Personal Income Tax Return Form Correction and Changes You Should Know About

Tax filing season is arguably the most nerve-wracking time: battling documents, figures, and important dates is an all-consuming task. In addition, filing your taxes demands a constant awareness of your finances, tax strategy, and IRS regulations.

A change in one could significantly impact the rest, and this is undoubtedly true for changes that the Internal Revenue Service (IRS) often implements through tax season.

Changes in laws, policies and tax forms can throw your preparation off track. Unfortunately, we’ve seen multiple instances of the same over the last few years due to Covid-19 and the bills passed to alleviate its effects.

However beneficial or necessary, these changes leave taxpayers like you scratching their heads while trying to make sense of these amendments and additions.

No one likes to be caught off-guard, and certainly even less so by the IRS. So we’ve compiled a list of changes you can expect to see on this year’s forms, so you can be prepared to optimize your tax bills.

So, What’s New This Year in Personal Income Tax Return?

Taxpayers can expect to see various changes on their tax forms for the last financial year, especially regarding deductions and credits. Keep reading to know more.

Form 1040 and its schedules

This year’s Form 1040 is far from compact, with Schedules 1,2, and 3 all having expanded to take up close to two pages each. This elongation is due to additions to income and extra taxes, each getting their sections instead of being grouped into one confusing bundle. Additionally, there are many changes related to credits and deductions that we’ll discuss below in more detail.

Credits

Child tax credits

Lines 19 and 28 on Page 2 of Form 1040 were adjusted to account for changes made to the credit and consider that it was fully refundable for 2021.

Earlier, the credit was only partially refundable (up to $1,400 per child) and was only applicable for children 16 years and younger (now, parents can claim the credit for 17-year-olds).

Earned income tax credits

The Earned Income Tax Credit was upgraded due to changes in the American Rescue Plan Act. Most importantly, the Credit now allows more childless taxpayers to claim the credit.

The age limit has also been increased to allow people aged 19 to 65 to claim the credit on their 2021 tax returns. Line 27 of Form 1040 has been modified and expanded to accommodate these changes.

Recovery rebate credits

In 2020, the Recovery Rebate Credit on Form 1040 was meant for people who didn’t receive their first and/or second check or those who received an incorrect amount.

For 2021 however, it must be noted that the credit is only for those who did not receive their third check or for those who didn’t receive the entire amount. Therefore, taxpayers must lower their credit claims to account for this.

Savers credits

The Savers Credit aims to encourage lower and middle-income taxpayers to save for their retirements. The credit was allowed for 10%, 20%, or 50% of the first $2000 saved, depending on income and filing status. However, for the 2021 tax return, taxpayers can claim a 50% credit if their AGI is $19,750 or less. Form 1040 considers this.

Deductions

Standard deductions

Due to adjustments for inflation, the deductions that taxpayers can claim are much higher and are reflected on your tax forms. The increments to the 2020 amounts are as follows:

$300 extra for married couples filing jointly
$1,350 per spouse for couples over the age of 65
$150 extra for single filers, $200 for those over 65
$150 for head-of-household filers

Charitable deductions

Earlier, deductions claimed for any charitable donations would affect taxpayers’ AGIs. This is no longer the case, and the space allowing you to check the $300 charitable contribution option has been moved elsewhere in the form.

Additionally, married couples can now individually claim deductions instead of being counted as one entity. That means that married couples can claim up to $600 in deductions for donations.

Tax brackets

The tax brackets from 2020 remain the same, but the income ranges that fall into them change. This determines the amount of tax you pay, so check where you fall wisely.

You can then appropriately complete line 15 on Form 1040 pertaining to taxable income.

Taxes for the self-employed

The tax breaks that self-employed taxpayers can take have been tweaked and include:

Deductions of up to 100% for business meals (to be claimed on Line 24b, Schedule C).
Long-term care insurance premiums do not have to be itemized and can be deducted on Line 17, Schedule 1.

Unemployment benefits

An unemployment compensation benefit worth $10,200 was in effect from 2020 but no longer. Therefore, any compensation earned in 2021 will be fully taxed in the upcoming tax return season. The same must be mentioned on Line 7, Schedule 1 of Form 1040.

Student loan discharges

Students with undergraduate and graduate student loans no longer worry about the forgiven student debt being a part of their taxable income. Earlier, this amount had to report on Line 8c, Schedule 1, but now this can be left blank.

Next Steps

The best thing taxpayers can do at the moment is to take stock of how these changes affect their filing statuses and strategies and then prepare their documents accordingly.

However, the complexity of filing your taxes cannot be understated, and often the best thing to do is to hire a tax professional to help. With close to two decades of helping Indians in the US prepare for, and file their tax returns, AOTAX is the best. We can help you get everything in order and ensure that your tax forms are error-free. Sign up for free today!