The past year has once again been stressful on the mind, body, and budget. The pandemic has affected many aspects of education, with the need for additional technology and PPE adding expenses.
When you add the confusion around stimulus checks and tax deductions, it seems like filing out your taxes gets more complicated every year.
Keeping receipts or a careful log is critical for the classroom supplies deduction and other tax benefits. When reviewing your deduction options, remember that many provisions of the tax code have income caps and phase-outs and other wrinkles that may affect your actual tax liability. Be sure to work with a tax adviser or use reliable tax software that clearly addresses your situation, especially if you are in a higher income bracket. (Search for NEA member discounts and cash-back offers on tax prep software through the NEA Discount Marketplace.)
Here’s a rundown of what has changed from the 2020 tax year to help you as you work on your 2021 tax forms and find tax deductions that can help you recoup some of your educator expenses.
The Educator Expense Deduction
The $250 above-the-line deduction for classroom supplies is still available for the 2021 tax year. This deduction is particularly advantageous because it’s above the line on Schedule A, which means eligible educators don’t have to itemize to take it, and it reduces your overall adjusted gross income (AGI).
Legislation in 2015 indexed the deduction amount to inflation, but it remains unchanged at $250 for 2021. If both spouses filing jointly are educators, each can claim the tax deduction, for a total of $500. This above-the-line deduction has become even more important since the 2017 tax reforms, which virtually doubled the standard deduction, setting the threshold even higher for choosing to itemize.
Classroom supplies may look a bit different again this year, as protection against COVID remains a necessity. As a teacher, you may count costs for buying personal protective equipment (PPE) for the school year—masks, sanitizer, etc.—as qualified expenses when claiming the $250 classroom supplies deduction.
As tempting as it may be to try, educators cannot deduct a dedicated home office or unreimbursed expenses above $250—at least not on federal returns. The 2017 Tax Cuts and Jobs Act eliminated that deduction. However, there are a few states that do still allow it if itemized expenses are higher than the standard deduction: Alabama, Arkansas, California, Hawaii, Minnesota, New York and Pennsylvania. If you live in one of these states, consult your tax adviser to see what’s tax deductible.
COVID-19 relief funds and deductions
Charitable Donations Deduction. As in 2020, you still can deduct up to $300 for donations to 501(c)(3) public charities, even if you don’t itemize. For 2021, the deduction for married couples filing jointly has been increased to $600. This is not limited to educators, but like the educator expense deduction, it enables you to reduce your AGI.
Tax credits for the self-employed. Self-employed individuals—such as a self-employed tutor—may be eligible for qualified sick leave and family leave refundable tax credits if COVID-related quarantine or illness kept them from working or teleworking, or school closings and lack of child care required them to take care of children.
COVID-19 Recovery Rebate Credit. Those eligible for economic impact payments (also known as stimulus checks), but who did not receive all or part of them, may claim the Recovery Rebate Credit. The American Rescue Plan Act (ARPA) of 2021 authorized a third round of economic impact (stimulus) payments of up to $1,400 ($2,800 for married filing jointly) plus $1,400 for each qualifying dependent.
Eligibility was an adjusted gross income (AGI) less than $75,000 ($150,000 for married), although phased-out partial payments were made above those amounts. The Recovery Rebate Credit for this third round can be claimed on your 2021 tax return.
If you didn’t file federal taxes in 2019, you may have missed getting stimulus payments. Even if you aren’t required to file a federal tax return, doing so will help you recover these payments.
State Sales Tax Deduction. Educators may also benefit from the state and local sales tax deduction (an alternative for states with no state income tax to deduct from federal taxes) even though those breaks don’t target them specifically. However, you must itemize in order to claim these deductions.
For the 2018 tax year and beyond, the deduction for state and local taxes—including property taxes—was capped at $10,000 and the threshold for choosing to itemize became much higher with the increased standard deduction.
The Build Back Better legislation, which did not pass in 2021, calls for an increase in this deduction for up to $80,000, but there is no guarantee this will be passed in 2022 at those levels or be retroactive for the 2021 tax year.
ADDITIONAL TAX SITUATIONS FOR EDUCATORS
Income from outside work, such as a summer job or tutoring
If there is no additional withholding on this outside work, you want to be sure to avoid a penalty for under-withholding—i.e., when your overall tax liability exceeds the amount of tax you had withheld by certain margins.
If this is the first year you’ve had extra income, there won’t be any penalty, because your withholding at work will cover 100% of your previous year’s income.
If you regularly have extra income, consider specifying a certain additional amount on your W-4 to be withheld. Previously, it was possible to adjust your withholding by reducing the number of personal exemptions, but these have now been removed in the tax reform. The other option is to make quarterly payments of estimated tax on the additional income.
The outside income should be reported on a Schedule C, where you can also deduct any expenses associated with the outside job. You are also liable for “payroll” taxes (these are the contributions to Social Security and Medicare) on the extra income, which is calculated on a Schedule SE.
Unreimbursed expenses related to employment
As noted above, the itemized deductions for employee expenses beyond the $250 have been eliminated in the tax reform, so that federal deduction is no longer available.
Despite the fact that educators (and many others) have had to work at home during the coronavirus pandemic, there has been no change in eligibility for the home office deduction. The 2017 tax reform eliminated educator expenses beyond the $250 above-the-line deduction, which had been used to cover some home-office expenses. There has been no legislation providing subsequent tax relief for home use during COVID.
Rules for deducting expenses for a home office for self-employed individuals are fairly strict (as well as for equipment such as computers). The home office space must be used exclusively for work purposes, which is a tough criterion to meet.
Deducting education expenses
The Tuition and Fees Education Tax Deduction expired on Dec. 31, 2020, and has not been renewed for 2021. The deduction was up to $4,000 above the line, but barring new legislation, it is no longer available.
The Lifetime Learning Credit is for 20% of education expenses up to $10,000, or a maximum credit of $2,000. This is a credit, so it’s taken off your tax liability dollar for dollar. However, it’s nonrefundable, which means you have to have some tax liability for it to count against. This is not limited to undergraduate education, nor do you have to be pursuing a degree, so educators may make use of this for their own career development.
The American Opportunity Tax Credit, which can apply to the first four years of higher education, isn’t usually an option for educators since most have already completed a four-year degree. However, this credit, which is capped at $2,500, can be claimed for their dependent(s). Taxpayers can choose only one of the two remaining options for qualified education expenses.
Save on tax prep software with your NEA membership
As an NEA member, you can earn cash back when you purchase tax prep products and services, such as TurboTax, H&R Block and more, through NEA Discount Marketplace. Look under “Office Supplies,” then click on “Tax Preparation” to find the offers available to members during this tax season.
NOTE: All of the information in this article is accurate as of January 4, 2022.