Am I eligible?
You will receive an Automatic Taxpayer Refund if you filed an Indiana resident tax return for the 2020 tax year with postmark date of Jan. 3, 2022, or earlier. An Indiana resident tax return means you filed your state taxes using one of the following:
- Form IT-40, Indiana Full-Year Resident Individual Income Tax Return.
- Form IT-40PNR, Indiana Part-Year or Full-Year Nonresident Individual Income Tax Return, if you were married and filed jointly AND you were an Indiana resident for the entire year (2020).
- Form SC-40, Unified Tax Credit for the Elderly AND you resided in Indiana for more than six months in 2020.
How will I receive my Automatic Taxpayer Refund?
How you receive your Automatic Taxpayer Refund depends on information contained in your 2021 Indiana Individual Income Tax return. Your Automatic Taxpayer Refund is separate from other payments or refunds you may receive from the state.
You should receive your Automatic Taxpayer Refund by direct deposit if:
- You filed an Indiana resident tax return for 2020 before Jan. 3, 2022; and
- Filed a 2021 Indiana resident tax return by April 18, 2022; and
- Listed direct deposit checking or savings account information for your 2021 Indiana Income Tax refund.
One-time direct deposits of $125 will arrive in bank accounts beginning in May and continue through mid-summer.
Currently, the Auditor of State plans to mail Automatic Taxpayer Refund checks in late summer. * You will receive a check from the Auditor of State if:
- You do not meet the requirements for direct deposit (see above); or
- You filed for an extension of time to pay on your 2021 Indiana resident tax return; or
- You included directed deposit information for an account associated with refund advance loans or similar arrangements; or
- Your Automatic Taxpayer Refund could not be otherwise deposited directly into your bank account.
*This timeline is dependent on supply-chain issues affecting the paper industry and is subject to change.
Whenever possible, one refund of $250 will be issued by direct deposit or check for married couples filing jointly when both spouses are eligible for the Automatic Taxpayer Refund.
You should allow until Sept. 1 to receive your Automatic Taxpayer Refund.
If you purchased an electric vehicle recharging station for your home, then you can get a Federal tax credit of 30% of the cost. The maximum credit is $1,000. This benefit is available on your 2018-2021 individual tax returns. If you didn’t take this on a previously-filed-return, then ask us to amend that return to take this credit.
A credit, up to $500, is available for you on your tax return if you purchased an energy-efficient window, exterior door, HVAC system, hot water heater, or insulation during the year. Ask us for details if you think you qualify.
Eligible employers are allowed a credit of 12.5% of the amount of wages paid to employees who are on family and medical leave if the employer pays at least 50% of the wages normally paid to the employee while that employee is on leave. So, if you have a salaried-employee who has a new child or a sick spouse, and continue their salary during their absence, the government wants to give you money. There are plan-rules that need to be followed before taking the credit – ask us for guidance.
An employer may contribute up to $5,250 annually toward an employee’s student loans, and the payment will be excluded from the employee’s W-2 wages. While employers can’t discriminate in favor of highly-compensated employees when providing this benefit, they can provide it only to certain level or geographies of employees if desired. Utilizing this benefit will save the employee income tax and the employer FICA tax. Do you have any employees with student loans? Instead of giving them a raise, tell them that you will now pay their student loans for them – effectively giving that employee a raise without causing the employee to pay tax on that raise.
If you had a profitable self-employed business and couldn’t work in 2021 because you had Covid, had a family member who had Covid, had to quarantine, had a family member who had to quarantine, or had to take care of a child whose school or daycare was shut-down due to Covid, then the government will effectively give you, in the form of a tax-credit, the amount that you would have earned during the days that you couldn’t work. This is a complicated tax calculation with pages and pages of rules and limitations, but is definitely something that you shouldn’t overlook when preparing your 2021 tax return.
Up until now, if a student borrowed funds for college and couldn’t repay them, that student would be taxed on the amount of any student-loan debt that was forgiven. This tax-treatment of debt discharge follows a long-standing general tax principal: taxpayers should pay tax on any realized wealth increases, including those caused by an elimination of personal liabilities (i.e. if a taxpayer borrowed funds and didn’t repay them, that taxpayer was enriched and should pay tax as a result). The American Rescue Plan Act of 2021 allowed for an exception to this general tax principal and will exclude from income any wealth increase caused by forgiveness of student-loan debt for discharges before 1/1/2026.
