Below is a summary of some of the US personal tax changes for the 2021 filing year that may affect you:

  • Economic Impact Payment (“EIP”) #3 was paid by the IRS starting in March 2021. The EIP payments are not taxable, however we do report them on the Form 1040 in order to calculate the Recovery Rebate Credit. If you were eligible for the EIP but you were not issued the payment by the IRS, you can request the payment when filing your 2021 income tax return by applying for the Recovery Rebate Credit.
  • Charitable Contribution Deduction
    • Prior to 2020, charitable contributions could only be deducted if taxpayers itemized their deductions.
    • For 2020 and 2021, taxpayers who do not take itemize deductions may take a charitable deduction of up to $300 ($600 for married individuals filing joint returns) for cash contributions made in the year to qualifying organizations.
    • A charitable contribution to a Canadian organization can only be deducted against Canadian source income.
  • Amounts paid for personal protective equipment (i.e. masks, hand sanitizer, sanitizing wipes, etc.) are treated as medical expenses.
  • Eligible self-employed individuals who, due to COVID-19, were unable to work for reasons related to their own health or to care for a family member can claim “the sick and family leave” tax credits to offset a portion of their federal income tax.
  • The child and dependent care tax credit for 2021 has increased and is now refundable for certain taxpayers living in the US. Taxpayer’s living outside of the US may still qualify for the non-refundable credit. For 2021, the dollar limit on qualifying child care expenses increased to $8,000 (previously $3,000) per qualifying person.
  • The child tax credit has been enhanced for 2021. The eligibility has been extended to qualifying children under age 18. Depending on the level of adjusted gross income, the enhanced credit is up to $3,600 per child under 6 and $3,000 per child between 6 and 18. For Taxpayer’s living in the US, they
    may have received advance payments of the Child Tax Credit during 2021.
  • Employees are not able to claim a deduction for a home office. However, self-employed individuals continue to qualify for the home office deduction. In order for a self-employed individual to qualify for the deduction, they need to use a portion of their home exclusively for conducting business on a regular basis and the home must be the taxpayer’s principal place of business.

If you have any questions or require additional details, please contact us.