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1040 (and

1040-SR) DRAFT AS OF TAXYEAR

R

2021

December 3, 2021 INSTRUCTIONS Including the instructions for Schedules 1 through 3

American Rescue Plan (ARP) of 2021. The following ARP provisions affect tax year 2021.

? Child and dependent care credit increased.

? Self-only EIC expanded.

2021 Changes

? Child tax credit expanded. Advance payments of the child tax credit were made in 2021.

For details on these and other changes, see What's New in these instructions.

Future Developments

See and Forms, and for the latest information about developments related to Forms 1040 and 1040-SR and their instructions, such as legislation enacted after they were published, go to Form1040.

Free File is the fast, safe, and free way to prepare and e-file your taxes. See FreeFile.

Pay Online. It's fast, simple, and secure. Go to Payments.

Department of the Treasury Internal Revenue Service

Dec 03, 2021

Cat. No. 24811V

Table of Contents

Contents

Page

Contents

Page

Department of the Treasury Internal Revenue Service

What's New . . . . . . . . . . . . . . . . . . . . . . . . 6

Sign Your Return . . . . . . . . . . . . . . . . 63

DRAFT AS OF Filing Requirements . . . . . . . . . . . . . . . . . . 9 Do You Have To File? . . . . . . . . . . . . . . 9 When and Where Should You File? . . . . . 9

Assemble Your Return . . . . . . . . . . . . 64 2021 Tax Table . . . . . . . . . . . . . . . . . . . . 65 General Information . . . . . . . . . . . . . . . . . 78

Line Instructions for Forms 1040 and 1040-SR . . . . . . . . . . . . . . . . . . . . . . 13

Refund Information . . . . . . . . . . . . . . . . . . 83

December Filing Status . . . . . . . . . . . . . . . . . . . 13 Name and Address . . . . . . . . . . . . . . . 15 Social Security Number (SSN) . . . . . . . 15 Dependents, Qualifying Child for Child Tax Credit, and Credit for Other Dependents . . . . . . . . . . . . . . 18

3, 2021 Instructions for Schedule 1 . . . . . . . . . . . . . 84

Instructions for Schedule 2 . . . . . . . . . . . . . 96 Instructions for Schedule 3 . . . . . . . . . . . . 101 Tax Topics . . . . . . . . . . . . . . . . . . . . . . 105

Income . . . . . . . . . . . . . . . . . . . . . . . 23 Total Income and Adjusted Gross

Income . . . . . . . . . . . . . . . . . . . . . 30 Tax and Credits . . . . . . . . . . . . . . . . . 30 Payments . . . . . . . . . . . . . . . . . . . . . 37

Disclosure, Privacy Act, and Paperwork Reduction Act Notice . . . . . . . . . . . . 107

Major Categories of Federal Income and Outlays for Fiscal Year 2020 . . . . . . . 109

Refund . . . . . . . . . . . . . . . . . . . . . . . 58

Index . . . . . . . . . . . . . . . . . . . . . . . . . . 111

Amount You Owe . . . . . . . . . . . . . . . . 61

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Form 1040 and 1040-SR Helpful Hints

DRAFT AS OF For 2021, you will use Form 1040 or, if you were born before January 2, 1957, you have the option to use

Form 1040-SR.

You may only need to le Form 1040 or 1040-SR and none of the numbered schedules, Schedules 1 through 3. However, if your return is more complicated (for example, you claim certain deductions or credits or owe additional taxes), you will need to complete one or more of the numbered schedules. Below is a general guide

December 3, 2021 to which schedule(s) you will need to le based on your circumstances. See the instructions for the schedules

for more information.

If you e-file your return, you generally won't notice much of a change and the software you use will generally determine which schedules you need.

IF YOU...

THEN USE...

Have additional income, such as business or farm income or loss, unemployment compensation, prize or award money, or gambling winnings.

Have any deductions to claim, such as student loan interest, self-employment tax, or educator expenses.

Schedule 1, Part I Schedule 1, Part II

Owe alternative minimum tax (AMT) or need to make an excess advance premium tax credit repayment.

Schedule 2, Part I

Owe other taxes, such as self-employment tax, household employment taxes, additional tax on IRAs or other quali ed retirement plans and tax-favored accounts.

Schedule 2, Part II

Can claim a nonrefundable credit (other than the nonrefundable child tax credit or the credit for other dependents), such as the foreign tax credit, education credits, or general business credit.

Schedule 3, Part I

Can claim a refundable credit (other than the earned income credit, American opportunity credit, refundable child tax credit, additional child tax credit, or recovery rebate credit), such as the net premium tax credit, health coverage tax credit, or quali ed sick and family leave credits from Schedule H or Schedule SE.

