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Tips for filing your 2021 taxes

Income-tax-Caculator Pens Notebook ge03284b6d_640In 2021, Congress expanded tax benefits and made other advanced payments in response to the covid-19 pandemic and the resulting financial impact. This may increase the amount of money you’ll receive through your tax refund. You also may be eligible to access other benefits when you file a tax return.

The Consumer Financial Protection Bureau offers these tips as you prepare to file your taxes. It also has financial tools to help you make a plan for how to use your tax refund to pay off debts and save for the future.

INCREASED TAX BENEFITS

Child Tax Credit

The CTC is a tax benefit to families with children. In 2021, the benefit increased, and part of the credit – usually only available at tax time – was sent to many families as advance payments throughout the year. For 2021, the CTC is fully refundable, meaning if you don’t owe any tax you will get the full amount for which you are eligible as part of your tax refund.

Child and Dependent Care Credit

The CDCC is a tax credit to help families pay for care of their eligible children and other dependents who aren’t able to take care of themselves.

In 2021, the amount of money that taxpayers could receive to reimburse their childcare costs increased. If you spent money on childcare expenses while working or looking for work, a higher portion of your childcare expenses can be reimbursed. For example, a family with children under age 13 or other qualified dependents may be able to receive 50 percent, increased from 35 percent, of their 2021 childcare costs, up to a certain amount.

Earned income tax credit

The EITC is a tax benefit for low-to-moderate income workers with earned income, who are 19 years old or older. In 2021, the maximum amount of the EITC increased, and more people are eligible to apply for the credit.

Recovery rebate credits – Economic Impact Payments – for 2020 and 2021

To provide financial relief during pandemic, many Americans received three Economic Impact Payments in 2020 and 2021. The third payment, which began being sent out in March 2021, was an advance payment of the 2021 Recovery Rebate Credit. It won’t reduce your refund or increase the amount you owe when you file your taxes.

EMERGENCY RENTAL ASSISTANCE PAYMENTS

If you received ERA payments to cover rent, utilities, or home energy expenses in 2021, the payments aren’t considered taxable income and don’t need to be declared on your tax return.

GETTING READY TO FILE

If you’re not preparing your return yourself, it’s important to choose a reputable tax preparer that will file an accurate return. Any mistakes could result in additional costs and complications in the future including delays in receiving a tax refund.

In some cases, you may be eligible for free or low-cost tax preparation.

You can get free tax preparation assistance by IRS-certified volunteers at a Volunteer Income Tax Assistance or a Tax Counseling for the Elderly location if:

  • Your income is $57,000 or less.
  • You are 60 years old or older.
  • You have a disability or speak limited English.

See “Get Free Tax Prep Help” for more information,

If you’re not eligible for VITA, TCE, or there isn’t a site in your community, here are additional free resources available for filing your tax return:

  • If you earned less than $73,000 in 2021 and would like assistance so you can prepare and file your own return, you can get support with free tax preparation or software through MyFreeTaxes.
  • If you’re a member of the military or a military dependent, you can get free tax help from the Military OneSource program.

HOW TO GET YOUR MONEY

The quickest and safest way to receive your tax refund is through direct deposit.

Here are tips to consider before you file your return:

  • If you already have an account with a bank or credit union, make sure you have your information ready – including the account number and routing number – when you file your tax return. You can provide that information on the tax form and the IRS will automatically deposit the funds into your account.
  • If you have a prepaid card that accepts direct deposit, you can also receive your refund on the card. Check with your prepaid card provider to get the routing and account
  • If you don’t have an account or a prepaid card, you could consider opening an account. Many banks and credit unions offer accounts with low or no monthly maintenance fees when you have direct deposit or maintain a minimum balance. These accounts may limit the types of fees you can be charged and may also offer free access to in-network ATMs. You can often open these accounts online.

WHAT TO DO WITH YOUR TAX REFUND

Tax refunds can help people catch up on bills and get ahead. With the increased tax benefits, you may be eligible for more money when you file in 2022, providing an opportunity to pay off debts or work towards future goals. The CFPB has resources to help you make a plan:

Create a cash-flow budget

A cash-flow budget tracks the timing of your income and expenses to make sure you have enough from week to week. Knowing what your normal income and expenses are and when they occur can help you think about how to use your tax refund to fill any gaps. For example, you may want to set aside part of your refund to pay the rent or the utility bills because they come due before you get your regular paycheck.

Develop a debt action plan

Picking a strategy to repay your debts can help you begin reducing it and make progress toward achieving your goals. After you identify all your debt obligations, you can consider how your tax refund can help to pay down or pay off one or more of your debts.

Make a plan to save

While you’re paying off debts, it’s also a good idea put money in an emergency fund for unexpected expenses that come up throughout the year. It’s important to save money, too, such as for your child’s education and for retirement.

WATCH OUT FOR SCAMS

Many people have received their advance CTC payments this year, but scammers are taking advantage of this new program by contacting people by phone, text, email, and social media, and pretending to be the IRS, often sending people to a fake IRS website.

See “Child Tax Credit Scammers Are Still Reaching Out” for more information.

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