Confused about your taxes this year? You aren’t alone – but luckily, a few resources are available to help. All households earning up to $55,000 (and in some places, up to $66,000) can take advantage of a free tax preparation service called VITA—Volunteer Income Tax Assistance. In many cities and towns across the nation these services can also go by other names, such as Tax Help Colorado or Prepare and Prosper in Minnesota. All VITA programs are service sponsored and monitored by the Internal Revenue Service, meaning they use IRS-certified volunteers to prepare tax returns at no cost to low- and moderate-income households across the country.
Why is VITA important?
VITA helps people complete their tax returns completely and accurately, ensuring that those returns include all the credits and deductions for which they qualify. In some cases, these credits can help families receive thousands of dollars more than their initial tax refunds. Some of the most important credits include Federal and State income tax credits such as the Earned Income Tax Credit, Child Tax Credit, and Child and Dependent Care Credit. VITA volunteers are trained to help people determine their eligibility and receive these credits.
- The Earned Income Tax Credit (EITC) is available to families who are US citizens or permanent residents with Social Security numbers. This credit is calculated based on the number of qualifying children and your earned income, and for some single parents with three children, the benefit can be worth over $6,000.
- As of this year, the Child Tax Credit is now more like an allowance. Eligibility for this credit is based on income, but unlike the EITC, only the children must be US citizens or permanent residents (parents don’t have to be). Most qualifying taxpayers will be able to obtain payments of either $300 or $250 per month, depending on the ages of the children.
- The Child and Dependent Care Credit is helpful to make care for children or dependents who can’t care for themselves more affordable. Plus, this credit is also refundable, meaning it can be given in addition to a tax refund.
How can you access VITA?
You can find the locations of VITA services on the IRS website. This year, many VITA sites are providing their free tax preparation while adhering to appropriate pandemic safeguards, so service delivery comes in various forms: drop-off and pick-up later, highly modified in-person assistance, and even contactless services taxpayers can use from their homes. Many tax prep software companies, such as IRS Free File, also partner with VITA, providing their software at no cost for those who want to do their own tax returns. This software helps people understand their eligibility and credits as well. One of the easiest and safest ways is to work with VITA volunteers is through GetYourRefund.org, a secure web-based program that you can access from home with your computer or smart phone. Through the program, you answer questions and upload images of tax documents that show your income and credit/deduction eligibility, such as W-2s, 1099s, and student loan interest. VITA volunteers use this information to work on your return and stay in touch along the way, making sure you upload all you need to upload, checking in if more information is needed, and reviewing your return with you before e-filing.
What are the major tax changes for 2021?
The CARES Act of 2020 created changes in tax law to benefit people during the pandemic. Now, the American Rescue Plan (ARP) Act has more changes that are very beneficial for low- and moderate- income households. Any change to tax law prompts a ripple effect – after a new law passes, the IRS must develop and release guidance, states must adjust their own processes, and tax software calculators need to be updated. CARES Act changes were finalized in tax software just before the 2021 tax season opened, meaning the IRS had to slightly delay its opening for returns until February 12 – weeks after the usual start. The ARP Act changes are just now rolling out, but here is what we know so far:
- New Deadline: The deadline for filing 2020 tax returns is now May 17, 2021. Some states have followed suit, but many have not yet announced their plans. Find out what your state is doing here.
- Unemployment Compensation: The ARP Act excludes $10,200 of unemployment insurance compensation, and the IRS says amendments are not needed for returns already filed; they plan to fix it through their system and send refunds out. However, unemployment payments are treated differently by states. Many states are still not making decisions about this very quickly. Find out what your state is doing here.
- Marketplace Insurance: The ARP Act also increases subsidies for Marketplace health insurance, aka Obamacare. Kaiser Family Foundation provides a great breakdown of these changes, but simply put, the main changes are that many with the lowest incomes don’t have to pay anything, and others see their rates slashed. IRS hasn’t provided guidance at this time, so tax software is not yet updated. But the good news is that no one should have to file an amended return to get the refund of excess premium credits that were paid. Wait to see what guidance the IRS provides by monitoring this page. This year would be a good year to get insurance from Healthcare.gov if you don’t have other options.
- Stimulus Payments: The IRS is working hard to make sure that all eligible taxpayers receive their economic impact payments this year. Check the EIP page on their website for more information about these payments and how to get a check if you didn’t receive one.