By Kenneth H. Bridges, CPA, PFS April 2021
On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021 (ARPA). Below is a summary of the highlights.
3rd round of rebate checks to individuals – The CARES Act (March 2020) provided for direct payments of up to $1,200 per eligible person (plus $500 per child), and CAA 2021 (December 2020) provided for another $600 per eligible person (plus $600 per child). ARPA provides for an additional $1,400 per person ($2,800 for a couple) plus $1,400 per dependent (including adult dependents). Eligibility is subject to income limitations (phaseout begins at $75,000 for individuals and $150,000 for couples, and singles with income above $80,000 and couples with income above $160,000 are not eligible), and you are not eligible if you can be claimed as a dependent on someone else’s income tax return (whether that person actually claims you are not). IRS bases eligibility on your most recently-filed income tax return (with no recapture requirement even if you would be ineligible based on income level the following year), so in some situations (e.g. your 2019 return reflected income below the phaseout threshold, but 2020 return will reflect income above the threshold) it may be advantageous to delay filing your 2020 return.
Extension of Federal supplemental unemployment benefit – The $300 per week of Federal supplemental unemployment (in addition to state amount) is extended through September 6, 2021.
Exclusion of unemployment benefits from taxable income – For 2020, households with income of less than $150,000 can exclude from taxable income up to $10,200 of unemployment benefits. The exclusion is available for each spouse if a joint return is filed (i.e. potentially an exclusion on a joint return of up to $20,400 if each spouse received unemployment benefits). To the extent you already filed your 2020 return including the full amount of your unemployment benefit in income (but are eligible for this new exclusion), the IRS intends to issue you a refund (without your having to file an amended return).
Enhanced child tax credits – Prior law provided for a credit of up to $2,000 per child (with phaseout of the credit when income exceeded $200,000 on the return of a single person or $400,000 on a joint return). For 2021, ARPA adds an additional $1,000 per child ages 6 to 17 and $1,600 per child under the age 6 (for a total of $3,000 or $3,600 per child) for singles with income below $75,000 or married couples with income below $150,000 (with a phaseout for those above these levels). So, for 2021, you have two different income phaseout ranges; one for the $2,000 credit and one for the additional $1,000 or $1,600. Beginning in July, IRS is to make advanced monthly payments of the increased credit.
Enhanced child and dependent care tax credit – Prior law provided for a partial tax credit for child and dependent care expenses incurred in order to enable the taxpayer to work. The amount of the credit varied based on amount of expenses incurred and level of income, but was limited to a maximum of $1,050 for one dependent or $2,100 for two or more. Under the new rules, the credit can be as much as $4,000 for one dependent or $8,000 for two or more (with computation based on up to 50% of amount expended for the care). The credit is subject to income limitations, with a phaseout for income between $125,000 and $440,000.
Kenneth H. Bridges, CPA, PFS is a partner with Bridges & Dunn-Rankin, LLP, an Atlanta-based CPA firm.
This article is presented for educational and informational purposes only, and is not intended to constitute legal, tax or accounting advice. The article provides only a very general summary of complex rules. For advice on how these rules may apply to your specific situation, contact a professional tax advisor.