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Covid-19 impact

American Rescue Plan Act of 2021: What You Need to Know

Jo Willetts, EA Director, Tax Resources Published On March 11, 2021

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A sweeping new COVID-19 economic relief package was signed into law by President Biden on March 11, 2021.

Known as the American Rescue Plan Act of 2021, the law includes a third round of Economic Impact Payments (EIP), or stimulus, as well as major changes to unemployment insurance and more.

Here are the main elements of the law that may have the biggest impact on taxpayers:

Third stimulus check/EIP payments

The IRS began issuing the third stimulus payments on March 12, 2021.

These payments are:

  • $1,400 per eligible taxpayer (phasing out between $75,000 and $80,000 for Single/Married Filing Separately taxpayers).
  • $2,800 per eligible married couples (phasing out between $150,000 and $160,000 for Married Filing Jointly taxpayers).
  • $1,400 per qualifying dependent with an SSN – both a child and non-child dependent regardless of age (phasing out between $112,500 and $120,000 for Head of Household taxpayers).

This means the following:

  • A couple filing Married Filing Jointly is not eligible for a stimulus payment if their income is $160,000 or greater.
  • A Single taxpayer would no longer be eligible if their income is $80,000 or greater.
  • A Head of Household taxpayer would no longer be eligible if their income is $120,000 or greater.
  • The number of dependents has no bearing on the phase out for these round three stimulus payments.

 

Recovery Rebate Credit

Eligible taxpayers will be able to claim the Recovery Rebate Credit on their 2021 tax return to reconcile any additional amounts they are owed as an EIP 3 (third stimulus) payment.

Child Tax Credit (CTC) changes for 2021

Beginning in tax year 2021(the taxes you file in 2022) the Child Tax Credit will be expanded. The bill increases the amount that families claiming the Child Tax Credit receive from $2,000 to:

  • $3,600 for each child under 6
  • $3,000 for each child age 6-17

The credit is now fully refundable – that means that you are eligible for the credit even if you don’t owe taxes.

  • Although this credit is for next year’s tax filings, payments will also be sent in advance, over the course of the year, beginning no earlier than July 2021 so people don’t have to wait to file their  2021 taxes. The IRS will likely determine eligibility based on your most recent tax filing.

Additional rules for advanced payments of the CTC

  • The advance payments may not begin until July 1, 2021 and will be for no more than half of the child tax credit that eligible taxpayers are entitled to for 2021. The remaining half will need to be claimed on the 2021 tax return filed in 2022.
  • No payments will be made after December 31, 2021.

Unemployment insurance changes

Taxpayers who received unemployment benefits in 2020 are now eligible for different tax treatment of their unemployment benefits if their income is less than $150,000. The first $10,200 in unemployment income per taxpayer is tax-exempt.

Student loan forgiveness

Student loan payments forgiven are not included as taxable income. This allows for any executive order by the President to forgive all or part of student loans to be tax-exempt.

  • Interest on student loans is suspended for 2021.
  • No collections on student loans through September of 2021.
  • Individuals still making their payments are paying down principle with 100% of their payments made during 2020 and 2021.

 

A host of other provisions are embedded in this massive law. You can read the entire bill here. We’ll continue to monitor for updates on how the IRS will implement many key elements of this legislation.

Got questions? Book an appointment with a Jackson Hewitt Tax Pro and they’ll be happy to help.

About the Author

Jo Willetts, Director of Tax Resources at Jackson Hewitt, has more than 25 years of experience in the tax industry. As an Enrolled Agent, Jo has attained the highest level of certification for a tax professional. She began her career at Jackson Hewitt as a Tax Pro, working her way up to General Manager of a franchise store. In her current role, Jo provides expert knowledge company-wide to ensure that tax information distributed through all Jackson Hewitt channels is current and accurate.

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