Filing your 2021 taxes: What to remember
“It’s important to review your tax situation every year,” says Tyler De Haan, director of business development retirement solutions for Principal®. “As life changes, so could your taxes.”
That’s especially true during times of significant legislative change, as we're experiencing amid the pandemic. So work ahead, review these changes to tax legislation, and learn how you may be able to save on your 2021 taxes.1
Deadline for filing 2021 taxes:
April 18, 2022
Deadline to contribute to your IRA for tax year 2021:
April 15, 2022
It’s important to review your tax situation every year. As life changes, so could your taxes.”
Tyler De Haan, director of business development retirement solutions
Find your 2021 federal tax bracket
Know where you fall in the 2021 federal tax bracket, especially if you’ve had a drastic change in salary in the last year.
|Income Tax Rates2||Single||Married Filing Jointly|
|10%||$0 to $9,950||$0 to $19,900|
|22%||$40,526 to $86,375||$81,051 to $172,750|
|24%||$86,376 to $164,925||$172,751 to $329,850|
|32%||$164,926 to $209,425||$329,851 to $418,850|
|35%||$209,426 to $523,600||$418,851 to $628,300|
For additional tips as you prepare to file, watch the replay of our 2021 tax season webinar.
2021 tax deductions and tax legislation updates
Tax legislation is a lot to keep up with. Read on for an overview of what’s new, what’s changed, and what you can do to save on your 2021 taxes. You may want to consult a CPA or tax professional for personalized advice.
1. Child tax credits (CTC)
The big news this past year: The child tax credit increased to $3,600 ($300 monthly) per child under age 6 and $3,000 ($250 monthly) per child under 18 at the end of 2021.3
Monthly advance cash payments were issued beginning in July 2021 for those who chose to receive them; the rest of the credit will be applied when you file your taxes.
Keep in mind that the CTC is based on your income. You can claim the full credit if your adjusted gross income is less than $75,000 for single parents and $150,000 for married couples. For higher earners, credits are adjusted accordingly.
Planning ahead for next year’s taxes? Get our 2022 tax guide (PDF).
This credit is fully refundable, so if you owe taxes this year, the credit may reduce your balance, otherwise it may come in the form of a refund check. (On the flip side, if you received more than you’re entitled to, you may have to pay it back.)
2. Recovery rebate credits
The third round of stimulus checks from the American Rescue Plan Act, issued in March 2021, will also affect some people’s taxes this year. These checks aren’t taxable. But if you didn’t receive yours, you received less than the full amount, or you’ve since become eligible due to a change in income—there will be an opportunity to collect on your tax return.
3. Standard 2021 tax deductions
These amounts have increased for inflation to $12,550 for single filers, $18,800 for head-of-household filers, and $25,100 for married couples filing jointly.
4. Changes in this year’s tax withholdings
The IRS recommends checking your tax withholding every year or when a big life event happens. If you got a second job, changed jobs, or your spouse changed jobs this year, you may want to reevaluate your withholdings, which can impact your tax refund or taxes due. And after you’ve reviewed your withholding, it may help to reevaluate your retirement contributions.
Curious about the long-term benefit of putting a little extra toward your retirement savings? Use our Retirement Wellness Planner to assess your savings. A simple adjustment helps you see the potential of contributing just 1% more from your paycheck.
5. Elimination of personal exemptions
This exemption was eliminated in the 2017 tax reform bill in favor of increasing the standard deduction. (See No. 3 above.)
6. State and local tax deduction limitations
Assuming you itemize deductions, you can take a $10,000 maximum deduction—$5,000 if married filing separately (MFS)—on any combination of state and local income, real estate, and personal property taxes. Alternatively, you may elect to substitute state and local sales taxes for income taxes, but you can’t use both.4
If passed, President Joe Biden’s social spending bill may increase this limitation significantly.
7. Mortgage interest deduction limit
The 2017 tax bill set a cap on the total amount of mortgage debt for which you can deduct mortgage interest paid: up to $750,000 ($375,000 if MFS) if you take out a new loan for a first or second home between December 15, 2017, and December 31, 2025. If the tax act isn’t extended, the cap will revert to total mortgage debt of $1,000,000 ($500,000 if MFS).
If you already have a mortgage, your debt is grandfathered, and you can refinance without losing the $1,000,000 cap, if you don’t increase the debt by refinancing. However, if you have a grandfathered mortgage and acquire a second home, the new cap will apply to limit the second home mortgage to the $750,000, less the grandfathered mortgage up to $750,000.
New mortgage interest deduction cap:
Grandfathered mortgage + second home and/or purchase of a new home = $750,000
8. Exclusion for sale of your primary home
If you decide to sell your primary residence, and you’ve lived there for two of the last five years, single filers can still exclude up to $250,000 (married couples up to $500,000) from capital gains taxes—a tax levied on profits you make when you sell for a price higher than what you originally paid, plus the cost of upgrades other than simple maintenance and repairs.5
9. Alternative minimum tax (AMT)
For tax year 2021, AMT increased to $73,600 for single or head of household (beginning to phase out at $523,600), and $114,600 for married filing jointly or widow(er) (beginning to phase out at $1,047,200).2
10. Estate tax exemption
In 2021, the amount of money exempt from the estate tax increased to $11.7 million.6
Since only 0.2% of all estates are large enough to be hit by estate taxes, this only applies to a small number of people.
- Have more tax questions? Our tax FAQs can help point you in the right direction.
- Looking for additional deductions? Learn how contributing to an IRA may help you save on your taxes.
1 Change will likely sunset after 2025 and revert to its 2017 numbers, adjusted for inflation. These rates are imposed on taxable income, meaning income remaining after applicable exclusions, deductions and exemptions are claimed. Note that each rate applies only to income falling within that bracket. For additional information and other filing status’ and brackets go to irs.gov.
Tyler DeHaan is a Registered Representative of Principal Funds Distributor, Inc.
The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel, financial professional or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.
Be sure to also confirm your State filing and payment deadlines as they may not align with the extended federal filing deadline. Review IRS.gov for all filing status.
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