Have other payments, such as an amount paid with a request for an extension to le or excess social security tax withheld.

Schedule 3, Part II

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The Taxpayer Advocate Service Is Here To Help You

What is the Taxpayer Advocate Service? The Taxpayer Advocate Service (TAS) is an independent organization within the Internal Revenue Service (IRS) that helps taxpayers and protects taxpayer rights. TAS strives to ensure that every taxpayer is treated fairly and that you know and understand your rights under the Taxpayer Bill of Rights.

DRAFT AS OF What can TAS do for you?

TAS can help you if your tax problem is causing a financial difficulty, you've tried and been unable to resolve your issue with the IRS, or you believe an IRS system, process, or procedure just isn't working as it should. And the service is free. If you qualify for TAS assistance, you will be assigned to one advocate who will work with you throughout the process and will do everything possible to resolve your issue. TAS can help you if:

December 3, 2021 ? Your problem is causing a financial difficulty for you, your family, or your business.

? You face (or your business is facing) an immediate threat of adverse action. ? You've tried to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised.

How can you reach TAS? We have offices in every state, the District of Columbia, and Puerto Rico. To find your advocate's number:

? Go to TaxpayerAdvocate.contact-us; ? Download Publication 1546, Taxpayer Advocate Service - We Are Here to Help You, available at Forms-Pubs. If

you do not have internet access, you can call the IRS toll free at 800-829-3676 and ask for a copy of Publication 1546;

? Check your local directory; or ? Call TAS toll free at 877-777-4778.

How can you learn about your taxpayer rights? The Taxpayer Bill of Rights describes ten basic rights that all taxpayers have when dealing with the IRS. The TAS Tax Toolkit at TaxpayerAdvocate. can help you understand what these rights mean to you and how they apply. These are your rights. Know them.

How else does the Taxpayer Advocate Service help taxpayers? TAS works to resolve large-scale problems that affect many taxpayers. If you know of one of these broad issues, please report it to TAS at SAMS. Be sure not to include any personal taxpayer information.

Low Income Taxpayer Clinics Help Taxpayers

Low Income Taxpayer Clinics (LITCs) are independent from the Internal Revenue Service (IRS) and the Taxpayer Advocate Service (TAS). LITCs represent individuals whose income is below a certain level and who need to resolve tax problems with the IRS. LITCs can represent taxpayers in audits, appeals, and tax collection disputes before the IRS and in court. In addition, LITCs can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Services are offered for free or a small fee. For more information or to find an LITC near you, see the LITC page at TaxpayerAdvocate.LITCMap or IRS Publication 4134, Low Income Taxpayer Clinic List. This publication is available online at Forms-Pubs or by calling the IRS toll free at 800-829-3676.

Suggestions for Improving the IRS

Taxpayer Advocacy Panel

Taxpayers have an opportunity to provide direct feedback to the Internal Revenue Service (IRS) through the Taxpayer Advocacy Panel (TAP). The TAP is a Federal Advisory Committee comprised of an independent panel of citizen volunteers who listen to taxpayers, identify taxpayers' systemic issues, and make suggestions for improving IRS customer service. Contact TAP at .

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Affordable Care Act--What You Need To Know

Requirement To Reconcile Advance Payments of the Premium Tax Credit

The premium tax credit helps pay premiums for health insurance purchased from the Marketplace. Eligible

DRAFT AS OF individuals may have advance payments of the premium tax credit made on their behalf directly to the insurance

company. If you or a family member enrolled in health insurance through the Marketplace and advance payments of the premium tax credit were made to your insurance company to reduce your monthly premium payment, you must attach Form 8962 to your return to reconcile (compare) the advance payments with your premium tax credit for the year.

December 3, 2021 The Marketplace is required to send Form 1095-A by January 31, 2022, listing the advance payments and other

information you need to complete Form 8962. 1. You will need Form 1095-A from the Marketplace. 2. Complete Form 8962 to claim the credit and to reconcile your advance credit payments. 3. Include Form 8962 with your Form 1040, Form 1040-SR, or Form 1040-NR. (Don't include Form 1095-A.)

Health Coverage Reporting

If you or someone in your family was an employee in 2021, the employer may be required to send you Form 1095-C. Part II of Form 1095-C shows whether your employer offered you health insurance coverage and, if so, information about the offer. You should receive Form 1095-C by early February 2022. This information may be relevant if you purchased health insurance coverage for 2021 through the Health Insurance Marketplace and wish to claim the premium tax credit on Schedule 3, line 9. However, you don't need to wait to receive this form to file your return. You may rely on other information received from your employer. If you don't wish to claim the premium tax credit for 2021, you don't need the information in Part II of Form 1095-C. For more information on who is eligible for the premium tax credit, see the Instructions for Form 8962. Reminder: Health care coverage. If you need health care coverage, go to to learn about health insurance options for you and your family, how to buy health insurance, and how you might qualify to get

nancial assistance to buy health insurance.

