Many Americans have received or will receive their $ 1,400 stimulus check, but there is much more to the American Rescue Plan Act (ARPA) signed on March 11 by President Biden. It is important to know how to plan for any changes that may affect you.
The law allocates funds for the health crisis, including funds for vaccinations, protective equipment and the reopening of schools, as well as funds for the economic crisis caused by the pandemic. Economic support is intended for businesses and the transport and catering industries, but mainly for individuals in the form of stimulus checks and enhanced tax credits for 2021.Â¹
The individual checks of $ 1,400 per taxpayer per dependent are actually prepayment credits on your 2021 tax return. This time the definition of eligible dependents is much broader and includes older high school students. and college and any other dependent family member. Income phase-out ranges are improved, so take a look at your 2020 tax return to see if you qualify.
The law also expands the child tax credit in three ways for 2021 only. First, 17 year olds are considered children. Second, ARPA increases the current $ 2,000 child tax credit to $ 3,000 per child ($ 3,600 for children under 6). There is a two-tier phase-out, one for children over 6 and one for under 6.
In addition, it is not until 2021 that ARPA makes the normally non-refundable credit for children and dependents refundable. This means that taxpayers will benefit from the credit even if they have no tax liability. The Act also increases the expenses eligible for the credit from $ 3,000 to $ 8,000 for one eligible person and from $ 6,000 to $ 16,000 for two or more eligible persons. The income levels at which the credit rate begins to decline have also seen significant increases. In recent years, the 35% rate applied to people with an AGI of less than $ 15,000. However, for this year, the 50 percent credit rate is available to households earning up to $ 125,000 from AGI. The Act also extends the exclusion from the assistance plan for dependents from $ 5,000 to $ 10,500 for 2021.
The ARPA includes several changes to the Earned Income Credit (EIC) for certain separated spouses and individuals without children. The phase-out has also been increased as well as the investment income threshold. Temporarily, taxpayers are allowed to use their income from 2019 instead of 2021 to calculate the credit amount.
Unemployment insurance payments will remain at $ 300 for an additional 25 weeks, until September 6, 2021. The law retroactively excludes up to $ 10,200 per taxpayer in unemployment benefits from tax for people with AGI is less than $ 150,000.
Other improvements include the extension of family and sick leave credits and employee retention credit, COBRA continuation coverage credit, reduction of health insurance premiums through exchanges, expansion of employee retention credits. Tax on premiums, economic disaster loan grants, student loan forgiveness will be tax free and extension on rental assistance.
There are many hidden gems in this bailout, so be on the lookout for credits you may be eligible to receive and increases in phase-out rules that should help on 2021 income taxes. the more informed you are, the more you can potentially benefit from these changes.
1. The Journal of Financial Planning
This article is for informational purposes only and is not intended to include all changes in law, nor is it intended as tax or legal advice. Please consult your tax advisor for information specific to your situation.
Patricia Kummer has been a Certified Financial Planner and Trustee for over 35 years and is Managing Director of Mariner Wealth Advisors, an SEC-registered investment advisor. Please visit www.marinerwealthadvisors.com for more information or visit the Investment Advisors Public Disclosure website (www.adviserinfo.sec.gov). Securities offered by MSEC, LLC, Member FINRA & SIPC, 5700 W. 112th Suite 500, Overland Park, KS 66211.