How does the American Rescue Plan ACT of 2021 impact taxes?
Updated: Apr 7, 2021
The American Rescue Plan Act of 2021 passes - here what you need to know before you file:
According to the recent article "American Rescue Plan Act Passes with Many Tax Components" in Journal of Accountancy by Alistair M. Nevius, J.D on March 10, 2021, there are quite a few tax items you should be aware of before you file. Outlined below are just a few highlights.
Click here to read the full article.
Unemployment Benefits – The act makes the first $10,200 in unemployment benefits tax-free in 2020 for taxpayers making less than $150,000 per year.
Recovery Rebates – The act creates new economic impact payments to be sent to qualifying Individuals with advance payments of a recover rebate credit - $1,400 for individuals, $2,800 for married taxpayers filing jointly, plus $1,400 for each dependent in 2021.
COBRA Continuation Coverage – The act provides COBRA continuation coverage premium assistance for individuals who are eligible.
Child Tax Credit – The act makes 17 year olds eligible as qualifying children, and also increases the amount of the credit to $3,000 per child ($3,600 for children under 6). Amount phases out for taxpayers with incomes over $150,000 for married taxpayers filing jointly, $112,500 for heads of household, and $75,000 for others.
Earned Income Tax Credit – The act introduces special rules for individuals with no children, for 2021 applicable minimum age is decreased to 19, except for students (24) and qualified former foster youth or homeless youth (18). The maximum age is eliminated. The threshold for disqualifying investment income would be raised from $2,200 to $10,000.
Child & Dependent Care Credit – The act includes a refundable credit worth 50% of eligible expenses worth up to $4,000 for one qualifying individual and up to $8,000 for two or more. The act also increases the exclusion for employer-provided dependent care assistance to $10,500 for 2021.
Family and Sick Leave Credits – The act includes fully refundable credits against payroll taxes. This compensates employers and self-employed people for coronavirus-related paid sick leave and family and medical leave and increases the limit for paid family leave to $12,000.
Employee Retention Credit – The act allows eligible employers to claim a credit in paying qualified wages to employees.
Premium Tax Credit – Taxpayers who received too much in advance premium tax credits in 2020 will not have to repay the excess amount.
Student Loans – Gross income does not include any amount that would otherwise be included in income due to the discharge of any student loan after December 31, 2020 & before January 1, 2026.
Miscellaneous Tax Provisions – Corporation’s five highest-compensated employees to be added to the list of individuals subject to the $1 million cap on deductible compensation, limitations on excess business losses of non-corporate taxpayers for one year, and Economic Injury Disaster Loan grants received from the US Small Business Administration are not included in gross income.
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Alistair M. Nevius, J.D, "American Rescue Plan Act Passes with Many Tax Components", March 10, 2021, https://www.journalofaccountancy.com/news/2021/mar/tax-components-coronavirus-relief-bill.html