Tax season is coming yet again! And whether your family’s financial situation has changed in the past year, you’re facing an unfamiliar tax scenario, or you just want to save as much as you can—it’s important to be aware of the savings and resources available to families this year.
Many credits and deductions have been expanded recently to help offset the economic woes of the pandemic. Note that credits directly add money to your tax refund or decrease the amount of taxes you owe. Deductions, on the other hand, help reduce the amount of your income that will be taxed, so that you could end up owing less.
Here are some of the most crucial money-saving tax hints for families to know about this time around.
Child Tax Credit
The Child Tax Credit (CTC) is available to most families with at least one child up to age 17, but the amount per child will vary based on your child’s age.
As part of the American Rescue Plan, President Biden increased the Child Tax Credit from $2000 to $3000 per child, plus an extra $600 for children under 6 years of age. Many families already received some CTC monthly payments during 2021, but that isn’t the end of it—you’ll need to file your 2021 taxes to receive the other half of the payments. If you didn’t receive any payments yet, you will still receive the total amount if you file! Any child with a Social Security Number qualifies, even if your family has no taxable income and doesn’t normally file taxes. For more info on the CTC, see if you qualify, or check on the status of your payments, you can visit ChildTaxCredit.gov. The IRS is in the process of mailing out Letter 6419, which will list the amount of the Child Tax Credit you’ve already received.
And in case you’ve heard that CTC payments might be garnished for the millions of borrowers who have past due student loans and dependent children, there’s good news. Following pressure from parents, the Education Department has announced that they will not be seizing tax refunds from the enhanced child tax credit to satisfy federal student loan payments.
Earned Income Tax Credit
The Earned Income Tax Credit (EITC) for those in the low to moderate income range has been expanded to include more workers and provide bigger payback. The amount you’ll receive depends on the income you earned and the number of children you have—and now even workers with no children or whose children don’t live with them can qualify. You do need to have had some kind of taxable job income in 2021 to get the EITC, but it can still help those who lost a job or experienced wage cuts during 2021.
Child and Dependent Care Credit
For those who spent part of their income on daycare, after-school care, and other forms of care for children under 13 years old (or others in the household who cannot care for themselves), the Child and Dependent Care Credit will help even more this year. New in 2021, even if the amount of the credit is greater than the amount of tax you owe, you’ll still receive the full credit. The credit can take up to $4,000 off the amount you owe, or up to $8,000 for two or more qualifying dependents.
Recovery Rebate Credit
If you had a baby in 2021 or 2020, or a sudden drop in income, your family may qualify for a remaining portion of the last stimulus check, since it was calculated based on your previous income and how many children you had before. To claim the funds, you have to file taxes (even if you don’t normally file or have any income). Visit the IRS website to help you determine if you’re owed a rebate, see which tax forms you should be on the lookout for, and learn how to claim Recovery Rebate Credits owed from 2020 or 2021.
College tuition credits
If you have older children in college, you may qualify for the American Opportunity Tax Credit and/or the Lifetime Learning Tax Credit. And if any other adults in your household took college classes, you could be eligible for the second one.
Adoption Tax Credit
If you filed an adoption in 2021 for a child other than a stepchild, you could qualify for this credit that offsets expenses such as legal fees, travel, and other expenses associated with the process of adopting a child. For those who adopt a special needs child, the credit may be higher.
Deduct medical expenses
If your family spent a whole lot on out-of-pocket medical expenses in the past year (more than 7.5% of your adjusted gross income), it could be worth it to list out all of your medical expenses to get a deduction on your taxable income. Note that tax deductible medical expenses are not only bills from doctor’s offices and hospitals, but also include prescription drugs, dental work, hearing aids, glasses and contact lenses, addiction programs, travel to and from medical care, and more.
File for free
Save more and maximize your refund by not spending too much on filing your taxes! If you have a relatively simple tax situation and your household income was less than about $66,000 in 2021, you can file taxes for free using GetYourRefund.org, which connects you with an IRS-certified tax preparer to guide you through the process (in English or Spanish). The IRS offers similar free federal filing services, and your state may also offer free tax filing tools for families with certain incomes.
