The American Rescue Plan Act of 2021 (ARP) is a $1.9 trillion economic stimulus bill. It was signed into law by President Joe Biden on March 11, 2021, in an effort to speed up the nation’s recovery from the economic and health devastation left behind by the COVID-19 pandemic and the subsequent recession.
In addition to stimulus payments for millions of Americans, the ARP Act provides taxpayers additional relief through updated provisions to several tax credits.
We’ve outlined the impacted tax years along with the provisions. When it comes to the Child Tax Credit, financial benefits may be available as soon as July 2021. Most of these apply to next year and beyond.
- Unemployment income (tax year 2020)
- If you are one of the 4 million Americansto file for unemployment in 2020, there’s some more relief coming you tax-wise. The first $10,200 of unemployment benefits received can be excluded from 2020 income for households with adjusted gross incomes of less than $150,000.
Child Tax Credit (For tax year 2021 only)
Currently, the law provides for a $2,000 credit per qualifying child under the age of 17 with an edible refund of up to $1,400.The refund is subject to phase-out at certain income levels. This would be expanded to $3,000 for people six to 17 years old and $3,600 for people under the age of six.
- Taxpayers’ eligibility for the expanded child tax credit (the amount above $2,000) will be reduced if their income is higher, starting at$75,000 for single and Married Filing Single filers; $112,500 for Head of Household filers; and $150,000 for Married Filing Jointly Filers and Qualified Widow(er)s.
- Credit amounts are fully refundable, which means that some may receive part of the credit back as a refund.
- Advance payments of up to half of the credit will be distributed.
- Earned Income Tax Credit (EITC) tax year 2021 and beyond
- The ARP will make a number of changes to the Earned Income Tax Credit (EITC) for the 2021 tax year by increasing the credit amount and income limit at which the credit is adjusted. It will also permit workers over age 65 to be eligible to claim the credit.
- Access to the Child Tax Credit will also be expanded for separated spouses and for people with investment income.
- Child and Dependent Care Tax Credit (For tax year 2021 only)
- The ARP increases the Child and Dependent Care Tax Credit from its current maximum of 35% rate to 50%. What’s more, the credit will cover $4,000of qualifying expenses for one child and $8,000 of costs for two or more kids.
- This credit would be fully refundable for families who make less than $125,000 and partially refundable for families earning between $125,000-$400,000.
- Premium Tax Credit
- ARP’s tax cuts hit the healthcare marketplace as well. Under ARP, individuals and families may be eligible for a temporary increase in premium tax credits for the 2021 tax year, with no one paying more than 8.5% of their household income towards the cost of the benchmark plan or a less expensive plan.
- For this tax year and 2022, ARP will also expand the applicable qualifying ranges and lower the maximum percent of income a taxpayer must pay.
- Taxpayers who received too much in advance premium tax credits in 2020 will not have to repay the excess amount.
- Student loan forgiveness (For tax years 2021 to 2025)
- ARP did not completely forgive student loans like President Biden campaigned on. But, it does contain a provision that classifies certain student loan forgiveness between December 30, 2020, and January 1, 2026, as tax-free.
Do you have more questions about the ARP Act and how it might affect you? Book-an-Appointment anytime and we’ll be happy to help.