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What's New

For information about any additional changes to the 2021 tax law or any other developments affecting Form 1040 or 1040-SR or the instructions, go to Form1040.

Due date of return. File Form 1040 or The Families First Coronavirus Re- $72,000 or less, or make an appointment

DRAFT AS OF 1040-SR by April 18, 2022. The due

date is April 18, instead of April 15, because of the Emancipation Day holiday in the District of Columbia ? even if you

sponse Act (FFCRA) helped self-employed individuals affected by coronavirus by providing paid sick leave and paid family leave credits equivalent to

to visit a Taxpayer Assistance Center.

Direct deposit now available for returns filed late. You can now receive a direct deposit of your refund even if you

don't live in the District of Columbia. If those that employers are required to pro- file your 2021 return after November 30,

you live in Maine or Massachusetts, you vide their employees for qualified sick 2022.

December 3, 2021 have until April 19, 2022. That is be-

cause of the Patriots' Day holiday in those states.

Tuition and fees deduction not available. The tuition and fees deduction is not available after 2020. Instead, the income limitations for the lifetime learn-

leave wages and qualified family leave wages. The COVID-related Tax Relief Act of 2020 extended the period during which individuals can claim these credits. For more information, see the instructions for Form 7202 and Schedule 3, line 13b.

Expanded dependent care assistance. ARP expanded the child and dependent care tax credit for 2021 by making it refundable for certain taxpayers and making it larger. For 2021, the dollar limit on qualifying expenses increases to $8,000 for one qualifying person and

ing credit have been increased. See Extension and expansion of credits for $16,000 for two or more qualifying per-

Form 8863 and its instructions.

sick and family leave. The American sons. The rules for calculating the credit

Economic impact payment--EIP 3. Any economic impact payment you received is not taxable for federal income tax purposes, but will reduce your recovery rebate credit.

2021 Recovery rebate credit. This credit is figured like last year's economic impact payment, EIP 3, except eligibility and the amount of the credit are based on your tax year 2021 information. See the instructions for line 30 and the Recovery Rebate Credit Worksheet to figure your credit amount.

Standard deduction amount increased. For 2021, the standard deduction amount has been increased for all filers. The amounts are:

? Single or Married filing separate-

ly--$12,550.

? Married filing jointly or Qualify-

ing widow(er)--$25,100.

? Head of household--$18,800.

Rescue Plan Act of 2021, enacted on March 11, 2021 (ARP) provides that certain self-employed individuals can claim credits for up to 10 days of "paid sick leave," and up to 60 days of "paid family leave," if they are unable to work or telework due to circumstances related to coronavirus. Self-employed individuals may claim these credits for the period beginning on April 1, 2021, and ending September 30, 2021. For more information, see the instructions for Form 7202 and Schedule 3, line 13h.

Form 9000, Alternative Media Preference. Beginning in 2021, taxpayers with print disabilities can use Form 9000, Alternative Media Preference, to elect to receive notices from the IRS in an alternative format including Braille, large print, audio, and electronic. You can attach Form 9000 to your Form 1040 or 1040-SR or you can mail it separately. For more information, see Form

have also changed; the percentage of qualifying expenses eligible for the credit has increased, along with the income limit at which the credit begins phasing out. Additionally, for taxpayers who receive dependent care benefits from their employer, the dollar limit of the exclusion amount increases for 2021. For more information, see the Instructions for Form 2441 and Pub. 503.

Child tax credit. Under ARP, the child tax credit has been enhanced for 2021. The child tax credit has been extended to qualifying children under age 18. Depending on modified adjusted gross income, you may receive an enhanced credit amount of up to $3,600 for a qualifying child under age 6 and up to $3,000 for a qualifying child over age 5 and under age 18. The enhanced credit amount begins to phase out where modified adjusted gross income exceeds $150,000 in the case of a joint return or

Virtual currency. If, in 2021, you en- 9000.

surviving spouse, $112,500 in the case

gaged in a transaction involving virtual All taxpayers now eligible for Identity of a head of household, and $75,000 in

currency, you will need to answer "Yes" Protection PIN. Beginning in 2021, the all other cases.

to the question on page 1 of Form 1040 or 1040-SR. See Virtual Currency, later, for information on transactions involving virtual currency. Do not leave this field blank. The question must be answered by all taxpayers, not just taxpayers who engaged in a transaction involving virtual currency.

