Tax changes 2021

Tax Changes 2021
What Your Tax Professional Needs to
Watch This Filing Season
Allen Lenth, EA-MBA

Who Are We?
• Allen Lenth Enrolled Agent/MBA
– Specialist in Tax Resolution
– Tax Filing and Payroll By Default
– Management Consultant
– IT Guru
• Felicia Lenth (Kid-knapped Metallurgical Eng.)
– Office Manager/Payroll Queen
• Outside Partners (ASTPS, Local CPAs/Tax Pros)

Locations
• Home Office, Sachse, TX
• Edmondson Law, PLLC.
101 Calloway Suite 200
Wylie, Tx. 75098
• City Central East Plano
500 N Central Expy, Suite 500
Plano, TX 75074

Common Resolutions
https://www.executivetaxsolution.com/home/common-resolutions
• 1. Installment Agreements
• 2. Partial Payment Installment Agreements
• 3. Currently Not Collectibles
• 4. Innocent Spouse Relief
• 5. Offer In Compromise
• 6. IRS Statute Of Limitations
• 7. Penalty Abatements
• 8. Past Dues Tax Returns

How We Find Clients?
• Networking – Chambers, Chambers, Chambers
Murphy, Garland, Wylie
• Collin County Federal Tax Liens Research
– IRS Tax Lien Notices (Silent Liens Already Exist)
– Mail Campaign
• Library Database, Collin County, Garland Chamber
(New Business Listings) Pickup The Phone!
• ETSVideos.com (Build Videos for Google Rankings)
• Print Ads (Connection Magazine)
• Referrals

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My War With the IRS
• Background:
– Newspaper Reporter
– Combat Arms, Special Operations Soldier
– Software Engineer
– Management Consultant
– Small Business Owner
• Lethal Combination:
– Diligent Researcher
– Combat Multiplier for my clients
– Know where the IRS technology flaws exist
– Teach clients how to show a profit
– Empathetic to the struggle

IRS Exposed
The Bureaucrats Have No Clothes
• As of January 2022 – 6.5 Million 2020 returns
have not been processed
• 2.5 Million 2020 returns are being amended
• IRS is still working form home
• Only 2% of calls to the IRS Help Desk are being
answered
• I CAN GET A HOLD OF THEM IN 3 MINUTES
• News Filing Tractor Trailers Outside IRS Offices

What to Watch For 2021?
• COVID-19
• IRS backlog
• Extended tax season
• Retroactive tax law changes

American Rescue Plan Act (ARPA)
• Up to $10,200 in unemployment
compensation not taxable for tax year 2020
• Child and Dependent Care Credit increased -
fully refundable for tax year 2021
• Child Tax Credit increased – fully refundable
for tax year 2021
• EIP 3

COVID-19 Legislative Response
Families First Coronavirus Response ACT
(FFCRA)
• Sick and family medical leave credits
PPP (Paycheck Protection Program)
Forms – 1040 Individual, 1120 C-Corp, 1120S S-Corp, 1065
Partnership, 1041 Estate/Trust, 990 Tax Exempt Organization

Virtual Currency
• The IRS defines virtual currency as:
• “A digital representation of value, other than a
representation of the U.S. dollar or a foreign
currency (“real currency”), that functions as a
unit of account, a store of value, and a medium of
exchange.”
• For federal income tax purposes, virtual currency
is treated as property. Tax provisions and
principles applicable to property transactions
apply to transactions using virtual currency.

Employee Retention Credit
• The Employee Retention Credit is a refundable
credit against employment taxes of the
qualified wages an eligible employer pays to
employees between March 12, 2020, and
December 31, 2021. Employers can reduce
employment tax deposits, if these deposits
aren’t sufficient to cover the credit; the
employer may get an advance payment from
the IRS.

