Additional financial relief for the continued impact of COVID-19
- Stimulus Checks – The checks will be $1,400 per individual including all dependents in the household (even those age 17 and over). Those households with Adjusted Gross Income (AGI) of more than $80k for single filers and $160k for joint filers will not receive any payments. The IRS will use the most recent AGI it has on file.
- Temporary Expansion of the Child Tax Credit – The new credit will be $3,000, up from $2,000 per qualifying child age 16 and under for 2021. For children under the age of 6, the credit will be $3,600 per qualifying child. Phaseouts begin at $75k AGI for Individuals and $150k AGI for joint filers for the new higher amounts while the $2,000 base amount of the Child Tax Credit still phases out at $200k and $400k respectively. The Child Tax Credit is fully refundable for 2021 which means that it can be received back as a tax refund if the credit makes the household’s total tax liability negative for the year.
- Increase in the Child and Dependent Care Credit – For 2021, the calculation of a taxpayer’s eligible expenses for this credit will be increased as well as the ‘applicable percentage’ used, which will be increased from 35% to 50%. Due to this combination, the maximum credit amount allowed has almost quadrupled. Further, the 50% Applicable Percentage does not begin to be phased out until the taxpayer’s AGI exceeds $125,000 (regardless of filing status). Qualifying children include those who are under age 13 for the entire year.
- Enhancements to Unemployment Compensation Benefits - $10,200 of unemployment compensation received in 2020 will now be tax-free if the taxpayer’s AGI is less than $150k (regardless of filing status). Self-employed individuals that are generally ineligible for unemployment benefits will be granted benefits through September 6, 2021. Regular weekly unemployment compensation will continue to be increased by an additional $300 through September 6, 2021. The exclusion is retroactive, applying to unemployment insurance benefits received last year.
- Increased Support for Health Insurance Via COBRA – If an employee was involuntarily terminated from employment, they can maintain their existing health insurance via COBRA from April through September 2021 for $0.
- Student Loan Debt Forgiveness – Normally, discharged student loan debt was counted as taxable income to the individual. This provision makes student loan debt forgiveness tax-free provided that the debt is forgiven between 2021 and 2025.
- Additional Help for Businesses – Provides grants for restaurants and bars up to $10 million per company used to cover payroll, rent, utilities, and other expenses.
- Further Paycheck Protection Program (PPP) Funding – The PPP will receive additional funding and more non-profits companies will now be allowed to apply for forgivable loans to help cover payroll and other operating expenses. The application deadline remains March 31, 2021.
- What were some notable items left out of the Act? There was no relief for Required Minimum Distributions (as in 2020), no COLA for retirement plan contributions, and no federal minimum wage hike.
Sources
-www.kitces.com “The American Rescue Plan Act of 2021: Tax Credits, Stimulus Checks, And More That Advisors Need To Know!” (https://www.kitces.com/blog/the-american-rescue-plan-act-of-2021-tax-credits-stimulus-checks-and-more-that-advisors-need-toknow/?utm_content=buffer83bda&utm_medium=social&utm_source=facebook.com&utm_campaign=buffer&fbclid=IwAR01V0s0Vz9jYU4qfdA-536iv-ZAJCrhfz6r_TIXlYeF18XpCgKy9-vLqNk)
-https://taxfoundation.org “The American Rescue Plan Act Greatly Expands Benefits through the Tax Code in 2021” (https://taxfoundation.org/american-rescue-plan-covid-relief/)
-www.investopedia.com “American Rescue Plan (Biden’s $1.9 Trillion Stimulus Package) (https://www.investopedia.com/american-rescue-plan-definition-5095694)