Single Women and Taxes: What to Know When Filing This Year

If you’re a single woman, living on one income, you’re likely watching every penny. One of the best ways to save money is to shave your tax bill.

Thanks to last year’s American Rescue Plan Act, or ARPA, three federal income tax credits were expanded for tax year 2021. And although these rules apply broadly to the American public, millions of unmarried women can benefit.

Tax credits are more beneficial than tax deductions because you subtract them from your bottom-line tax bill. If you’re a single woman, these credits may be especially apropos.

If you are an employed single with no children but earned less than $11,610 in 2021, you can claim the Earned Income Tax Credit—EITC—of $1,502 on your 2021 return. That’s almost triple the credit available prior to the ARPA. Earnings between $11,610 and $21,430 provide a smaller tax credit. Single mothers can claim a tax credit up to $6,728 depending on their income and number of children.

Single mothers also can benefit from the expanded Child Tax Credit, or CTC. If you have a qualifying child who was younger than 18 at the end of 2021, you can claim a tax credit of $3,000, up from $2,000 the previous year. If your child was younger than 6, the credit is $3,600. Your credit will be smaller if you earn more than $112,500. If you received the advanced CTC checks issued between July and December 2021, you can claim the difference between the full credit and the amount you received when you file your tax return.

For single mothers struggling to afford costly child care, the expanded Child and Dependent Care Tax Credit—CDCTC—provides added relief. Under tax year 2021 rules, you can claim a credit of up to $4,000 if you have one child and up to $8,000 if you have two or more children. That credit is nearly four times higher than it was in the prior tax year.

Say you are a single mother of two who earned $100,000 in 2021 and spent $30,000 on child care. With the expanded CDCTC, your tax credit effectively slashes that child care cost to $22,000. Granted, the credit covers only a portion of typical child care costs, and it starts to phase out if you earn more than $125,000. Beyond child care, you also can claim the CDCTC for the care costs of other family members who are disabled.

As a bonus, all three of these tax credits—EITC, CTC, and CDCTC—are “refundable” in tax year 2021. That’s especially beneficial for low-wage earners. If the credit you’re entitled to exceeds the taxes you owe, you’ll receive a check for the difference. For example, if you are eligible for a $4,000 CDCTC and your tax bill is $1,500, the credit not only wipes out your tax bill but also entitles you to a payment for the remaining $2,500. Note: These increased credits apply only to 2021 tax filings unless Congress extends the rules to future years.

Beyond claiming tax credits, many single women can get tax deductions, especially through tax-advantaged savings accounts. These are often widely available.

Consider the oft-overlooked Health Savings Account, or HSA, used to pay medical expenses. You can create an HSA if you have a high-deductible health insurance plan—either your own or one offered by your employer. HSAs provide an upfront deduction for your contribution, meaning the money you add to the account each year is deducted from your taxable income. And the funds withdrawn from the account to cover medical expenses—doctors’ bills, prescription drugs, and other out-of-pocket medical costs—are tax-free.

To qualify, the deductible on your policy must be at least $1,400. You can contribute as much as $3,600 for tax year 2021—$4,600 if you’re 55 or older—and up to $3,650—$4,650 if 55 or over—for tax year 2022. For tax year 2021, the deadline to contribute is April 15, 2022. There is also no use-it-or-lose-it provision; you can keep the account as long as you like.

And don’t overlook the tax benefits of retirement plans. During the pandemic, many single women started their own businesses, either as side jobs or to replace a paycheck. If you are self-employed, you can put up to 20% of your profit in a simplified employee pension, or SEP, IRA. You deduct the contributions from your taxable income, and taxes on earnings will be deferred until you withdraw the money, after age 59½. The deadline for creating a SEP IRA and deducting contributions on your 2021 return is April 15, 2022, or Oct. 15, 2022, if you file for an extension. You also can contribute to both a SEP IRA and either a traditional or Roth IRA.

In traditional IRAs, your contributions are usually deductible, creating an upfront tax break. In this case, you defer taxes on contributions and earnings until you withdraw money in retirement. Conversely, your contributions to a Roth IRA are not tax-deductible, but the money withdrawn after age 59½ comes out tax-free.

You also can get a tax break when you contribute to a 401(k) or 403(b) retirement plan offered by your employer. Contributions are deducted from your earnings the year you contribute. If you contribute $100 each pay cycle, for example, your paycheck would be reduced by that amount before taxes, and you’d pay taxes only on your remaining earnings. Later, you’d get taxed on your withdrawals from the account.

And let’s say you want a new job or career but need extra schooling. You may find the lifetime learning credit comes in handy. With this tax break, you can get a 20% credit on the cost of your tuition, books, and supplies, up to a $2,000 credit per year.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Jill Gianola is an author and teacher and the founder of Gianola Financial Planning, a fee-only planning firm, and a co-author of Single Women and Money: How to Live Well on Your Income.

Margaret Price is a journalist and a co-author of Single Women and Money: How to Live Well on Your Income.

We’d love to hear your smart, original take: Write for Us