The 10 Tax Forms You Need to Know About Before Filing Your 2021 Taxes

For the 2021 tax filing season, you might want to get started sooner than later. A report from the  National Taxpayer Advocate shows that there was a backlog of 35 million tax returns at the end of last year. About 1 in 9 calls had a chance of getting answered.

This tax year also includes changes that may mean higher tax savings. But the new rules can be complicated.

Here, we’ll review the common types of forms, the major updates, and the tax benefits for healthcare. 

When is the deadline for tax season 2021?

The federal tax deadline for most filers is Monday, April 18, 2022. Taxpayers in Maine and Massachusetts have an extra day to file due to state holidays.

Check with your state to determine state tax filing deadlines. Here are some states that have a different deadline:

Source: State websites.

If you are a victim of the wildfires in Colorado or tornadoes in Illinois, Kentucky, or Tennessee, you have until May 16.

You can file an extension, which means the deadline is October 17, 2022, to file your federal return. But you still need to pay taxes owed. If not, you may be subject to interest and penalties.

What is changing for 2021 taxes?

There are many changes for 2021. A major reason is the passage of the American Rescue Plan in March 2021.

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The child tax credit (CTC) increased from $2,000 to $3,600 for each child under the age of 6 and $3,000 for each child from ages 6 through 17. You get the full amount of the CTC if your modified adjusted gross income is under the following levels.

Source: IRS.

If your income is higher than the thresholds, the credits will gradually phase out. There is a $50 decrease for each $1,000 in income.

If you received the child tax credit in advance, you will get Letter 6419 from the IRS. Taxpayers should receive this letter by January 31. You use this to reconcile your 2021 advanced CTC payments with the amount you were eligible to claim. If your income increased in 2021, you may have taken too much of the credit. The IRS considers this taxable income. This will result in a lower refund or a higher tax.

The American Rescue Plan also expanded the child and dependent care credit. This is for qualified childcare expenses for dependent children under age 13 or adult care for a disabled dependent.

The credit applies to a percentage of your eligible expenses: 

Source: IRS. 

The child and dependent care credit is refundable and is only available for 2021. For example, suppose you owe taxes of $500 and your credit is $1,500. You will receive a refund of $1,000, or $1,500 minus $500.

The percentage for the credit starts to phase out when your AGI is over $125,000. The credit is reduced to zero when your AGI is more than $438,000. 

What 2021 tax forms do I need?

There are hundreds of forms. But the following chart shows some of the more common ones: 

Source: IRS. 

What forms do I need to prepare if I collected unemployment in 2021?

You will use Form 1099-G, which lists unemployment compensation on box 1. The amount is taxable, and you will include it on your Schedule 1 of your tax return.

Some states like California and New Jersey do not tax unemployment compensation.  

What healthcare forms do I need to prepare if I had medical expenses in 2021?

The IRS allows deductions for qualified medical procedures and items. These must be for the diagnosis, cure, mitigation, treatment, or prevention of disease. Examples of qualified medical expenses include prescription drugs, surgeries, lab tests, home care, and unreimbursed healthcare premiums.

You need to itemize these deductions on Schedule A, and they must exceed 7.5% of your adjusted gross income (AGI). For example, suppose your AGI is $65,000, and you have $7,000 in medical expenses. You can deduct $2,125 worth of medical expenses on Schedule A. This is $7,000 minus 7.5% multiplied by $65,000, or $4,875.

Will I need to repay my ACA premium tax subsidy?

The premium tax subsidy is a credit that reduces your monthly costs for Affordable Care Act (ACA) marketplace insurance. The amount varies according to estimated income, household size, and place of residence.

If your family income increases during the year, you may have to repay a portion or all of the premium credit. You can determine how much premium credit you were eligible to receive by using Form 8962, Premium Tax Credit. Use the information from Form 1095-A to complete Form 8962.

Your health insurance marketplace should send you Form 1095-A by mid-February. You can check your mail or healthcare.gov account. This form will provide the following information: 

• Your premiums paid

• Advance payments of the premium tax credit

• Coverage details

You must file a tax return if you received an advanced payment of the premium tax credit during the year. Review your Form 1095-A for accuracy before you file your taxes. 

How do my tax preparations change if I had a child in 2021?

You will need to get a Social Security number for your child before you file your tax return. You can do this at the hospital or by filing Form SS-5.

You may be eligible for the child tax credit, child and dependent care credit, and the earned income tax credit. You also may qualify for head of household. This is a single or unmarried person who keeps up a home for a qualifying person such as a child. Taxpayers filing as head of household may have a lower tax rate and qualify for a higher amount for the standard deduction.

It is never too early to think about funding a college education. You can set up a 529 plan. This is an investment account whose earnings grow tax-free. You may pay for qualified education expenses with your 529 plan without paying federal and state taxes.

How do my tax preparations change if I switch jobs in 2021?

There are a few things you typically consider when you switch jobs, including: 

• Job-hunting expenses 

• Tax withholding updates 

• Retirement accounts 

• Health accounts  

• Severance pay

You can no longer deduct your job-hunting expenses due to the Tax Cuts and Jobs Act (TCJA) of 2017. When you find a new job, you should update your tax withholding on Form W-4. This ensures that your employer deducts enough money from your paycheck to cover taxes. You may want to rollover your retirement account when you leave your job. You can transfer your 401(k) tax-free to a traditional individual retirement account (IRA). This may provide more investment options and flexibility in making changes.

You can rollover all the assets tax-free in your health savings accounts (HSAs) to another one.  But flexible spending accounts (FSAs) do not allow for this. It is a “use-it-or-lose-it” account.

If you were laid off from your job and received severance pay, this will most likely be categorized as taxable income. Your employer should include the total amount you received on Form W-2. They will also withhold federal and state taxes.  

What deductions can I write off if I worked from home in 2021?

You can claim the home office deduction when you use a part of your home only for business activities. You can deduct rent, maintenance, utilities, and real estate taxes. However, the home office deduction is only for self-employed people, not employees.  

The bottom line 

Having the right forms and starting early are important to make sure you can file your tax return on time. If you have a child, pay attention to the enhanced child tax credit and child and dependent care credit. You’ll receive a letter from the IRS to help you complete your tax return. The IRS also allows the deduction of medical expenses, with certain limits. The ACA tax subsidy that you received with your marketplace insurance may cause potential problems if your income increased during the year. It is a good idea to get the help of a tax professional if you have any questions about your specific tax situation.

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Written by:

Tom Taulli, EA

Tom Taulli, EA, founded and operates his own tax preparation and planning firm, Pathway Tax. He is a licensed enrolled agent and can represent taxpayers before the IRS. He can also prepare and advise on tax matters for all 50 states.

Edited by:

Charlene Rhinehart, CPA

Charlene Rhinehart, CPA, is a personal finance editor at GoodRx. She has been a certified public accountant for over a decade.

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