Credits for Sick/Family Leave for Self-
Employed Individuals
• Form 7202 has been expanded from one to
three pages, with two sections each dedicated
to sick leave and family leave, separated by
the date the leave was taken (January 1, 2021
– March 31, 2021 and April 1, 2021 –
September 30, 2021).

Deferral of Payroll Tax
• In August of 2020, the IRS issued Notice 2020-65
allowing employers the option to defer the
employee portion of Social Security tax from
September 1, 2020, through December 1, 2020.
• The Notice stipulated any amounts deferred
should be ratable withheld from the employee’s
pay during the period of January 1, 2021, through
April 30, 2021.The CAA extended the repayment
period through December 31, 2021.

PPP Loans
• In tax year 2020, eligible expenses paid with
funds from a Paycheck Protection Program
(PPP) loan could be deducted, even if the loan
had been forgiven. Taxpayers who did not
claim these eligible expenses on their 2020 tax
return can make a new safe harbor election
under Rev. Proc. 2021-10 to claim eligible
deductions on their 2021 tax return as long as
the 2020 return was timely filed (including
extensions).

New Form 7203
• S Corporation Shareholder Stock and Debt
Basis Limitations
• Replace Shareholder’s Basis Worksheet

Standard Mileage Rate
• For 2021, the standard mileage rate for business
use is 56 cents per mile. The standard mileage
rate for charitable miles is 14 cents per mile while
costs for medical miles can be calculated at 16
cents per mile. Members of the Armed Forces on
active duty who moved pursuant to a military
order and incident to a permanent change of
station can calculate use the standard mileage
rate of 16 cents per mile for moving expenses
reported on Form 3903.

Section 179 Limits
• Section 179 expenses limits have been increased
for tax year 2021. For property placed in service
after December 31, 2020, the maximum amount
that a taxpayer can expense under Code Section
179 is $1,050,000. In order to take advantage of
the full deduction, the total cost of the assets
placed in service cannot exceed $2,620,000. A
dollar-for-dollar reduction in the maximum
Section 179 deduction limit occurs as the total
cost of assets placed in service exceeds
$2,620,000.

Bonus Depreciation
The Tax Cuts and Jobs Act allows for a 100% first year deduction for the
adjusted basis for qualified property placed in service after September
17, 2017, and before January 1, 2023.
In later years, the first-year bonus depreciation deduction phases down:
– 80% for property placed in service after December 31, 2022, and before
January 1, 2024
January 1, 2025
January 1, 2026
January 1, 2027
– 0% for property placed in service after December 31, 2026
• This additional first-year depreciation deduction is
allowed for both new and used property.

Excess Business Losses
• The CARES Act amended §461(l) to repeal the
limitation on excess business losses of
noncorporate taxpayers for tax years 2018,
2019, and 2020. Returns filed in 2018 and
2019 with the limitation can be amended. For
tax year 2021, the limitation has returned.

NOL Carryback
• The TCJA imposed new rules for NOLs. For tax years
after December 31, 2017, a taxpayer can no longer
carry back an NOL but can carry the NOL forward for an
infinite number of years. This new provision applies to
NOLs arising in taxable years after 2017.
• Additionally, the TCJA introduced a limitation on the
amount of the NOL that can be deducted in future
years. Starting in 2018, NOL carryovers were allowed
for a taxable year up to the lesser of the carryover
amount or 80% of the taxable income determined
without regard to NOL deductions.
• This has all been amended

Car and Truck Depreciation Limits
• The TCJA substantially increased depreciation limits for passenger
automobiles, trucks, and vans. For passenger automobiles placed in
service after December 31, 2017, the maximum amount of
allowable depreciation is:
– $10,000 for the year placed in service
– $16,000 for the second year in the recovery period
– $9,600 for the third year in the recovery period
– $5,760 for the fourth, fifth, and sixth years in the recovery period
– $5,760 for any year after the recovery period (for unrecovered basis)
• If bonus depreciation is claimed, an additional $8,000 may be
expensed arriving at a maximum first year deduction of $18,000.

