As our country continues to be impacted by the COVID 19 pandemic, The American Rescue Plan Act of 2021 was signed into law on March 11, 2021. While you have likely read about this Act by now, we wanted to provide you with the areas that might be of most interest to you and a comprehensive summary. Many pieces of this Act will provide relief throughout 2021 so we encourage you to share this with friends and bookmark for your reference.
Our intent here is to keep things high level. If you desire to plug into an area more deeply, we encourage you to reach out to us at Aspyre Wealth Partners and learn more from this article that was instrumental in the writing of this post. https://www.kitces.com/blog/the-american-rescue-plan-act-of-2021-tax-credits-stimulus-checks-and-more-that-advisors-need-to-know/
Right off the top, I want to share a few details about the rebates, then I’ll jump into a summary of the whole Act.
Recovery Rebates, aka Stimulus Checks
The area getting the most attention given its immediate impact is the Recovery Rebates – read Stimulus Checks. This act provides for a 3rd round of stimulus checks to Americans to help ease the financial pain that this pandemic may be causing. In short, those who meet an income threshold will receive $1,400 in recovery rebates. This round includes this funding to each tax payer and any dependents.
Defining Dependents
This is different than the prior rounds which specified “children,” and has been broadened to any dependents which is a more inclusive term. For example: a couple with two children and a parent they claim as a dependent would receive 5 checks for $1,400 each, assuming they are not phased out based on income.
Income Eligibility
Income phaseouts are steeper this round on the stimulus checks as was predicted so please reference this chart to understand your eligibility:
- Single Filers and Married Filing Separate: $75,000 – $80,000
- Head of Household: $112,500 – $120,000
- Married Filing Joint: $150,000 – $160,000
Additional Adjusted Gross Income Details
The IRS will use your most recent adjusted gross income on file to determine your eligibility. If you have not filed your 2020 taxes, your 2019 return will be used. If you have filed your 2020 taxes, then that return will be used. Should your 2020 adjusted gross income be less than 2019 and making you eligible for this recovery rebate, there will be another determination point in the near future. At this time of writing this article, this additional payment determination date is set for the earlier of 90 days after the 2020 calendar year tax filing deadline (presently 4/15/21) or September 1, 2021.
For more information on how much you may receive, please visit https://www.irs.gov/newsroom/recovery-rebate-credit
Now, onto the overall summary of the American Rescue Plan Act with a few top line details to help you interpret how this may apply to your situation and those you care about. Please share with others as you see fit.
Summary of The American Rescue Plan Act of 2021
Recovery Rebates – read Stimulus Checks
- $1,400 for each qualifying individual
- Set to be delivered in the same manner as the last two rounds – direct deposit or check
- IRS will use your most recent return on file with them – 2019 if 2020 taxes have not been filed
- This is an advance credit meaning that if you do not qualify based on 2019 or 2020 but do based on 2021, you will receive a refundable credit on your 2021 taxes (filed in 2022).
- This rebate check does not have to be repaid if your income is above the thresholds in 2021
Enhancement to the Child Tax Credit for 2021
- Think of this as an enhancement to the standard child tax credit – where you may qualify for the standard credit but not the enhancement.
- For 2021, the child tax credit has been given an enhancement from $2,000 to $3,000 per qualifying child
- The credit is increased to $3,600 for children under the age of 6 as of 12/31/2021.
- Qualifying child for 2021 is a child who is 17 or under (where the usual requirement is under age 17)
- For 2021, the income phaseout on this enhancement are much lower than the income phaseouts for the standard credit meaning you may qualify for the standard credit but not the enhancement
- The enhanced credit is fully refundable on your 2021 taxes
- The IRS is instructing that 50% of the estimated Child Tax Credit amount for 2021 is to be paid in equal installments from July 1 – December 31, 2021; More to come on the mechanics
- If an advancement payment of the credit is received from July 1 – December 31, 2021, this could be owed back on your 2021 taxes if you end up with too high of income
- Talking with your tax advisor after the 2020 tax year about this credit and the impact to you for 2021 is recommended
Temporary Upgrades to The Child and Dependent Care Tax Credit for 2021
- This credit is calculated by multiplying eligible expenses (think daycare) by the applicable percentage
- Eligible expenses have been capped at $3,000 now will be $8,000 per qualifying child and $16,000 of expense for taxpayers with two or more qualifying children
- The applicable percentage has been moved from its starting point of 35% to 50% for 2021 and the income phaseouts are much higher starting at $125,000 for any filing status
- The full amount of the credit is refundable in 2021
- High income earners (those earning above $400,000) be aware that given the changes, where you have qualified for this credit in the past, this may be different for you in 2021
- We recommend consulting with your tax advisor after the 2020 tax year is complete
COBRA Subsidies
- The Act allows for individuals who have lost their job and are using COBRA to maintain their existing health insurance via COBRA from April through September 2021 at a cost of $0
- Employers are reimbursed for this through a refundable payroll tax credit
Student Debt
- The Act does not include any student loan forgiveness which was a much debated part of the Act in its days of being formed
- For those that qualify for debt forgiveness via the Public Service Loan Forgiveness (PSLF) program, this forgiven debt will not be taxable between 2021-2025
- This includes both Federal Student Loans and private loans forgiven under this specific program
Required Minimum Distributions (RMDs) Relief:
- This Act did not include any relief for RMDS in 2021
- What that means is if you are required to take an RMS, you must take a distribution this year from your qualifying accounts
Premium Assistance Tax Credit
Note: This was a major addition to the plan basically fixing one of the biggest problems with the ACA related to percentage of premium against income.
- Changes were made to the income level required to qualify for premium assistance through the Affordable Care Act
- For more information regarding these changes, please visit https://www.kff.org/interactive/subsidy-calculator/
- Worth noting, there are no “clawbacks” on the advance premium assistance tax credits in 2020
- If you earned more than expected in 2020 and you would have to pay back some of the advance credit, this won’t be required in 2020
Enhancements to Unemployment
- The final provisions after much debate extends many of the benefits we saw implemented in the CARES Act in March of 2020
- Up to $10,200 of 2020 unemployment compensation per worker may be tax free for taxpayers with Adjusted Gross Income less than $150,000 in 2020; There are several caveats here including that the unemployment income must be included in the calculation of Adjusted Gross Income
- Pandemic Unemployment Assistance: This program which was enacted to help those who generally do not qualify for unemployment (self-employed individuals as an example) is extended through 9/6/2021
- Federal Pandemic Unemployment Compensation: this is additive to what states provide and has bene increased by an additional $300 through 9/6/2021
- Regular Unemployment Compensation: The Act extends Federal subsidies to states to allow them to extend regular unemployment compensation through 9/6/2021
Jessi Chadd, M.S.F.S, CFP®, CeFT®, is a Principal at Aspyre Wealth Partners, specializing in life transitions. For help with your specific situation contact Jessi Chadd, at jchadd@aspyrewealth.com (913) 345-1881 or visit our website at AspyreWealth.com. We help successful people Master What’s Next® – whatever phase of life they are in. If you are ready to get organized and make your money work for you, let’s get to know each other and get started!