We all get it: Tax season burnout.
Now, imagine trying to muck your way through the tax filing process while operating a single- parent household and working nights while earning your degree.
Seems nearly impossible, right?
And yet, today’s single moms are superheroes—juggling childcare with financial responsibility, work-life balance, and more.
Accordingly, when tax time rolls around, the IRS rewards single moms in BIG ways. Understanding the ins and outs of these tax benefits can help you save thousands of dollars on your next return.
And, things just got even better in 2021. We’ll explain how you can leverage recent changes in the Child Tax Credit to receive an additional $1000 (or more) on your next tax return.
But before we dive into these tax breaks, let’s review some best practices for single parents who wish to claim their children as dependents.
Best Practice #1: File as Head of Household
Want to maximize your 2021 return? Then, file for “head of household” instead of “single” if you can meet the following criteria:
- On the last day of the 2021 tax year, you were unmarried.
- In 2021, you contributed more than 50% toward household expenses. (Household expenses include rent, mortgage interest payments, property taxes, utilities, food,
essential maintenance repairs, and homeowners insurance.)
- Your children cohabitated with you for the majority of the year.
Did you meet all of the criteria above? Next, make sure that you’re the only parent who intends to claim the child as a dependent on their taxes. In the event of a dispute between you and a former partner, consult this handy list of Tiebreaker Rules published by the IRS.
Best Practice #2: Request Financial Assistance for Tax Preparation
Do you make less than $57,000 per year, have a disability, or identify as a non-native English speaker? Then, you may qualify for Volunteer Income Tax Assistance (VITA).
By taking full advantage of the VITA program, you can obtain access to trained volunteers who will use automated software to process your tax returns.
In this instance, free assistance doesn’t mean reduced quality. VITA volunteers must undergo extensive training and testing to prove their mastery of the latest tax laws.
How about single grandparents above age 60? Instead of using VITA, consider trying Tax Counseling for the Elderly (TCE). Unlike VITA consultants, TCE volunteers receive specialized training to field questions on financial matters that affect retirees.
Best Practice #3: Hire a Certified Public Accountant
If you bring in more than $57,000 per year, then you should consider hiring a certified public accountant to file your taxes. Doing so could mean the difference between being stretched too thin and flourishing during the next tax year.
As we’ll see shortly, tax laws are constantly changing. A perfect storm in 2020—courtesy of the COVID-19 pandemic—has led to the odds stacking up in your favor during 2021.
Don’t miss out on the essential resources you need to help your family thrive. By enlisting the trusted guidance of a certified public accountant with decades of experience, you’ll feel well ahead of the curve.
Especially when it comes to staying up to date on the latest tax news. Let’s consider recent changes to the 2021 Child Tax Credit as a case in point.
Supercharge Your Tax Refund with the 2021 Child Tax Credit
For one year only, the IRS has increased the Child Tax Credit by 50%, or at least $1,000 per child. (Before 2021, a single parent claiming the Child Tax Credit would receive $2,000 for each qualifying child under the age of 16.)
But, all of that changes for the 2021 tax year before reverting back to business as usual. In response to the COVID-19 pandemic, Congress passed the American Rescue Plan Act (ARPA) on March 11, 2021. Aside from providing much-need financial assistance to forestall foreclosures and evictions, the ARPA greatly expanded the Child Tax Credit.
Now, eligible families can receive $3,600 for dependent children under the age of 6 and $3,000 for children between the ages of 6 and 17. (That 17 isn’t a typo. For the first time, 17-year-olds will count as eligible dependents.)
As in prior years, income restrictions will apply. If you’re single and filing as “head of household,” then your Adjusted Gross Income (AGI) must not exceed $112,500 per year. (Your AGI refers to your pre-tax income before the IRS adds back in certain deductions.)
For single filers, your income must not exceed $75,000 annually if you intend to claim the credit. This is why best practice #1, or filing as head of household, can make such a crucial difference come tax time.
After your income surpasses the thresholds mentioned above, phase-out ranges apply. For example, head of household filers will receive $50 less for each $1,000 in income that exceeds $112,500. This means that a single mom can make up to $240,000 in annual income and still receive a partial payment, albeit a very small one.
Advance Child Tax Credit Payments
You may be thinking, “That sounds great, but I need money now.”
After all, it’s been a difficult year. At the height of the COVID-19 pandemic, 14.8% of Americans had lost their jobs.
Although the economy is on the rebound, when you’re living paycheck-to-paycheck, those temporary setbacks aren’t so temporary. Especially if you’re raising children on a single income.
In recognition of this, the IRS will be issuing advance payments of the Child Tax Credit. Beginning July 15, 2021, the IRS will begin distributing installments of the credit via direct deposits or checks to qualifying families.
For example, families will receive monthly payments of $300 for each qualifying child under age 6. Therefore, by the end of the year, you should have already acquired 50% of your annual Child Tax Credit. Any amount missing or owed back to you will be reconciled on your 2021 tax return.
Often, this is a good thing.
The IRS estimates the advance payment amounts you will receive in 2021 based on your 2020 tax return. If your income declined in 2021, for instance, then the IRS will likely owe you a larger refund.
Additional Tax Credits for Single Moms
But, there’s more.
In 2021, the Child and Dependent Care Credit will also increase for one year only. Single parents eligible for the credit must meet the following criteria:
- You hired paid childcare so that you could attend work or search for employment.
- Your child is younger than 13-years-old or older than 13-years-old and meeting federal
requirements for having a disability.
In 2020, single moms claiming this benefit could receive a maximum tax credit of $3,000 for childcare expenses for one child. If multiple children were in the picture, then that value doubled to $6,000.
However, the American Rescue Plan Act (ARPA) widens those amounts to $4,000 and $8,000, respectively.
That’s a significant jump!
Lastly, if you’re a single mother making less than $50,000, then you may qualify for the Earned Income Tax credit (EITC). But, your eligibility hinges on how many children you can claim. To discover if you qualify, review this table of income requirements published by NerdWallet.
Your Largest Tax Refund Yet
Keeping up with the latest changes in tax law is complicated, to say the least.
If you’re also a single mom who’s juggling a thousand responsibilities, then you probably don’t have time to research tax regulations.
And, who could possibly blame you? Children are difficult enough to raise when two adults are shouldering all the responsibility—let alone one.
When it comes to filing your taxes, you don’t have to shoulder the burden alone. Enlisting the assistance of a certified public account ensures that you have access to up-to-the-minute changes in tax laws.
Even better, you don’t have to get your hands dirty. With a world-class tax accountant in your corner, you’ll eliminate needless hours sitting in front of a computer screen.
Have you ever tried to find the answers you need to important tax questions by using the “help” section of an online tax filing system? Working with a CPA ensures that you’ll never have to interact with robots or dig your way through online forums again. Instead, you’ll be interacting with a human who has your best interests at heart and delivers exceptional and personalized service.
Likewise, you’ll never miss out on hidden tax breaks, like the Child Tax Credit, that will supercharge your tax return.
In Summary: Contact Steven Lissner & Company Today!
In this blog, we’ve discussed how you can save big in 2021 by claiming a variety of tax credits. Believe us when we say: We’ve only just begun to scratch the surface.
Most importantly, however, you’ll be able to maximize your tax return while minimizing all the hassle.
And, your time is invaluably important when you’re a single parent. Extra time means attending dance recitals, PTA meetings, relaxation retreats (because you definitely deserve it), and much more.
To learn more about how you can secure your largest refund yet, contact our industry-leading tax experts today at Steven Lissner & Company.