Expiring Tax Provisions
2020
• Tuition and fees deduction
• NOL carryback extension (5 years) and 80%
limitation (CARES Act)
• Suspension of required minimum distribution
(CARES Act)
• Retirement plan distributions, recontributions,
and loan relief for Coronavirus-related
distributions (CARES Act)

2021
• Credit for certain nonbusiness energy
• Credit for qualified fuel cell motor vehicles
• Credit for alternative fuel vehicle refueling
• Credit for two-wheeled plug-in electric
• Credit for health insurance costs of eligible individuals
• Second generation biofuel producer credit
• Increase in State low-income housing tax
• Beginning-of-construction date for renewable power facilities eligible to claim the electricity production credit or investment credit in lieu of the production credit (secs 45(d) and
48(a)(5))3
• Credit for production of Indian coal
• Indian employment credit (sec 45A(f)) 12/31/21
• Credit for construction of new energy efficient homes (sec 45L(g))
• Mine rescue team training credit
• Treatment of premiums for certain qualified mortgage insurance as qualified residence
• interest (sec 163(h)(3)(E)(iv))
• • Computation of adjusted taxable income without regard to any deduction allowable for depreciation, amortization, or depletion for purposes of the limitation on business interest (sec
163(j)(8)(A)(v))
• • Three-year recovery period for racehorses two years old or younger
• • Accelerated depreciation for business property on an Indian reservation
• • Charitable contributions deductible by nonitemizers
• • Black Lung Disability Trust Fund: increase in amount of excise tax on coal
• • Incentives for alternative fuel and alternative fuel mixtures: Excise tax credits and outlay payments for alternative fuel (secs 6426(d)(5) and 6427(e)(6)(C))
• Temporary increase in limit on cover over of rum excise tax revenues (from $1050 to $1325 per proof gallon) to Puerto Rico and the Virgin Islands (sec 7652(f))
• American Samoa economic development credit (sec 119 of Pub L No 109-432, as amended)
• Modification of limitation on charitable contributions (sec 2205 of Pub L No 116- 136, as amended)
• Employee retention and rehiring tax credit (sec 2301 of Pub L No 116-136, as amended)
• Prevention of partial plan termination (sec 209 of Division EE of Pub L No 116- 260)
• Special rule for health and dependent care flexible spending arrangements (sec 214 of Division EE of Pub L No 116-260)

2025
• Modification of individual income tax rates (sec 1(j))
• Child tax credit: Increased credit amount, increased refundable amount, reduced earned income threshold, modification of identification requirements (sec 24(h))
• New markets tax credit (sec 45D(f)(1))9 12/31/25 4 Beginning-of-construction date for certain qualified carbon oxide sequestration facilities (sec 45Q(d)(1))
• Employer credit for paid family and medical leave (sec 45S(i))
• Beginning-of-construction date for offshore wind facilities eligible to claim the investment credit in lieu of the renewable electricity production credit (sec 48(a) (5))10
• Work opportunity credit (sec 51(c)(4)) 12/31/25 8 Increase in exemption amount and phaseout threshold of individual AMT (sec 55)
• Subject to a carryover No amount may be carried to any calendar year after 2030 Sec 45D(f)(3) 10 December 31, 2021, in the case of other wind facilities
• Rate on modified taxable income and treatment of credits in the calculation of base erosion minimum tax amount (sec 59A(b)(2))
• Increase in standard deduction of individuals (sec 63(c)(7))
• Suspension of miscellaneous itemized deduction (sec 67(g))
• Suspension of limitation on itemized deductions (sec 68(f))
• Exclusion for certain employer payments of student loans (sec 127(c)(1)(B))
• Suspension of exclusion for reimbursement of bicycle commuting (sec 132(f)(8))
• Suspension of exclusion for moving expense reimbursement (sec 132(g)(2))
• Suspension of deduction for personal exemptions (sec 151(d)(5))
• Limitation on deduction for qualified residence interest, suspension of deduction for home equity interest (sec 163(h)(3)(F))
• Limitation on deduction for State, local, etc., taxes (sec 164(b)(6))
• Personal casualty losses limited to Federally declared disaster areas (sec 165(h)(5))
• Modification of rules relating to computation of wagering losses (sec 165(d))
• Seven-year recovery period for motorsports entertainment complexes (sec 168(e)(3)(C)(ii) and (i)(15)(D))
• Increase in percentage limitation on cash contributions to public charities (sec 170(b)(1)(G))
• Increase in percentage limitation on cash contributions to public charities (sec 170(b)(1)(G))
• Special expensing rules for certain film, television, and live theatrical productions (sec 181(g))11
• Qualified business income deduction (sec 199A(i))

