What: Taxpayers are generally only required to file a tax return if their adjusted gross income exceeds the standard deduction to which they are entitled. From 2018, the standard deduction has increased significantly; however, personal exemptions for the taxpayer and dependents have also been eliminated. Since that time, the
Why: Taxpayers in low-income tax brackets should never assume that filing a tax return is not necessary. Even if they are not required, many of these taxpayers could end up being entitled to a refund from the government beyond the taxes paid into the system. Here are some of the potential sources of tax refunds:
Recovery of Excess Deduction. If a taxpayer ends up with tax withholding and estimated tax payments greater than the amount owed in income tax, the only way to recover those funds is to file a tax return. Many taxpayers receive a refund each year from
Labor income tax credit. The earned income tax credit has been a refundable credit for many years. It is designed to reward taxpayers for their work, with the amount of the credit increasing as income increases, then gradually decreasing as income increases further. In 2021, the earned income tax credit has been significantly expanded, especially for taxpayers who do not have children
Child tax credit. The child tax credit has been partially refundable for a number of years. For 2021, its amount is significantly increased and has become fully refundable. Be careful with this one, though – if the taxpayer has received more child tax credit advance payments than is ultimately entitled to on their 2021 tax return, they may have to repay the government all or part of the surplus
US Opportunity Tax Credit. The American Opportunity Tax Credit has been partially refundable for many years, and it remains partially refundable for 2021 tax returns
Credit for child care and dependent care. The child and dependent care credit is traditionally a non-refundable credit. However, it has become a fully refundable credit for 2021 tax returns. It is also increased based on the percentage of expenses eligible for the credit and the amount of eligible expenses. Additionally, the income phase-out range has increased significantly for 2021 tax returns.
Premium tax credit. The premium tax credit continues to be a refundable credit and has been enhanced for 2021 tax returns in terms of increasing the range of income eligible for the credit and increasing the amount of the credit.
Tax credit for health coverage. Refundable Health Coverage Tax Credit Remains Available for 2021 Tax Returns
Recovery rebate credit. The Recovery Rebate Credit, which was introduced on 2020 tax returns, is also available in its third installment on 2021 tax returns. Many taxpayers may have already received the credit to which they are entitled in the form economic impact payments paid in 2021. The stimulus rebate credit is fully refundable and, if taxpayers have received more payments than they are entitled to when calculating the stimulus rebate credit on their tax return 2021, these amounts do not have to be repaid
A number of these tax credit enhancements, including refundable items, expired at the end of 2021 and may no longer be available to taxpayers in the future.
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