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2021 American Rescue Plan Act Update


The American Rescue Plan was signed into law by President Biden on March 11 for further coronavirus relief. The Act provision that is generating the most discussion is the $1,400 stimulus payment, an advance payment of a Recovery Rebate Credit on the 2021 tax return. Please refer to our March 5 article for more details on that measure. There are several other very notable provisions, also.

  • Exemption from taxable income of up to $10,200 of unemployment income for households making less than $150,00 of income in 2020. We are awaiting further details to see if there are any phase-out ranges. Provisions like this usually have them so that there is not a ‘cliff’, going from $10,200 of exemption to $0 of exemption once you hit $150,000. Phase-outs are also usually stratified for different households, too. For example, single filers have lower income phase-out amounts as compared to heads of household or marrieds filing jointly. Presently, we are not aware of any, but are keeping watch on this, and will revise this post as details become available. If you had unemployment compensation on your return in 2020, and your return has not been filed yet, we will put it on a temporary hold until the procedural details emerge from the IRS. If your return has already been filed, know that we are able to identify all returns with unemployment, and we will amend your return to obtain a refund of taxes that were paid on any excludable unemployment that you received. Please understand, though, that our tax software provider must incorporate the changes into the program for us to be able to electronically file the return so as to quicken the refund process. There is a possibility that this might not take place until after April 15.
  • Premium Tax Credit The act expands the Premium Tax Credit for 2021 and 2022 by changing applicable percentage amounts. Taxpayers who received too much in advance premium tax credits in 2020 will not have to repay the excess amount. As with the unemployment compensation measure, we will identify any clients who filed their return, and had to repay any credit, amending those returns when our tax software is ready to do that. A special rule is added that treats a taxpayer who has received, or has been approved to receive, unemployment compensation for any week beginning during 2021 as an applicable taxpayer. **
  • Child tax credit increases from $2,000 per child up to the age of 16 to $3,000 per child from ages 6 to 17, and to $3,600 per child up to the age of 5. This child tax credit would be available only for the 2021 tax year, but families could receive the credit in advance of filing their return much like the stimulus payments mentioned above and in our March 5 article, with a reconciliation on the 2021 return that compares what was received with what the credit should have been. The advance payment would be estimated based on the 2019 return, or the 2020 return if already filed, and would be paid monthly beginning in July instead of in one lump sum. There would be no ‘immediate’ dollar cap for the full credit ($200,000 for single filers, $400,000 for married filing jointly) so as to allow lower-income families to benefit from it, and it would be fully-refundable, meaning that you could get a refund of the credit if you had no other taxes. The current credit is partially nonrefundable, with a portion of any unused credit becoming refundable.
  • Child and Dependent Care Credit -The act makes various changes to the Sec. 21 child and dependent care credit, effective for 2021 only, including making it refundable. The credit will be worth 50% of eligible expenses, up to a limit based on income, making the credit worth up to $4,000 for one qualifying individual and up to $8,000 for two or more. Credit reduction will start at household income levels over $125,000. For households with income over $400,000, the credit can be reduced below 20%. The act also increases the exclusion for employer-provided dependent care assistance to $10,500 for 2021. **
  • Earned Income Credit - The act also makes several changes to the Earned Income Tax Credit. It introduces special rules for individuals with no children: For 2021, the applicable minimum age is decreased to 19, except for students (24) and qualified former foster youth or homeless youth (18). The maximum age is eliminated. The credit’s phaseout percentage is increased to 15.3%, and the phaseout amounts are increased. The credit would be allowed for certain separated spouses. The threshold for disqualifying investment income would be raised from $2,200 to $10,000. Temporarily, taxpayers would be allowed to use their 2019 income instead of 2021 income in figuring the credit amount.**
  • Unemployment assistance up to $300 per week, to be added to your normal state unemployment benefits.
  • Student loan forgiveness between 1-1-21 and 12-31-25 would be excludable from taxable income. We are still awaiting more details on any potential forgiveness limits as have been discussed.
  • Minimum wage increase to $15 per hour was deleted.

Given the later-than-usual timing of these tax relief measures, there is also serious discussion of delaying all filing and paying dates from March 15 and April 15 to June 15. We will definitely keep you posted on this measure!!!

** Taken from the Journal of Accountancy article American Rescue Plan Act passes with many tax components, By Alistair M. Nevius, J.D. March 10, 2021

David Duffy, CPA

David Duffy, CPA