• Qualified film, television, and live theatrical productions (as defined in section 181(d) and (e)) are eligible for the additional first-year depreciation
allowance under section 168(k) if (1) acquired and placed in service after September 27, 2017, and before January 1, 2027, and (2) a deduction
otherwise would have been allowable under section 181 without regard to the dollar limitation or termination of that section See sec
168(k)(2)(A)(i)(IV) and (V)
• Suspension of deduction for moving expenses (sec 217(k))
• Deduction percentages for foreign-derived intangible income and global intangible low-taxed income (sec 250(a)(3))
• Deductibility of employer de minimis meals and related eating facility, and meals for the convenience of the employer (sec 274(o))
• Transfer of excess pension assets to retiree health and life insurance accounts (sec 420(b)(4))
• Limitation on excess business losses of noncorporate taxpayers (sec 461(l))
• ABLE accounts (sec 529A): a Contributions eligible for saver’s credit (sec 25B(d)(1)(D))
• Rollovers from qualified tuition programs permitted (sec 529(c)(3)(C)(i)(III))
• Increase in contributions limit (sec 529A(b)(2)(B))
• Look-through treatment of payments between related controlled foreign corporations under the foreign personal holding company rules (sec
954(c)(6)(C))
• Empowerment zone tax incentives:12 a Designation of an empowerment zone and of additional empowerment zones (sec 1391(d)(1)(A)(i) and (h)(2))
• Empowerment zone tax-exempt bonds (secs 1394 and 1391(d)(1)(A)(i))
• Empowerment zone employment credit (secs 1396 and 1391(d)(1)(A)(i))
• Increase in estate and gift tax exemption (sec 2010(c)(3)(C))
• Oil Spill Liability Trust Fund financing rate (sec 4611(f)(2))
• Treatment of certain individuals performing services in the Sinai Peninsula of Egypt (sec 11026 of Pub L No 115- 97)
• The empowerment zone tax incentives may expire earlier than December 31, 2025, if a State or local government provided for an expiration date in
the nomination of an empowerment zone, or the appropriate Secretary revoked an empowerment zone’s designation The State or local government
may, however, amend the nomination to provide for a new termination date
• Exclusion from gross income of discharge of indebtedness on principal residence (sec 108(a)(1)(E))
• Tax exemption for student loan discharges on account of death or disability (sec 108(f)(5))

2020 Forms 1040 and 1040-SR
FBAR Form
• At any time during 2020, did you receive, sell,
send, exchange, or otherwise acquire any
financial interest in any virtual currency?
• At any time during 2021, did you receive, sell,
exchange, or otherwise dispose of any
financial interest in any virtual currency?

