If your life changed in 2021, watch for income tax surprises

The events of 2021 didn’t always play out as expected. A lingering pandemic, a shifting government response and a wave of career moves meant many people ended the year in a far different place from where they began.

NerdWallet

Feb 23, 2022, 2:45 PM

Updated 785 days ago

Share:

If your life changed in 2021, watch for income tax surprises
The events of 2021 didn’t always play out as expected. A lingering pandemic, a shifting government response and a wave of career moves meant many people ended the year in a far different place from where they began.
Now, as the income tax filing deadline approaches, those life changes may bring a new wave of surprises for U.S. taxpayers.
If your income changed, or if you made money in the stock and cryptocurrency boom, you may find a larger-than-usual tax bill. If you welcomed a new child or had major medical expenses, you might qualify for new breaks.
Whatever your situation, it may take longer than you expect to gather information and understand provisions that may not have applied to you before.
“Take nothing for granted. Question everything. Don’t make assumptions, even about your own situation,” says Akeiva Ellis, a certified public accountant and certified financial planner in Waltham, Massachusetts.

IF YOU JOINED THE GREAT RESIGNATION

Through November, an average of 3.9 million people quit their jobs each month of 2021, according to the Society for Human Resource Management. That’s the highest number since the federal government began publishing the data in 2000.
How a career change affects your taxes depends in part on why you left.
IF YOU GOT A NEW JOB: You’ll get W-2 forms from each employer, and the combined pay reported on those will help you calculate your total income for the year. It’s pretty straightforward, as long as you withheld the correct amount.
IF YOU STARTED WORKING FOR YOURSELF: People who became their own bosses will have to pay self-employment taxes; the federal rate is 15.3%.
If you have people working for you, you’ll be responsible for sending tax forms to contractors or employees. People working for themselves can also manage their tax liability by carefully accounting for both their income and their expenses.
“Good records matter,” says Kimberly Key, a professor focused on accounting and taxation at Auburn University’s Harbert College of Business in Alabama. “2021 is going to help people figure out what they did wrong and try to get things fixed for 2022.”

IF YOU JOINED THE INVESTING BOOM

Trading by individual investors, many using online platforms, reached historic highs during the early part of 2021, according to Nasdaq . Meanwhile, investments in cryptocurrencies such as Bitcoin reached all-time records last year.
If you didn’t sell any assets, Ellis says, you won’t have to pay taxes on them even if your portfolio did well.
If you bought and sold investments for the first time in 2021, you’ll soon get a crash course on capital gains taxes. You’ll have to gather records of your gains and losses. You’ll also want to distinguish between long-term capital gains (typically, for assets held longer than a year) and short-term capital gains (for assets held a year or less).
If you bought or sold stock, your brokerage will send you a tax form detailing your activity. Cryptocurrency exchanges, however, are not yet required to do so. In any case, it’s critical when filing your taxes to review any records sent by the investment platforms on which you’ve traded. If you don’t receive any records, you can log in to review your history.

IF YOU WERE AFFECTED BY COVID-19

Perhaps 2021’s most discouraging surprise was the persistence of COVID-19, which continued to sicken Americans throughout the year.
Even as vaccinations blunted some of the worst outcomes, many suffered from serious illness and significant medical costs. But if you spent more than 7.5% of your income on medical care, it may be possible to write off any expense beyond that threshold.
IF YOU HAVE KIDS
Anyone with kids — whether or not they joined your family in 2021 — will have to navigate the child tax credit, which saw a one-time expansion under the COVID-19 relief measures enacted early last year.
The federal government distributed payments from the child tax credit in advance based on income tax data from the 2020 tax year. Taxpayers were able to opt out, choosing to claim the deduction on their tax returns instead, but many did not.
The credit, with a maximum of $3,600 per child age 5 or younger at the end of 2021 and $3,000 for children ages 6 through 17, phases out at higher incomes. That means if you got a raise last year, you might no longer be eligible for the payment you received.
“I think the child tax credit this year is really going to throw a lot of people for a loop,” says Ellis, who runs The Bemused, a financial education program. “It was great when the checks were coming in, (but) some families will find that they need to repay part of that credit.”
_________________________________
This article was provided to The Associated Press by the personal finance website NerdWallet. The content is for educational and informational purposes and does not constitute investment advice. The author held no positions in the aforementioned investments at the time of publication. Andy Rosen is a writer at NerdWallet. Email: arosen@nerdwallet.com.


More from News 12
1:49
Police: Car drives into Plainview dance studio; 3 suffer minor injuries

Police: Car drives into Plainview dance studio; 3 suffer minor injuries

2:26
Brightening skies and warmer temperatures heading into the weekend

Brightening skies and warmer temperatures heading into the weekend

0:23
Police: Hempstead man stole parking meters near Jericho Turnpike and Roslyn Road

Police: Hempstead man stole parking meters near Jericho Turnpike and Roslyn Road

1:55
8-year-old from Valley Stream becomes first in NY to undergo gene therapy for rare disease

8-year-old from Valley Stream becomes first in NY to undergo gene therapy for rare disease

2:27
2016 whistleblower tip warned of barrels buried at old Grumman property in Bethpage

2016 whistleblower tip warned of barrels buried at old Grumman property in Bethpage

0:25
Long Islander wins $1,000 a day for life from lotto ticket

Long Islander wins $1,000 a day for life from lotto ticket

1:34
Police: Drunk driver hits patrol car at scene of DWI crash; Suffolk officer hurt

Police: Drunk driver hits patrol car at scene of DWI crash; Suffolk officer hurt

2:00
Police: Man’s wallet blocks bullet during Coram shooting; suspect wanted

Police: Man’s wallet blocks bullet during Coram shooting; suspect wanted

0:44
NuHealth holds breast cancer screenings at Plainview-Old Bethpage Library

NuHealth holds breast cancer screenings at Plainview-Old Bethpage Library

0:49
Suffolk Sheriff’s Office holds 1st wellness conference at Suffolk Community College

Suffolk Sheriff’s Office holds 1st wellness conference at Suffolk Community College

0:13
Police probe shooting incident at Patchogue home

Police probe shooting incident at Patchogue home

0:23
West Islip man sentenced to 8 1/3 to 25 years for stealing millions from Williston Park school

West Islip man sentenced to 8 1/3 to 25 years for stealing millions from Williston Park school

0:25
Police: Man threw cellphone, injured officer responding to disturbance on road in Valley Stream

Police: Man threw cellphone, injured officer responding to disturbance on road in Valley Stream

1:09
The East End: Hamptons Handpoured

The East End: Hamptons Handpoured

1:52
Find fun, interactive activities for family and friends at Main Street Board Game Café in Huntington

Find fun, interactive activities for family and friends at Main Street Board Game Café in Huntington

0:37
North Babylon HS gives away dresses, suits ahead of prom season

North Babylon HS gives away dresses, suits ahead of prom season

0:22
Central Islip man sentenced to 22 years in prison for raping daughter

Central Islip man sentenced to 22 years in prison for raping daughter

1:45
Long Island pizzerias come together to raise funds for family of slain detective

Long Island pizzerias come together to raise funds for family of slain detective

0:30
Hempstead man pleads guilty, gets 8 years for drug trafficking

Hempstead man pleads guilty, gets 8 years for drug trafficking

0:19
Nassau Legislature approves 2 new outdoor fields for Mitchel Athletic Complex

Nassau Legislature approves 2 new outdoor fields for Mitchel Athletic Complex