The American Rescue Plan was recently signed into law and includes a third round of stimulus payments and many tax-related provisions. Here are some of the more prominent sections of the new legislation.
Qualifying individuals will receive an economic impact payment of $1,400 ($2,800 for married taxpayers filing jointly) plus $1,400 for each dependent. For purposes of this payment, dependents also include college students and qualifying relatives who are claimed as dependents. Payments will be sent to taxpayers beginning in mid-March.
The payments are phased out based on a taxpayer’s adjusted gross income (AGI). For single taxpayers, the payment phases out between $75,000 and $80,000; for married taxpayers who file jointly, the phaseout is between $150,000 and $160,000; for heads of household, the phaseout occurs between $112,500 and $120,000. The phaseouts do not increase based on number of dependents.
Your 2020 tax return will be used to determine your AGI for purposes of the payment phaseout. If you haven’t filed your 2020 return, your 2019 tax return and corresponding AGI will be used.
Child tax credit increase.
If you normally qualify for the child tax credit, you’ll get either an extra $1,000 or $1,600 per child for a total of $3,000 per child (or $3,600 for children under 6 years old). Children who are age 17 are also eligible for the credit. You also have the option of receiving 50% of your total child tax credit in monthly payments from July through December 2021.
Tax break for unemployed in 2020.
If you received unemployment compensation in 2020, the first $10,200 you received won’t be taxed on your 2020 federal tax return.
Free COBRA health insurance.
If you’ve been laid off, you can apply for free COBRA health insurance coverage for the six-month period between April and September 2021. This assistance is only available for employees and their family members who experience a loss of group health insurance coverage due to involuntary termination or a reduction in hours of employment.
Tax break for student loan forgiveness.
Student loans that are forgiven between Jan. 1, 2021 and Dec. 31, 2025 won’t be considered taxable income for federal tax purposes.
Big increase in Employee Retention Credit.
Businesses can get up to a $28,000 tax credit per employee in 2021, up from a $5,000 maximum credit in 2020. This credit can be claimed through Dec. 31, 2021.
There’s a lot to unpack with this new relief legislation. Stay tuned for continued updates as they become available.
As always, should you have any questions or concerns regarding your tax situation please feel free to contact us.