Retirement Plan Changes
• SECURE Act
– The SECURE Act, passed in late 2019, made some
significant changes regarding retirement accounts
including:
– Repeal of the maximum age for contributions to a
traditional IRA
– Change in age for required minimum distributions
(RMD) from age 70 ½ to age 72

Retirement Plan Changes
• CARES Act
– The CARES Act was signed law in March 2020 in
response to the Coronavirus pandemic and
provided retirement plan changes for tax year
2020 only including:
– 10% penalty waived for related distributions
– Increase loan amount to $100,000
– No required minimum distribution (RMD)

Unemployment Compensation
The American Rescue Plan Act (ARPA),
enacted in March 2021
- Unemployment compensation up to $10,200
to be excluded from taxable income.
- If married taxpayers are filing a joint return,
each spouse could exclude up to $10,200.
- The exclusion was available for tax year 2020
only and for taxpayers whose MAGI was less
than $150,000.

Qualified Principal Residence Debt
• The Consolidated Appropriations Act (CAA)
extended the exclusion for cancelled qualified
principal mortgage debt from income through
2025.
• The maximum amount for the exclusion has
been reduced to $750,000 ($375,000 for MFS)
after December 31, 2020.

Adjustments to Income
• Educator Expenses
• Form 2106
• Moving Expenses
• IRA Deduction
• Student Loan Interest Phaseout
• Tuition and Fees Deduction

Itemized Deductions
• Medical expense deduction 7.5%
– All taxpayers can deduct amount of medical and
dental expenses that exceed 7.5% of adjusted
gross income (AGI) on Schedule A, Itemized
Deductions. Prior to the passing of the CAA, this
provision was scheduled to expire, leaving the AGI
limitation at 10% for all taxpayers under age 65.
The CAA made this made this provision
permanent for all taxpayers.

Itemized Deductions
• SALT Limitation
– Under the TCJA, the total deduction for state and
local tax (SALT) is limited to $10,000 ($5,000 for
married taxpayers filing separately) for tax years
beginning after December 31, 2017, and before
January 1, 2026. Foreign real property tax cannot
be deducted other than taxes paid or accrued
carrying on a trade or business.

Itemized Deductions
• Home Mortgage Interest Deduction
– For tax years 2018 through 2025, the deduction
for home mortgage interest is limited to the
interest on up to $750,000 ($375,000 for married
taxpayers filing separately) of acquisition
indebtedness. For acquisition of debt before
December 15, 2017, the pre-TCJA $1,000,000 limit
applies for the interest deduction.

Itemized Deductions
• Charitable Contributions
– The CARES Act temporarily suspended the 60%
AGI limitation on cash contributions for 2020 and
2021. The deduction for qualified charitable cash
contributions is available up to 100% of AGI.

Itemized Deductions
• Casualty and Theft Loss
– The TCJA prescribes that only personal casualty
and theft losses are deductible to the extent they
are attributable to a federally declared disaster.
Personal casualty and theft losses are reduced by
$100 and the total of all casualty or theft loss is
further reduced by 10% of AGI.

Itemized Deductions
• Miscellaneous Itemized Deductions
• The TCJA eliminated the deduction for miscellaneous
itemized deduction that were subject to the 2%-of-AGI
floor. Some of the deductions the TCJA has eliminated
include:
• Unreimbursed employee business expenses
• Tax preparation fees
• Safe deposit box rental
• Hobby expenses to the extent of hobby losses
• The elimination of the miscellaneous itemized deductions
subject to the 2% limit is effective for all tax years 2018
through 2025.

Itemized Deductions LESSON HERE
• Pease Limitation on Itemized Deductions
• The TCJA suspended the “Pease limitation” on itemized
deductions through tax year 2025. The Pease limitation is
an overall limitation on itemized deductions, sometimes
called the 3%/80% rule.
• The Pease limitation reduced the total amount of allowable
itemized deductions (after other limits were applied) by 3%
of the amount the taxpayer’s AGI exceeded a certain
threshold amount; however, the overall limitation did not
reduce itemized deductions by more than 80%.
• The suspension of the overall itemized deduction limitation
is scheduled for tax years through 2025.

