On Thursday, March 11, the president signed the American Rescue Plan Act of 2021 (ARPA) into law. The new plan includes relief payments and tax provisions that will impact 2020 and 2021 returns. We have listed those that will affect your tax return below.
Unemployment Benefits (Pertains to 2020 tax return only)
- The first $10,200 in unemployment benefits will be excluded form your taxable income.
- Married filing Joint filers who both had unemployment income can both qualify for the exclusion.
- This applies to taxpayers with AGI of less than $150,000.
3rd Round Stimulus Payments
A third round of economic impact payments issued to qualifying individuals.
- These payments will not be accounted for on the 2020 return but will be included in the Recovery Rebate Credit on the 2021 return.
- The payment amount is $1,400 ($2,800 for married taxpayers who file a joint return), plus $1,400 for each qualified dependent.
- The payment begins to phase out when a taxpayer's AGI is over $150,000 ($160,000 maximum) for MFJ, $112,000 ($120,000 maximum) for HOH and $75,000 ($80,000 maximum) for other filing statuses.
- Payments will be based on information contained in the 2020 tax return (or 2019 if no 2020 return has been filed).
Eligibility for the third payment is the same as it was for the second economic impact payment:
- Nonresident aliens and dependents claimed on another tax return are not eligible
- A valid Social Security Number is required to be eligible
Expanded Child Tax Credit for 2021 - These changes will not affect the 2020 tax return.
- The child tax credit will be expanded to include 17 year old children as qualifying children.
- The credit will be fully refundable for 2021.
- The amount of the credit will increase to $3,000 per qualifying child ages 6 and older and to $3,600 per qualifying child under age 6.
- More information to be released from the IRS.
Expanded Earned Income Credit for 2021 - These changes will not affect the 2020 tax return.
- The minimum age to be eligible to take earned income credit decreases from 25 to 19 for taxpayers who do not have children and are not a full-time student.
- The investment income threshold raises from $3,250 to $10,000.
- Taxpayer's are able to use 2019 earned income amount in the calculation of the credit on the 2021 tax return if it is greater than the taxpayer's 2021 earned income amount. This election is made in the Basic Information section of the account.
Child and Dependent Care Credit- These changes will not affect the 2020 tax return.
- The child and dependent care credit will be a refundable credit for tax year 2021.
- The amount of eligible expenses increases from $3,000 to $8,000 for one child and from $6,000 to $16,000 for more than one child.
- The percentage of expenses eligible for the credit increase from 35% to 50%
- The phaseout income amounts increase from $15,000 to $125,000 capping at 20% when AGI reaches $400,000.
Credit for Family and Sick Leave for the Self-employed
- The sick leave benefits for the self-employed have been extended through September 30, 2021.
- The days re-set as of April 1, 2021.
- The number of days a self-employed individual can take into account in calculating the qualified family leave equivalent amount for self-employed individuals increases from 50 to 60.
- The limit on the credit for paid family leave increases to $12,000.
Premium Tax Credit
- The repayment requirement for taxpayers receiving excess advance PTC in 2020 has been suspended.
- Health care premiums reduced with an increased PTC for 2021.
- Taxpayers receiving unemployment can use the increased rates if their household income tier is 133% of the federal poverty line.
- Taxpayers with income above 400% of the federal poverty level will be eligible for PTC if the premium exceeds 8.5% of their Household Income.