IRS Identity Protection PIN (IP PIN) Opt-In Program has been expanded to all taxpayers who can properly verify their identity. An IP PIN helps prevent your social security number from being used to file a fraudulent federal income tax return. You can use the Get An IP PIN tool on to request an IP

If you (or your spouse if filing jointly) lived in the United States for more than half the year, the child tax credit will be fully refundable even if you don't have earned income. If you don't meet this residency requirement, your child tax credit will be a combination of a nonrefundable child tax credit and a re-

Credits for sick and family leave for PIN, file Form 15227 if your income is fundable additional child tax credit, as

certain self-employed individuals.

was the case in 2020. The credit for oth-

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er dependents has not been enhanced EIC with a qualifying child, you should of claiming the EIC, complete and at-

and is figured as it was in 2020.

follow the rules that apply to filers with tach Schedule EIC to your Form 1040 or

Changes to Schedule 8812. Because of a qualifying child or children when de- 1040-SR even if that child doesn't have

the changes made by ARP, detailed dis- termining whether you are eligible to a valid SSN. For more information, in-

cussion of the child tax credit, and how claim the EIC even if your qualifying cluding how to complete Schedule EIC

to figure your child tax credit and credit child hasn't been issued a valid SSN on if your qualifying child doesn't have a

for other dependents, which were previ- or before the due date of your return (in- valid SSN, see the line 27a instructions

DRAFT AS OF ously part of these instructions, has been

moved to the Instructions for Schedule 8812 (Form 1040). If you are claiming the nonrefundable child tax credit, re-

cluding extensions). However, when determining the amount of EIC that you are eligible to claim on your return, you should follow the rules that apply to tax-

and Schedule EIC.

Forgiveness of Paycheck Protection Program (PPP) Loans. The forgiveness of a PPP Loan creates tax-exempt

fundable child tax credit, additional payers who do not have a qualifying income, so you don't need to report the

December 3, 2021 child tax credit, or credit for other de-

pendents, complete Schedule 8812 and attach it to your Form 1040 or 1040-SR.

Premium tax credit (PTC). ARP expanded the PTC by eliminating the limitation that a taxpayer's household income may not exceed 400% of the Federal Poverty Line and generally increases the credit amounts. In addition, in 2021, if you receive unemployment compensation, you are generally eligible to claim the PTC if you meet the other requirements. For more information, see Pub. 974 and Form 8962 and its instructions.

Changes to the earned income credit (EIC). For 2021, the following changes have been made to the EIC.

? EIC rules for taxpayers without

a qualifying child. Special rules apply if you are claiming the EIC without a qualifying child. In these cases, the minimum age has been lowered to age 19 except for specified students who must be at least age 24 at the end of the year. However, the applicable minimum age is lowered further for former foster youth and qualified homeless youth to age 18. Additionally, you no longer need to be under age 65 to claim the EIC without a qualifying child.

? EIC rules for taxpayers with a

qualifying child. If you are claiming the

child.

? Phaseout amounts increased.

The amount of the credit has been increased and the phaseout income limits at which you can claim the credit have been expanded.

? Rules for separated spouses. If

you are married but don't file a joint return, you may qualify to claim the EIC if you live with a qualifying child for more than half the year and either live apart from your spouse for the last 6 months of 2021 or are legally separated according to your state law under a written separation agreement or a decree of separate maintenance and do not live in the same household as your spouse at the end 2021.

? Investment income limit in-

creased. The amount of investment income you can receive and still be eligible to claim the EIC has increased to $10,000.

? Prior year (2019) earned income.

You can elect to use your 2019 earned income to figure your 2021 earned income credit if your 2019 earned income is more than your 2021 earned income. See the instructions for line 27a.

File Schedule EIC (Form 1040) if you have a qualifying child. If you have at least one child who meets the conditions to be your qualifying child for purposes

income on Form 1040 or 1040-SR, but you do need to report certain information related to your PPP Loan. To find out how to report information related to your PPP Loan, see Forgiveness of Paycheck Protection Program (PPP) Loans, under Income, later.

Identity verification. The IRS launched an improved identity verification and sign-in process that enables more people to securely access and use IRS online tools and applications. To provide verification services, the IRS is using ID.me, a trusted technology provider. The new process is one more step the IRS is taking to ensure that taxpayer information is provided only to the person who legally has a right to the data. Taxpayers using the new mobile-friendly verification procedure can gain entry to existing IRS online services such as the Child Tax Credit Update Portal, Online Account, Get Transcript Online, Get an Identity Protection PIN (IP PIN), and Online Payment Agreement. Additional IRS applications will transition to the new method over the next year. Each online service will also provide information that will instruct taxpayers on the steps they need to follow for access to the service. You can also see IR-2021-228 for more information.

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