Filing a 2021 federal tax return will involve a little extra preparation for many families because of some short-term programs that were put in place as part of COVID-19 relief, according to Barb Wollan, human sciences specialist with Iowa State University Extension and Outreach.
New this year
The most significant new issue on the 2021 federal tax return is the need to report all advance payments of the Child Tax Credit. This applies to families with children under age 18, said Wollan, who specializes in family wellbeing.
As a COVID-19 relief measure, the IRS, beginning July 15, sent monthly payments to families based on IRS records of the number and ages of children present in a home. The payments were generally equal to $300 per child, or $360 for children under age 6. These payments are not reported as income, but the amount must be reported to calculate the remainder of the Child Tax Credit payable with the family’s tax refund.
“Families will receive a letter from the IRS stating the total amount the family received. However, since anecdotal reports suggest that many families received payments that varied from month to month, I suggest that families also check their own records and bank statements to make sure the amount in the IRS letter is correct,” Wollan said.
“Don’t file your tax return until you have received the letter,” Wollan added.
“The tax credit for those with day care expenses for qualifying children or other dependents is expanded this year as well, so be sure to include that information on your return,” Wollan continued. “In the past, I’ve seen many families who didn’t bother to put their day care costs on their tax return, because it wasn’t very much, or because the tax credit didn’t help them the previous year. That’s why it’s so important that people know that for 2021, this credit is larger, and it is refundable. That means that even families who didn’t benefit in prior years are likely to benefit from the credit this year.”
Iowans also need to know how much they received in the third Economic Stimulus Payment, which was sent out beginning in April 2021 through the summer or fall.
“This payment was generally $1,400 per qualifying person,” said Wollan. “Everyone should report what they received, and if you received less than you should have, the IRS will include the extra payment in your tax refund.”
Wollan offers the following routine reminders for tax preparation:
Wait until you have all your income documents before you file. Even a job that you quit last January needs to be included on your tax return, so make sure to get that W-2 form, as well as statements about bank interest, brokerage accounts and other sources of income.
Take advantage of opportunities to file taxes for free if you are eligible. Free tax preparation by IRS-certified volunteers is available in many communities at Volunteer Income Tax Assistance or AARP tax sites. In addition, for those with 2021 income below $72,000, IRS Free File may be an option; you’ll find it on the IRS homepage, www.irs.gov.
Think long term when you decide how to use your tax refund. A tax refund only comes once each year, so it is wise to think of the needs that might arise throughout the year before spending your refund. These may include annual expenses, such as vehicle registration, property tax, back-to-school or birthdays. They may also include events or needs you can anticipate, such as planned travel for a family wedding, replacing the lawn mower that died or knowing you will need new tires this year.
Wollan notes that IRS VITA tax sites are located throughout Iowa and partner with organizations including some ISU Extension and Outreach county offices. A list of extension-sponsored sites is available from the Human Sciences Extension and Outreach website at https://www.extension.iastate.edu/humansciences/vita. The IRS offers a VITA locator tool at https://irs.treasury.gov/freetaxprep/.
To locate AARP volunteer tax assistance near you, visit the AARP Foundation Tax-Aide Locator.