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American Rescue Plan Act – What You Need to Know

March 24, 2021

The House of Representatives passed the Senate-amended version of the American Rescue Plan Act. It is currently waiting on the President’s signature to turn the bill into law.

Coming soon will be more information and various opportunities to learn more about the American Rescue Plan Act. While waiting on the finalization, here are some provisions that are important to be aware of.

Stimulus Checks 3.0

- Maximum benefit

  • $1,400 max amount per taxpayer
  • $1,400 per DEPENDENT, paid to taxpayer (only children under 17 counted for 2020 stimulus checks)

- Less friendly phaseout ranges

  • Single Filers and Married Filing Separate: $75,000 – $80,000
  • Head of Household: $112,500 – $120,000
  • Married Filing Joint: $150,000 – $160,000

- When will taxpayers get the credit?

  • Now, if AGI on file (2019/2020) is low enough to qualify
  • When 2020 return is filed (if not already), provided income reported produces a larger stimulus amount, and the return is filed before the “Additional Payment Determination Date”

Child Tax Credit (2021 ONLY)

- Increased maximum credit amounts

  • $3,600 for children under 6
  • $3,000 all other qualifying children

- Credit IS available for 17-year-olds (normally only children 16 and under qualify)

- FULLY REFUNDABLE!

- Enhanced credit amounts (<$2,000 per child) begin to be phased out at:

  • Single Filers and Married Filing Separate: $75,000 – $80,000
  • Head of Household: $112,500 – $120,000
  • Married Filing Joint: $150,000 – $160,000

- Half of estimated credit to be paid in advance during Q3 and Q4 2021

Child And Dependent Care Credit (2021 ONLY)

- Increased amount of expenses eligible for use in credit calculation:

  • 1 qualifying child: Up to $8,000
  • 2 or more qualifying children: Up to $16,000

- Increased maximum “Applicable Percentage” (the % you multiply expenses by arrive at credit amount) of 50% (up from 35%)

- Higher income limit for initial phaseout of $125,000 (where 50% rate begins to drop to 20%)

- NEW SECOND PHASEOUT FOR HIGH-EARNERS OF $400,000 - $440,000. Clients w/ income about $440,000 will receive NO Child and Dependent Care Credit (previously no income limit for the 20% rate)

Unemployment Compensation

- 'Regular’ benefits extended through September 6, 2021

- Pandemic Unemployment Assistance (UC for self-employed persons and others who don’t normally qualify) extended through September 6, 2021

- 'Extra’ $300 per week in UC benefits (on top of state benefit) extended through September 6, 2021

- Up to $10,200 of UC received in 2020 is tax-free IF 2020 AGI < $150,000 (THIS IS A CLIFF. $149,999 and you’re good. $150,000 and you’re not.)

Health Insurance Provisions

- 100% subsidy for COBRA coverage for individuals through September 2021

- Increased “Obamacare” subsidies through the end of the year, including:

  • 100% subsidy for individuals w/ income < 150% Federal poverty line (based on 2nd least expensive Silver Plan)
  • NO CLIFF FOR HIGHER EARNERS – Regardless of income, taxpayer’s max cost for coverage is capped at 8.5% of income (based on 2nd least expensive Silver Plan)

- ANYONE receiving ANY Unemployment Compensation in 2021 will automatically be treated as though their income is 133% of the Federal poverty line

- No clawback of 2020 overpayments

Student debt forgiven through 2025 will be tax-free

- This appears to be setting the stage for student debt relief

 

Employee Retention Credit extended through the end of 2021

 

The bill does NOT

- Suspend RMDs for 2021 (or any other year)

- Increase the Federal minimum wage

- Eliminate future increases in the maximum amount individuals can contribute to retirement accounts (was in the original House bill, but was removed by the Senate)

Hopefully, the things listed above give you a sense of what’s in the bill and the provisions that are most likely to impact you. To read a full break down of the bill, click here.

Davis & Hodgdon Associates CPAs has been assisting individuals and businesses throughout Vermont and New England for more than 30 years so please reach out to us in Williston (802-536-1831) or Rutland (802.775.7132) to talk or schedule a meeting. You can also email us at info@dh-cpa.com.

Resource: The American Rescue Plan Act Of 2021: Tax Credits, Stimulus Checks, And More That Advisors Need To Know! by Jeffrey Levine, CPA/PFS, CFP®, AIF, CWS®, MSA