Highlights of the American rescue plan act

Tax Day for individuals extended to May 17, 2021. This extension applies to both filing and tax payments for the year 2020. 

Relief does not apply to any estimated tax payments or other filing types such as Corporate tax returns or Trust Tax returns. 

State due date very so check each state's website. 

 The act creates a new round of economic impact payments to be sent to qualifying individuals. 

 Direct Payments 

● $1,400 Single/Head of Household/MFS 

● $2,800 Married Filing Joint 

● $1,400 Dependents (Code Sec 151) Qualifying Child and Qualifying Relative

Economic Impact Payments are reconciled on the 2021 Tax Returns known as RRC(3)

Click here for more information on all 3 Economic Impact Payment.  

 For single taxpayers, the credit and corresponding payment will begin to phase out at an adjusted gross income (AGI) of $75,000, and the credit will be completely phased out for single taxpayers with an AGI over $80,000. 

For married taxpayers who file jointly, the phaseout will begin at an AGI of $150,000 and end at AGI of $160,000. And for heads of household, the phaseout will begin at an AGI of $112,500 and be complete at AGI of $120,000. 

The act uses 2019 AGI to determine eligibility, unless the taxpayer has already filed a 2020 return.  

Click here for more information on all 3 Economic Impact Payment.  

 The act makes the first $10,200 in unemployment benefits tax-free in 2020 for taxpayers making less than $150,000 per year for all filing status - no phaseout.

If married, the $10,200 exemption applies to each spouse. 

State Laws may vary. 

For those who already filed their tax return: Do not file an Amended Tax return. The IRS said they will adjust the applicable tax returns and send refund. 

Click here for the  IRS Guidance. 

 The act provides COBRA continuation coverage premium assistance for individuals who are eligible for COBRA continuation coverage between the date of enactment and Sept. 30, 2021. The act creates a new Sec. 6432, which allows a COBRA continuation coverage premium assistance credit to taxpayers. The credit is allowed against the Sec. 3111(b) Medicare tax. The credit is refundable, and the IRS may make advance payments to taxpayers of the credit amount. 

 The credit applies to premiums and wages paid after April 1, 2021, and through Sept. 30.  Under new Sec. 6720C, a penalty is imposed for failure to notify a health plan of cessation of eligibility for the continuation coverage premium assistance.  

Taxpayers who receive the COBRA continuation coverage premium assistance credit are not also eligible for the Sec. 35 health coverage tax credit.  Under new Sec. 139I, continuation coverage premium assistance is not includible in the recipient’s gross income. 

 The act introduces special rules for individuals with no children: For 2021, the applicable minimum age is decreased to 19, except for students (24) and qualified former foster youth or homeless youth (18). 

No maximum age.

The credit’s phaseout percentage is increased to 15.3%, and the phaseout amounts are increased.

The credit would be allowed for certain separated spouses.

Cannot claim EITC if investment income is over $10,000 for 2021, up from 2,200.

Temporarily, taxpayers would be allowed to use their 2019 income instead of 2020. income in figuring the credit amount.

The act expands the child tax credit in several ways and provides that taxpayers can receive the credit in advance of filing a return.

 The act makes the credit fully refundable for 2021 and makes 17-year-olds eligible as qualifying children.

The act increases the amount of the credit to $3,000 per child ($3,600 for children under 6). 

 Credit Phase-Out 

● Same for the $2,000 

● Increased amount ($1,000 / $1,600) subject to AGI phase-out: $75,000 S/MFS-$112,500 HH-$150,000 MFJ 

○ Reduction by $50 for each $1,000 over phase out amount 

 Credit amounts will be made through advance payments starting July 2021 through December 2021  by direct deposit. 

 Calculated on the 2020 filed tax return (or 2019 if 2020 has not been filed) - Taxpayers who receive advance payments in excess of the allowable CTC for 2021, generally will repay the excess amounts on their 2021 returns. 

The IRS is directed to estimate taxpayers’ child tax credit amounts and pay monthly in advance one-twelfth of the annual estimated amount. Payments will run from July through December 2021.

Taxpayers in general will have to reconcile the advance payment amount with the actual credit amount on next year’s return and their increase tax by the excess of the advance payment amount over the actual credit allowed. 

Taxpayers whose modified AGI for the tax year does not exceed 200% of the applicable income threshold ($60,000 for married taxpayers filing jointly) will have the increase for an excess advance payment reduced by a safe harbor amount of $2,000 per child.

 The act makes various changes to the Sec. 21 child and dependent care credit, effective for 2021 only, including making it refundable. 

The credit will be worth 50% of eligible expenses, up to a limit based on income, making the credit worth up to $4,000 for one qualifying individual and up to $8,000 for two or more. 

Credit reduction will start at household income levels over $125,000. For households with income over $400,000, the credit can be reduced below 20%.

The act also increases the exclusion for employer-provided dependent care assistance to $10,500 for 2021.

Taxpayers who received too much in advance premium tax credits in 2020 will not have to repay the excess amount.

A special rule is added that treats a taxpayer who has received, or has been approved to receive, unemployment compensation for any week beginning during 2021 as an applicable taxpayer.  

Family and Sick Leave Credits are extended to Sept. 30, 2021. These fully refundable credits against payroll taxes compensate employers and self-employed people for coronavirus-related paid sick leave and family and medical leave.

The act increases the limit on the credit for paid family leave to $12,000.

The number of days a self-employed individual can take into account in calculating the qualified family leave equivalent amount for self-employed individuals increases from 50 to 60.

The paid leave credits will be allowed for leave that is due to a COVID-19 vaccination.

The limitation on the overall number of days taken into account for paid sick leave will reset after March 31, 2021.

The credits are expanded to allow 501(c)(1) governmental organizations to take them.

The act codifies the employee retention credit in new Sec. 3134 and extends it through the end of 2021. The employee retention credit was originally enacted in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, and it allows eligible employers to claim a credit for paying qualified wages to employees.

Under the act, the employee retention credit would be allowed against the Sec. 3111(b) Medicare tax.

 The act amends Sec. 108(f) to specify that gross income does not include any amount that would otherwise be included in income due to the discharge of any student loan after Dec. 31, 2020, and before Jan. 1, 2026. 

 The act codifies the employee retention credit in new Sec. 3134 and extends it through the end of 2021. 

The employee retention credit was originally enacted in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, and it allows eligible employers to claim a credit for paying qualified wages to employees.

Under the act, the employee retention credit would be allowed against the Sec. 3111(b) Medicare tax.  

 The act provides that targeted Economic Injury Disaster Loan (EIDL) grants received from the U.S. Small Business Administration (SBA) are not included in gross income and that this exclusion from gross income will not result in a denial of a deduction, reduction of tax attributes, or denial of basis increase. Similar treatment is afforded SBA restaurant revitalization grants.