Information on the American Rescue Plan

President Biden is expected to sign the American Rescue Plan Act into law this afternoon. Many of you have questions about impact on your taxes, so we are going to outline some of those here:

Unemployment Insurance

• Unemployment insurance of $10,200 per person ($20,400 for MFJ), is excluded from taxable income. This is retroactive to 2020. If you have not filed your 2020 return and you received unemployment, you should wait until the law is signed and provisions established. If you have already filed a tax return, you will need to file an amendment. We are awaiting instructions from our software company on the best way to handle this situation.

Stimulus Payments

• Stimulus payments of $1,400 will be sent to all Americans, including those claimed as dependents on tax returns with no age cutoff. Meaning if you claim your 20 year old college student you will receive $1,400 for them.
• There is a steep phaseout for income beginning at $75,000 and reduces to $0 at $80,000. This is based on your AGI.
• The IRS will use your 2019 AGI if you have not filed a 2020 tax return.
• If your AGI is lower in 2020 than it was in 2019 and a phaseout was involved, the IRS will send a “make good” payment – earlier of 90 days after you file your 2020 return or September 1.
• If you are non-filer on Social Security, your SSA information will be used to send your payment.
• There is no payback provision. If you receive more than you are entitled, you do not have to pay it back.
• You must have a valid SSN or ATIN to receive a payment.
• Taxpayers who were deceased prior to January 1, 2021 are not entitled to a payment. Deceased taxpayers are specifically mentioned as ineligible in the bill, so it is unknown if they will be expected to repay if money is received.

Expansion of the Child Tax Credit

Currently for 2021 only:

• The Child Tax Credit is fully refundable, and expanded to $3,600 for children ages 5 and under, and $3,000 for ages 6-17.
• The IRS is expected to begin sending advance payments of the CTC to taxpayers beginning July 1.
• This credit has a payback provision. If you accept it and were not entitled to it, you will have to pay it back on your 2021 tax return. This especially applies to children who turn 6 or 18 in 2021 and to divorced families who alternate dependency year-to-year. If your ex-spouse claims your child in 2021 and you accept the money beginning in July you will have to pay it back.
• You need to keep track of how much of this credit you receive and you will have to report it on your 2021 return.
• The IRS is directed by the legislation to create an online portal where you may alter or refuse the amount of the advance payment. A link will be posted here when available.

The Healthcare Premium Tax Credit

For those who receive a tax credit for marketplace insurance – the amount of the credit has been increased and there is a provision in the bill to exclude unemployment income.

If you receive marketplace insurance and have not filed your 2020 return, it may be advisable to wait until the law is signed and provisions are in place.

If you have already filed your 2020 return and these provisions apply to 2020, you will likely want to amend your return to receive the higher credit.

Child and Dependent Care Expenses

The amount for 2021 has increased from $3,000 for one child and $6,000 for two or more to $8,000 for one child and $16,000 for two or more. The credit is 50% of those expenses with a phaseout beginning at $125,000 AGI, then 20% at $400,000 and a complete phaseout at $500,000.

This provision is currently for 2021 only.

Student Loans

Student loan forgiveness was not address in the legislation other than any forgiven student loans between 2021 and 2025 are not taxable.

Earned Income Credit

The credit has been expanded for 2021. The upper age limit is repealed. You may receive EIC if you are age 19 and not a student, age 24 and a student, age 18 if a qualifying foster child.

There are other provisions in the bill, but these are the ones we believe will have the most impact on our clients.