For most of us, preparing our taxes is really … well, taxing. Fortunately, we have people like Thomas Spade ’07 (M.S.), instructor of accounting in the Department of Accounting and Business Law, to provide expert advice during tax time.
The College Today sat down with Spade to find out what College of Charleston faculty and staff need to know about preparing their 2021 tax returns. Here’s what he had to say.
What is different for the tax year 2021? Are there any changes to tax credits for 2021, or any credits taxpayers should pay special attention to this year?
Thomas Spade, accounting instructor
A couple of things are different in 2021. First, if you have a child, you may have received $250 to $300 per month from last July through last December from the federal government. Those were actually advance payments toward the Child Tax Credit that you take on your 2021 return! The good news is that the credit increased from $2,000 per child under age 17 to $3,000 per child under age 17 (or $3,600 if the child is under age 6). The bad news is, the credit that you claim on your return has to be offset by the advance payments that you received. So, you might actually get a smaller child tax credit on your return than last year, meaning you might get a smaller refund this year, or perhaps owe something. But keep in mind, you’re still coming out ahead, because you already got those monthly payments earlier.
Something similar to 2020: Remember that third stimulus payment that you received in the middle of 2021? Just like in 2020, that was an advance payment of a credit that you claim on the 2021 return called the Recovery Rebate Credit. When you prepare your 2021 return, you have to calculate how much of a credit you should have received. If you didn’t get enough, you get to take the difference as a credit on your return, just like in 2020. And if you got too much, you get to keep it and it’s not taxable income.
Back in mid-2021, you got a letter from the IRS saying how much they paid you as your third stimulus payment, and you got another letter from the IRS in January 2022 saying how much they paid you in advance Child Tax Credit payments. You’ll need these letters when you prepare your return. If you don’t have them, then never fear: Go to IRS.gov and click on “Find Your Child Tax Credit Information” for the total of your Child Tax Credit payments, and “Get Economic Impact Payment Information” for the amount of your third stimulus payment. Don’t guess, because if what you report doesn’t match what the IRS has on file, the processing of your return will be delayed, and it could take months to get processed.
Are there any changes to the penalty associated with employer-provided insurance?
There are no changes to the penalties associated with not having health insurance. Basically, the requirement for employers to report that you were offered coverage is still there, and the requirement to report what months you were covered is still there, which is why you still get a 1095-C. I would recommend keeping that form for your files. However, the penalty for not having health insurance has been reduced to zero for 2021.
Is there anything (credits, deductions, benefits, etc.) specific to S.C. state employees and/or higher-ed employees that shouldn’t be overlooked when filing tax returns?
There’s nothing specific to all state employees or higher education employees. However, there are some things that all South Carolina residents should not overlook:
- If you claimed the Earned Income Tax Credit (EITC) on the federal return, then you are eligible for a South Carolina Earned Income Tax Credit as well. The S.C. EITC is 83.33% of the Federal Earned Income Tax Credit and is claimed on the S.C. 1040. However, unlike the Federal EITC, it cannot be used to generate a refund, and you can’t carry the excess forward to future years.
- If you saved the receipts from when you bought gas for your car last year, you can probably take a tax credit on your South Carolina tax return. The Motor Fuel Income Tax Credit is available for S.C. residents, on purchases of gas from gas stations in S.C., for your car that is registered in S.C. The credit is totally separate from any deductions for mileage as business expenses, and is available for personally owned vehicles. However, you must keep the actual receipts for your records (and provide them to the SCDOR upon request), and you’re not allowed to estimate it. The credit is the lesser of the cost of actual repairs and maintenance (like oil changes, tires, etc.; almost all repairs except for paint and body) or the number of gallons purchased in S.C. x9 cents per gallon. This is set to increase to 11 cents per gallon next year. It may not sound like much, but let’s consider an example: Suppose you pay $100 for oil changes during the year. And let’s also assume that in 2021, you purchased 12 gallons of gas every week. That’s 624 gallons of gas for the year. Actual repairs and maintenance are therefore $100.624 gallons x 9 cents per gallon is $56. So you get a credit of the lesser of the two, which in this case is $56. And this credit can actually be used to generate a refund. So, why not get $56 back from the state just because you saved some slips of paper during the year?
- If you own your home, I don’t need to tell you that hazard and flood insurance in the Charleston area can get very expensive. So allow me to introduce you to the S.C. Excess Insurance Premium Credit. If your hazard and flood insurance exceed 5% of the adjusted gross income (AGI) on your federal return, you can claim a tax credit for the excess. For example, suppose that your hazard and flood insurance premiums on your house in 2021 were $4,000 (which is highly likely in some areas of downtown and West Ashley). Let’s also say that your federal AGI is $60,000. Five percent of the federal AGI is $3,000. So you would get a S.C. tax credit of $1,000 on the S.C. return. This credit, however, cannot be used to generate a refund – but you do get to carry forward whatever you qualify for, but can’t take for up to five years.
When should employees seek professional assistance rather than filing their taxes themselves?
I always recommend seeking the advice of a qualified tax professional any time you have a situation that is more complicated than a W-2 and maybe a mortgage interest statement. The language of the tax code, even the forms and instructions, isn’t plain English. (Remember, we’re talking about a tax code that at one time had multiple definitions of the word “child” depending on the section of the Internal Revenue Code you were looking at until Congress mercifully fixed it.)
Perhaps you want to do it yourself and spend some time looking on the internet. There is a lot of information out on the internet, but I have found much of it to be incorrect, including many things that might appear legitimate. If your situation is simple, I recommend using one of the free filing options available through IRS.gov.
But if you are unsure about anything, hiring a tax professional is a great idea. Hire someone based on their expertise, not because they have a flashy advertisement or promise a big refund (in fact, licensed CPAs are prohibited by professional standards from making such claims). Paying someone a few hundred dollars now to make sure you’re doing it right can save you time, headache and possibly more money in the future, not to mention keeping you from violating federal or state law.
It’s been said that someone without legal training who represents themselves in court has a fool for a client. Similarly, someone who prepares their own return can often find themselves in a similar situation.
Spade is a shareholder/CPA with Thomas M. Spade, CPA, P.C. in Mt. Pleasant and a frequently interviewed tax expert on local news outlets.