Charitable Contributions
• The CAA extended the deduction for cash
charitable contributions for nonitemizers for tax
year 2021 with some modifications. The
deduction is no longer above-the-line, and is
reported on line 12b of Forms 1040 and 1040-SR.
• For tax year 2021, the deduction is $600 for MFJ
returns and $300 for all other returns.
• Charitable contribution amounts should be
entered on the Gifts to Charity section of federal
screen A; eligible deductions flow to line 12b,
“Charitable contributions...” of Form 1040.

Qualified Business Income Deduction
• What is QBI?
– QBI is the net amount of qualified items of
income, gain, deduction and loss from any
qualified trade or business, including income from
partnerships, S corporations, sole proprietorships,
and certain trusts.

COVID-RelatedRetirement
Distribution
• The CARES Act provided for penalty-free withdrawals
from retirement plans to pay for certain types of
disaster expenses, including COVID-19. Individuals who
were adversely affected by COVID-19 can withdraw up
to $100,000 from an eligible retirement plan (such as
an IRA or a 401(k)) and include the income ratably over
a three-year period. The taxpayer can elect to either
return the withdrawn amount to the account within
three years or pay tax on the withdrawn amount over a
period of three years. The 10% early-withdrawal
penalty does not apply for these distributions.

Form 8915-F
• Replacing the now-retired 8915-E, Form 8915-
F is used to report the withdrawal of
retirement plan funds on the grounds of a
federally declared disaster (2020 disasters
onward) and repay the tax on the distribution
over the course of three years. Use the new
screen 915F to report distributions withdrawn
for eligible disasters taking place in calendar
years 2020 and 2021.

Deferral of SElf-employedTaxes
• The CARES Act provided a payroll tax deferral
period which allowed self-employed individuals
to defer the payment of 50% of Social Security tax
on net earnings on self-employment income for a
period on March 27, 2020, through December 31,
2020.
• The deferred deposits must be deposited by the
following dates to be considered timely:
• December 31, 2021 – 50% of eligible deferred
amount
• December 31,2022 – remaining amount

Premium Tax Credit
• In March 2021, the ARPA expanded eligibility for the Premium Tax
Credit to individuals with incomes higher than 400% of the FPL. This
expansion is only for tax years 2021 and 2022.
• If, at any time during 2021, the taxpayer received unemployment
payments for at least one week, the taxpayer’s household income,
for the purposes of calculating the PTC, can be considered no
greater than 133% of the federal poverty line (in respect to the
taxpayer’s family size). Unlike 2020, where a poverty line of 133% or
lower signified the lowest percentage of the premium needing to
be paid out of pocket, for tax year 2021, any taxpayer at or below
150% of the federal poverty line is responsible for 0% of his or her
eligible health insurance premium.

Childand Dependent Care Credit
• The ARPA made some temporary changes to the Child and
Dependent Care Credit (CDC) for tax year 2021.
For 2021 only:
• The CDC credit is fully refundable if the taxpayer’s principal place
of abode was in the U.S. for more than one-half of the year.
• The limit for the expenses considered was increased: $3,000 to
$8,000 for one qualifying child
• $6,000 to $16,000 for two or more qualifying children
• The applicable percentage was increased from 35% to 50%.
• Phaseouts thresholds were increased and begin at an AGI of
$125,000 (was $15,000). The applicable percentage is reduced by
1% for every for every $2,000 over the threshold.
• Employees can exclude employer provided benefits up to $10,000
($5,250 MFS) up from $5,000 ($2,500 MFS).

