Maximizing Your Tax Refund: Getting the Most Out of Your Taxes with These 2021 Tax Changes

Taxes often go through changes, especially as governmental bodies change. Today, we at Coastal Tax & Accounting want to highlight some of the changes made in the past year to ensure you’re on top of payments and getting the most bang for your buck where you can in the 2021 Tax Season. 

Earned Income Tax Credit (EITC) Changes

The Earned Income Tax Credit helps lower-to-moderate income workers and families receive a tax break. For those who qualify, they can use the credit to reduce their taxes owed and potentially increase their refund. This credit changes based upon military status, children, dependents, and disabled persons in a household, amongst other criteria. This tax credit has increased, meaning even more relief for lower-income families for the 2021 tax year. You can check if you qualify for this credit here

Child Tax Credit Increased

Much like the Earned Income Tax Credit helps lower-income families, the Child Tax Credit helps families claim credits on their qualifying children. In 2021, this credit was increased, allowing families to claim $3,600 for children under age 6 and $3,000 for children age 6 and over — a rather large jump from a previous $2,000 for children 16 or under. In October 2021, research suggested that this increase kept 3.6 million children above the poverty line, which is rather impressive! If you received advance payments of the Child Tax Credit in the year 2021, you can use Letter 6419, a letter that includes the total amount of 2021 advance CTC payments, to claim the balance you are owed when you file your tax return this year. 

Unemployment Benefits Tax Break ≠ Renewed

Amidst the craziness of COVID-19’s initial entry to the United States, the American Rescue Plan provided a temporary tax break for those who may have lost their jobs to COVID and took advantage of unemployment benefits. For that year, single filers were eligible for up to $10,200 to be considered tax-free on their return. This break was not renewed in the following year, which means that if you have been collecting benefits within the past year these will not be tax-free when you file this year, thus, we want you to be wary of this cost prior to filing.

The Standard Deduction Has Increased

A standard deduction is an amount you can subtract from your income before tax being applied. To adjust for inflation, the standard deduction for 2021 has increased. For single filers, this standard deduction is now $12,550 and $25,100 for married couples that are filing together. For single filers, this is an increase of $150 and for married couples, this is an increase of $300. 

Income Tax Brackets Were Raised

An income bracket refers to how much tax you owe based on your adjusted gross income. An adjusted gross income is the money you make prior to taxes being taken out (except for itemized exemptions and tax deductions). Due to inflation, this is another part of the tax law that has been adjusted and raised, and therefore is something to be on the lookout for this tax season. 

2021-2022 Tax Brackets
Tax RateSingle filersMarried filingjointly orqualifying widow(er)Married filingseparatelyHead of household
10%$0 to $9,950$0 to $19,900$0 to $9,950$0 to $14,200
12%$9,951 to $40,525$19,901 to $81,050$9,951 to $40,525$14,201 to $54,200
22%$40,526 to $86,375$81,051 to $172,750$40,526 to $86,375$54,201 to $86,350
24%$86,376 to $164,925$172,751 to $329,850$86,376 to $164,925$86,351 to $164,900
32%$164,926 to $209,425$329,851 to $418,850$164,926 to $209,425$164,901 to $209,400
35%$209,426 to $523,600$418,851 to $628,300$209,426 to $314,150$209,401 to $523,600
37%$523,601 or more$628,301 or more$314,151 or more$523,601 or more

Have Forgiven Student Loans? Taxes Are No Longer Owed Through 2025

Before the American Rescue Plan which was put into action in March 2021, forgiven student loan balances were added to income for the year and taxed accordingly. This has changed, however, with a new act that prevents forgiven post-secondary education loans from being taxed from now until 2025. This allows individuals to reduce their balance owed to the government and allow all student loan forgiveness programs to be tax-free until 2025, which may make an impact to your taxes this year. 

Required Minimum Distributions

If you have a tax-advantaged account such as a 401k or IRA, you are legally required to begin making withdrawals by age 72. These required withdrawals are referred to as “required minimum distributions” or “RMDs.” While in 2020 these RMDs were waived, these were required again in 2021, meaning that for those aged 72 and older you should have withdrawn something prior to the end of 2021. If you are over 72 and missed this deadline, there are still options but be warned you may be prone to an extra tax as a penalty for missing this deadline. 

Flexible Spending Account Changes

Flexible Spending Accounts (FSAs) are an arrangement through your employer that lets you pay for out-of-pocket medical expenses with tax-free dollars. Some of these out-of-pocket expenses may include prescriptions, copayments, or medical devices; the limit for tax-free contributions has increased by $100 compared to the previous year! 

Charitable Donations and the CARES Act

In the past, charitable donations could only be deducted from your taxes if the taxpayer itemized these deductions. With changes made to the CARES Act, however, now taxpayers that do not itemize deductions may take a charitable deduction of up to $300 for cash contributions made in 2020 to qualifying organizations. These qualifying organizations include:

  • Religious-based
  • Charities
  • Education
  • Scientific organizations
  • Literary organizations

Since this is $300 per person, if you are filing jointly, you could be eligible for up to a $600 deduction, so don’t forget to make note of charitable contributions!

Tax-Deductible Medical Expenses Have Increased

Medical spending is an expensive burden for many, but some medical expenses are tax-deductible, and at the end of 2020 Congress approved a more generous allowance for these deductible expenses. You can now deduct medical expenses that exceed 7.5% of your Adjusted Gross Income. How does this work? If you were making $100,00 annually, you can deduct medical expenses that exceed $7,500 for the 2021 tax year. 

We hope these tips helped you prepare for the 2021 tax season. We at Coastal Tax and Accounting understand that taxes are not always a straightforward job, which is why we’re here to help you every step of the way. For more information or help filing your tax return this year, feel free to call us at 843-549-5561 or email us at