Today the the President signed the American Rescue Plan Act of 2021 and it is now the law of the land.
The House passed the American Rescue Plan Act of 2021 yesterday, March 10, 2021, and it is became law when signed by the the President today March 11th, 2021. What does this all mean? It means changes that will affect many 2020 tax returns; including lots that have already been filed. While many people will benefit from additional stimulus payments and the elimination of income tax on unemployment payments received in 2020, this will not be the same for all taxpayers.
Taxpayers and tax professionals alike will have many things to consider for 2020 that were not part of the equation until now. These things include when to file if your 2020 income exceeds the Phaseout thresholds to receive the 2021 Individual Recovery Rebate/credit of $1,400 each for tax filers and dependent, particularly when the taxpayer would have qualified in 2019 based on having less income. Phaseout thresholds begin at $150,000 for a joint return, $112,500 for a head of household and $75,000 for all other taxpayers. In this instance you would want to wait to file until you’ve received your credit.
The 2021 Recovery Rebate/credit of $1,400 for a married couple with 2 qualifying children could be as much as $5,600.00. Making a child that qualified in 2019 but will not qualify in 2020 another reason to delay filing.
The child tax credit is also expanded for 2021 from $2,000 per qualifying child to $3,000 per qualifying child which now includes children under 18 years of age rather than under 17 years of age. The credit was also expanded to $3,600 for children under age 6 as of the close of the year. This credit is also subject to phaseouts so nothing is ever as straight forward as it seems.
For 2021 The EITC (Earned Income Tax Credit) has also been expanded for both those with and without qualifying dependents. Additionally, the law expands the credit so that qualifying married people filing may not automatically be excluded from claiming the credit. It also expands the amount of investment income allowed before being excluded from the credit. In many cases eligibility and requirements have more changes to come as the rules get written.
Obama Care (Affordable Care Act) premium tax credit also increases for 2021 and 2022. New percentage tables will allow taxpayers with household income over 400% of federal poverty level to be eligible for credit. ARPA (American Rescue Plan Act) provides special rules for taxpayers who have received, or been approved to receive, unemployment compensation for any week beginning during 2021.
Student loan debt discharge is now excluded from income for qualifying student loans discharged on and between January 1, 2021 and December 31, 2025.
Be sure to consult a tax professional who is staying up to date with all the changes as they happen before you file your return. Need help? At RMS Accounting we are here year-round to provide tax planning and filing assistance when you need it.