Earned Income Credit
• Prior to ARPA, taxpayers with no qualifying
children had to be at least age 25 and under
age 65 to qualify for EITC.
• ARPA established special rules for individuals
with no qualifying children for tax year 2021
only, including:

• The minimum age for taxpayers, lowered from
age 25 to the applicable minimum age, which
is: Individuals - age 19
– Specified students – age 24
– Qualified former foster youth – age 18
– Qualified homeless youth – age 18

• The maximum age of 65 was been eliminated.
• The credit phaseout percentage was increased
from 7.65% to 15.3%.
• The earned income amount was raised from
$4,220 to $9,820
• The phaseout amount was increased from
$5,280 to $11,610

• Effective for 2021 tax year only, if earned income for 2021 is
less than earned income for tax year 2019, a taxpayer may
elect to use the 2019 earned income when calculating the
2021 EITC.
• Additionally, APRPA brought changes to some provisions for
all tax years after December 31, 2020, including:
• Taxpayers who have at least one qualifying child who do
not meet the identification requirements are allowed to
claim EITC under the no qualifying children rules.
• EITC is allowed for certain separated spouses.
• The investment income limitation has increased from
$3,650 to $10,000 (will be adjusted for inflation after 2021).

Education Credits
• American Opportunity Credit
– This credit is for students who are earning their undergraduate
degrees. The credit is specifically limited to those expenses
incurred in the first four years of college.
– The American Opportunity Credit is an amount equal to 100% of
qualified tuition and related expenses up to $2,000 plus 25% of
those expenses in excess of $2,000, but not in excess of $4,000.
The maximum credit allowed for tax year 2021 is $2,500.
– The full credit is available to taxpayers with a MAGI of $80,000
or less ($160,000 or less if filing jointly). The amount of the
credit is gradually reduced if the taxpayer’s MAGI is between
$80,000 and $90,000 ($160,000 and $180,000 if filing jointly). If
the MAGI is above $90,000 ($180,000 if filing jointly), the
taxpayer cannot take the credit.

Education Credits
• Lifetime Learning Credit
– Where the American Opportunity Credit is limited
to the first four years of college, the Lifetime
Learning Credit has a wider availability. This credit
can be used for graduate school, undergraduate
expenses, even professional or vocational courses.
Plus, there’s no limit to how many years it can be
claimed.
– This credit is nonrefundable and the maximum
credit is $2,000 per return.

Economic Income Payment
• $112,500 Head of Household
• $150, 000 Married Filing Jointly / Qualifying
Widow or Widower
• $75,000 All other filing statuses

Economic Income Payment
Payments for EIP 3 are completely phased-out for individuals whose
AGI is at least:
• $120,000 Head of Household
• $160, 000 Married Filing Jointly / Qualifying Widow or Widower
• $80,000 All other filing statuses
• The IRS sent Notice 1444-C for EIP 3 to taxpayers generally within
15 days of being issued the payments. The notices listed the
amount of the payments and the method of payment.
• Individuals who did not receive EIP 3 payments or who received less
than they were qualified to receive, can reconcile it on the 2021
Form 1040 or Form 1040-SR as the Recovery Rebate Credit.
• The Recovery Rebate Credit is refundable.

Kiddie Tax
• Before the implementation of the TCJA, the
“kiddie tax” - the tax on certain children with
unearned income - applied to the unearned
income of any child who:
• Was under age 19 at the end of the tax year
(under age 24 for full-time students)
• Had at least one living parent at the end of the
tax year
• Had unearned income more than $2,100
• Didn’t file a joint return

Kiddie Tax
• The TCJA revamped the kiddie tax rate structure. Beginning in tax
year 2018, a child’s net unearned income was taxed at the capital
gain and ordinary income rates that apply to trusts and estates. A
child’s tax was no longer affected by his or her parents’ tax situation
or siblings’ unearned income. Other rules and provisions of the
kiddie tax remain unchanged.
• The SECURE Act repealed the kiddie tax changes made by the TCJA.
Beginning in 2020, the unearned income of the child is taxed under
the rules prior to the TCJA and not that of trusts and estates. This
means that the unearned income of children will be taxed at their
parents’ marginal federal income tax rate (unless the child’s rate is
higher). The new law also gives the option to retroactively use the
parents’ rate for 2018 and/or 2019.
• A child’s earned income is still to be taxed according to his or her
own individual tax bracket.

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