Meagan Dow, CFA, CFP®
Senior Client Needs Research Analyst

From stimulus checks to unemployment to child tax credits, there were many changes that could impact your taxes for 2021. We recommend discussing the following with your tax professional to determine if any of these items apply to your situation. Keep in mind, this list is not all-encompassing, is only meant for educational purposes and is not intended as tax advice.

Economic impact payments (2021 recovery checks)

If you received a third-round stimulus check in early 2021, the IRS does not require you to include it in your taxable income. This money also will not reduce your refund or increase the amount of income tax you owe for 2021.

Steps to take:

  • Let your tax professional know the amount you received and keep a copy of the IRS letter for your records.
  • If you did not receive a check or believe you should have received a larger check, work with your tax professional to see if you are eligible for the Recovery Rebate Credit.

Unemployment compensation

For 2020, pandemic-related legislation offered a tax break for some unemployment compensation. This changes for 2021, with all unemployment compensation subject to federal income tax again.

Steps to take:

  • If you received unemployment compensation in 2021, bring your Form 1099-G to your tax professional.
  • If you made quarterly estimated tax payments in 2021, bring your records of any payments to your tax professional.

COVID-19-related distributions from retirement accounts

If you took a coronavirus-related distribution from a retirement account in 2020 and opted to spread the amount equally over three years, you will need to include the relevant portion of the distribution on your 2021 tax return. You can recontribute any portion of the distribution (that you haven't already recontributed) back into any retirement account eligible to receive a rollover for up to three years from the day after you received the distribution.

Steps to take:

2020 COVID-19-related distributions:

  • If you're spreading a COVID-19-related distribution over three years, bring your 2020 Form 1099-R to your tax professional.

Recontributions:

  • If you haven't already, we recommend working with your financial advisor and tax professional to develop a plan to recontribute these distributions. Recontributions made through the tax filing deadline (including extensions) could reduce your 2021 taxes, so let your tax professional know if you plan on making additional recontributions.
  • If you already recontributed some or all of these distributions in 2021, bring your year-end account statement and 2020 Form 5498 (if you received any) to review with your tax professional. You will receive a 2021 Form 5498 for your 2021 recontribution activity after the tax filing deadline. You do not need this form to file your taxes, but you should retain it for your tax records.

Required minimum distributions (RMDs) from retirement accounts

RMDs resumed for the 2021 tax year and had to be taken by Dec. 31 unless the taxpayer’s birthdate is between July 1 and Dec. 31, 1949, in which case the start date is deferred to April 1, 2022. If you have an inherited IRA, you may also have needed to take an RMD by the end of 2021.

Steps to take:

  • If you had an RMD for 2021, bring either your 2020 Form 5498 or your 2021 account statements so your tax professional can calculate the RMD that was required. Additionally, they will need your 2021 Form 1099-R to report the amount of RMDs taken.

Charitable contributions

If you opt for the standard deduction, you can deduct up to $300 of cash contributions ($600 if filing jointly) to qualified charities. If you itemize your deductions for charitable giving, the 60% of adjusted gross income limit for cash gifts is suspended for 2021.

Steps to take:

  • Bring your charitable gift receipts to review with your tax professional.
  • If you itemize deductions, ask your tax professional if the suspension of the 60% limit impacts you.

Child tax credit

You can now claim up to $3,600 for children under 6 years old and up to $3,000 for children ages 6 to 17. It's also refundable, meaning you can receive the credit even if it's larger than the amount of taxes you owe. The credit starts phasing out at $75,000 for single filers, $150,000 for joint filers and $112,500 for heads of household. As many families already know, up to half of the credit may have been paid out in advance payments made in the second half of 2021.

Steps to take:

  • If you received advanced payments of this credit in 2021, the IRS should have sent you Letter 6419 reporting those amounts. Bring that letter to your tax professional.

Child and dependent care credit

If you qualify for this credit, you'll find it's more generous for 2021, with up to $4,000 for one qualifying person and up to $8,000 for two or more qualifying persons. The credit also is potentially refundable and phases out differently from how it has in prior years, which will benefit some families but make others ineligible.

Steps to take:

  • Bring documentation of your dependent-care expenses – including the amount and care provider’s name, address and taxpayer identification number (TIN) – to your tax professional.

IRA contributions - digital

While there aren't any changes to IRA contributions this year, it's still important to consider. Contributing to an IRA can help you make progress toward your retirement goals and can generally reduce your taxes now or in the future. The IRA contribution limit in 2021 is $6,000 per individual, or $7,000 if you're 50 or older, subject to certain income requirements. You can make IRA contributions for 2021 up to the tax filing deadline of April 18.

Steps to take:

  • Review your year-end IRA account statement(s) with your tax professional and make any contributions on or before April 18.
  • You will receive a Form 5498 for your contribution activity after the tax filing deadline. You do not need this form to file your taxes, but you should retain it for your tax records.
Important information:

Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your attorney or qualified tax advisor regarding your situation. This content should not be depended upon for other than broadly informational purposes.