For 2021 only! Any family which receives unemployment income in 2021 will effectively get free health insurance if they purchased their 2021 health insurance through Healthcare.gov (the Federal Health Insurance Marketplace). A special rule effective for only the 2021 tax year provides that any taxpayer who has received, or been approved to receive, unemployment compensation for any week beginning during 2021 will be deemed to have total 2021 household income of 133% of the Federal Poverty Level for purposes of calculating the Premium Tax Credit. This, in effect, gives that family the largest health insurance subsidy allowed under the Obamacare rules for 2021 (i.e. the Federal government will pay all of their health insurance for the year).
Recent legislation has eliminated a dreaded Premium Tax Credit subsidy bright-line. In previous-years, if an individual or family received health insurance subsidies by purchasing health insurance through Healthcare.gov, they had to repay ALL of the subsidies if they unexpectedly had income totaling more than 400% of the Federal Poverty Level (about 106K for a family of 4). This strange law often led to crazy and counterintuitive results on a tax return. As an illustration, if that family earned $106,001 of income in a given year, then they triggered that bright-line repayment and might have to repay $4K of subsidy (which is an effective tax rate of 400,000% on that $1 of extra earnings!). For 2021 and 2022, Congress has eliminated this cliff and now any income over this 400% of Federal Poverty Level bright-line will cause that same family to repay their subsidy at a rate of 8.5% (which is an 8.5% tax…much more sensible). Thank you Congress!
A lot of our small-business owners often are eligible for the Earned Income Credit in some of their low-profit years (caused by large equipment purchases or other one-time expenditures of their business). In determining the Earned Income Credit for 2021, taxpayers can use their 2019 earned income if that amount is higher than their 2021 earned income to use in calculating the Earned Income Credit. For self-employed small-business owners there is often a conflict between taxable income and earned income on the tax return (they want a small taxable income BUT a large earned income). In order to get a decent Earned Income Credit in normal years, the small-business owner needs decent taxable income, which causes the small-business owner to pay self-employment tax, which reduces the owner’s overall refund. By taking advantage of this special rule for 2021, the small-business owner can now have low taxable income in 2021 and pay no self-employment tax and still get a large Earned Income Credit, and thereby a larger refund.
If your operations were suspended due to government orders or your sales decreased by more than 20% in a quarter, then you might be able to get a credit for 50% of wages paid to your W-2 employees during that quarter. The calculation is a bit complicated, so reach out to us to find out more. This credit is available for the first 3 quarters of 2021.
A recent law change allows you to contribute to your Traditional IRA despite your age. As long as you have “earned-income” (like self-employment earnings or wage income), then there is no age restriction anymore.
If you have to get your hands on IRA or 401K money before age 59 ½ , then usually you have to pay a 10% penalty. You might be able to avoid this penalty if your withdrawal is to pay for large medical bills, college expenses, the birth or adoption of a child, a first-time home purchase, or is related to a disability. Furthermore, some of these exceptions only apply to IRA withdrawals. So, for example, if you are purchasing your first home, a withdrawal from your 401K to fund it will be subject to a 10% penalty but a withdrawal from an IRA won’t be. Solution: Roll funds from your 401K to your IRA, and then withdrawal the funds from the IRA to use for your house down payment.
You now get a tax credit of 50% of the amount paid for child care for each child under age 13. The max credit is $4K for 1 child or $8K if you have 2 children in day care. If married, both spouses need to have earned income equal-to-or-greater than the amount of child care expenses.
What does this mean for you? If you are married and have 1 child in day care that costs $8K, then you save $4K in tax only if both spouses earn at least $8K. If you only have 1 spouse working, then you get no child care credit. Thus, the first $8K that the normally-non-working-spouse earns might cause tax of $2,700 ($8K times combined FICA, Federal Income, and State Income tax of 33%), but earns the family $4K in credits….so that spouse is being paid $1,300 by the IRS to work!
Obviously, this gives the normally-non-working-spouse an incentive to at least earn the amount of the child care cost!
This credit gets a little confusing when you coordinate it with a pre-tax dependent care plan through work….it might make sense to NOT DEFER money into the pre-tax plan through work since the amount of the credit might be more than the tax saved by the deferral…ask us with questions so that we can guide you on how much to defer into your pre-tax dependent care plan through work.
If you are getting subsidized health insurance through the Federal health insurance exchange then you likely can receive more subsidy due to a recent law change. In the past, you could receive NO subsidy if your income exceeded 400% of the Federal Poverty Level. Now there is no bright-line phaseout and you will always receive a subsidy to keep you from paying more than 8.5% of your income towards health insurance. If you need any clarification on how this impacts your tax return then please call us.