So, the next (final?) round of stimulus was signed into law by President Biden earlier this month.
Let’s dive in.
The $1.9 trillion bill called the American Rescue Plan Act of 2021 includes stimulus checks, child tax credits, jobless help, vaccine-distribution money, healthcare subsidies, aid for struggling restaurants. What’s not inside? A higher minimum wage.
Here are some takeaways:
More stimulus checks: $1,400 checks have been hitting bank accounts and mailboxes, going out to adults, children, and adult dependents such as college students and elders. These adult dependents did not qualify for previous payments, so that’s good news for many.1
Who is getting paid? Individual filers who earn as much as $75,000 (or joint filers making $150,000), plus their household members, qualify for the full $1,400 per person.1
Individuals filing as a head of household can earn up to $112,500 and still qualify for the full payment. Phaseouts kick in quickly this round, and an individual with an income of $80,000 or a couple earning $160,000 get nothing.1
It is important to note that the Recovery Rebate is a 2021 income tax credit, and the early payments that taxpayers are currently receiving are an advance of this 2021 tax credit.
There are three opportunities available to qualify for the 2021 Recovery Rebate as follows:
- First opportunity: The IRS will review your most current adjusted gross income on file (2019 tax return or 2020 tax return if filed).
- Second opportunity: The additional payment determination date is for taxpayers who have not filed their 2020 tax returns yet. Upon filing, if your 2020 adjusted gross income meets the Recovery Rebate requirements, you will qualify. The tax filing deadline for the 2020 tax year has been extended to May 17th.
- Third opportunity: Upon the filing of your 2021 income tax return, if your 2021 adjusted gross income satisfies the Recovery Rebate requirements above, Uncle Sam will provide you with an income tax credit on your 2021 tax return.
Planning Point: Connect with us and your tax professional to see if any tax planning opportunities might be available to you to qualify for the Recovery Rebate.
Enhanced unemployment benefits are extended through Sept. 6: Individuals claiming jobless benefits will receive $300/week on top of what they already get from their state through the fall.2
Some unemployment income is now tax-free: Individuals who earned less than $150,000 in 2020 can shield up to $10,200 in unemployment benefits from taxes. For married couples filing jointly who both received unemployment, the tax-free amount goes up to $20,400, but the $150,000 income cap still applies. Unfortunately, if you earn over $150,000, it currently appears that all of the unemployment benefits become taxable with no phaseout.3
If this applies to you or someone you love, my advice is to wait to file or update your tax return until the IRS issues guidance on what to do.
The child tax credit is larger: The bill increases the child tax credit for one year to $3,600 for kids under 6, and $3,000 for kids between 6 and 17 (the current credit is a flat $2,000 per child under 17). 50% of the credit would be available as advance monthly payments that the IRS will start sending to families in July 2021.4
Unfortunately, not all families will qualify. Phase-outs begin at $75,000 for single filers, $112,500 for heads of households, and $150,000 for joint filers. However, families who earn less than $200,000 ($400,000 for joint filers) could still claim the regular $2,000 credit.4
Health insurance costs could drop on health exchanges/marketplaces: The bill removes the income cap on insurance premium tax credits for folks who purchase insurance on the federal health exchange or state marketplace (for two years). That means the amount you would pay for health insurance would be limited to 8.5% of your income as calculated by the exchange.5
Student Loan Debt: While the American Rescue Act does not include any student loan forgiveness, it does contain a provision that any future student loan debt forgiven between 2021-2025 will be income tax free. Stay tuned!
A lot of rules have changed in the last year, throwing an already complex tax season into a bit of confusion.
Could there be more stimulus passed this year? It seems unlikely if the U.S. economy continues to expand.
According to a fresh estimate, our economy will expand nearly twice as fast as originally expected, growing at an estimated 6.5% in 2021 versus the 3.2% projected in December.6
Obviously, these projections rest on a lot of assumptions about vaccination rates, reopening, and consumer spending.
Let’s hope we stay on track.
That was a lot of information to absorb. Have questions?
We are here for them.
P.S. Markets have hit new highs as fears of out-of-control inflation faded and hopes about the recovery surged. The usual caveats apply we're in a roaring bull market and any time stocks reach new highs, pullbacks and corrections are possible. Keep calm, cool, and focused. We are here for questions.7
Chart source: https://www.wsj.com/articles/whats-new-in-the-third-covid-19-stimulus-bill-11615285802