The American Rescue Plan is the third COVID related legislation passed during the pandemic. (The previous two were the CARES and SECURE acts) We’ve provided a summary below, but here is the full White House website that has nifty breakdowns of each part of the bill. NPR also does a great job of explaining it here. If you are a visual learner, check out the breakdown in graphics here.
Big Three Takeaways:
- $1,400 direct stimulus payments to qualifying individuals AND dependents.
- This payment comes to a narrower population: Individuals making up to $75,000 and couples making up to $150,000 will receive the full amount and those above the income guidelines will be phased out.
- Unlike the previous two bills, dependents can be of any age, and will receive the full $1,400. This includes adult dependents like disabled individuals and college students. Additionally, the stimulus is available for mixed-status families. Non-citizen parents with American citizen children means that the children would be eligible to receive the the stimulus.
- Read more of the ins-and outs of who gets a stimulus check here.
- Increased Child Tax Credit
- Typically, the Child Tax Credit is a partially refundable tax credit (meaning, part of the credit can reduce your tax liability to below zero resulting in a refund) $2000 per child under the age of 17. Under the new legislation, the Child Tax Credit is temporarily expanded to a fully refundable credit of $3,600 for kids under 6 and $3000 for kids aged 6-17. (This includes 17 year olds now!) This has the same income phase out as the stimulus checks ($75,000/$150,000) If you are over the income limits you can still claim the normal $2000 credit.
- Here’s where we get something entirely new. Instead of waiting for 2021 Tax season to get your full increased Child Tax Credit, the IRS is going to start paying out this credit in advanced monthly payments. (Think tiny stimulus checks each month.) Parents with kids under 6 will receive $300 per month and parents with children aged 6-17 will get $250 per month. These payments will last for 6 months (July-December 2021) and pay out approx. half of the credit. You would then claim the remaining of the credit on your 2021 tax return.
- For all of the tax return related changes from the American Rescue Plan, read here.
- Unemployment Compensation Tax Break
- Unemployment compensation IS taxable, and if you received a lot of unemployment last year and did not elect to have taxes withheld from your weekly payments, you could be looking at a large tax bill for your 2020 tax return.
- The new tax break allows for $10,200 of unemployment income to be waived from federal taxes. Married couples filing jointly who were both on unemployment can exclude $20,400 of taxes. This only applies to FEDERAL taxes so far, so unless your state decides to follow suit, you will still owe state taxes.
- People who earned less than $150,000 last year are able to receive this tax break.
- There are a few more rules and considerations to note, so visit this article for complete instructions on how this tax exclusion will work on your tax return.