Letter 6475 if you have received an Economic Impact Payment or a "plus–up" amount. Taxpayers should file electronically to receive a prompt refund for the correct amount.
  2. Expanded Child Tax Credit — There is an increased Child Tax Credit (CTC) for 2021. If you qualify, you should attach Schedule 8812 to your return. The ARP increased the credit for 2021 to $3,000 per child for dependents age 6 through 17 and $3,600 for dependents age 5 and under. The CTC is available for single persons with incomes under $75,000 and married couples filing jointly with incomes under $150,000.
  3. Repayment of Advance Payments — Some individuals received advance CTC payments during the last half of 2021 and may not have fulfilled all of the requirements. Those with moderate incomes are protected from repayment. Moderate incomes are defined as married couples filing jointly with incomes under $60,000 and a single person with income under $40,000. For higher income individuals, it will be necessary to use Schedule 8812 and determine an amount for repayments.
  4. Child and Dependent Care Credit (CDCC) — The CDCC percentage and qualifying amounts have been increased for 2021. The percentage of qualifying expenses is increased from 35% to 50%. In addition, it is possible to qualify for dependent care expenses of $8,000 for one child, or $16,000 for 2 or more children. The 50% credit could equal $4,000 for one child or $8,000 for 2 or more dependents. The child and dependent care credit generally phases out with incomes over $125,000.
  5. Earned Income Tax Credit With No Children — The Earned Income Tax Credit (EITC) is available to many moderate–income workers. This credit has previously been available for families. For 2021, it is also available for workers with no dependents. The EITC maximum is $1,502 for these individuals. Students under age 24 generally do not qualify.
  6. Nonitemizer Charitable Deduction — Individuals who made gifts of cash up to $300 or married couples who gave up to $600 may take a 2021 above–the–line deduction. The deduction is reported on IRS Form 1040 on Line 12b. The cash contribution is generally to a public charity and may not be to a donor advised fund, supporting organization or charitable remainder trust. The gift must be in cash and may not be volunteer service, a gift of a security or a household item.
  7. 100% Deduction Limit on Cash Gifts — Taxpayers who itemize deductions normally may give cash up to 60% of adjusted gross income (AGI). For 2021, donors who made large cash gifts may elect to deduct up to 100% of the AGI limit. IRS Publication 526 explains the process for claiming the larger deduction.

Published February 11, 2022
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