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Highlights of the American Rescue Plan Act of 2021

  • BR Accounting And Tax Service

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I hope you have managed to stay safe and well! We focus on resolving tax issues in Prince William County and throughout the lower Northern Virginia area.

As you know by now, On March 11, 2021, President Biden signed into law H.R. 1319 – the American Rescue Plan Act (from here forward referred to as the "Act"), the gist of the Act provides approximately $1.9 trillion in additional support and stimulus to individuals, businesses and various other organizations (including state and local governments). Here are a list of the selected highlights that are relevant for individuals. Keep in mind, the Act contains many different funding and support programs beyond what is described below:

Recovery Rebates to Individuals: The Act authorizes the Internal Revenue Service (IRS) to pay $1,400 to individuals and an additional $1,400 for each dependent of the taxpayer up to specified income limits. Nonresident aliens and those who are a dependent of another taxpayer are not eligible for this round of payments

Unemployment Insurance Benefits Supplements: The federal unemployment supplement is renewed with a federal supplement of $300/week through September 6th. The first $10,200 in Unemployment Insurance benefits received in 2020 is now nontaxable for households with under $150,000 in taxable earnings. In the case of a joint return, up to $10,200 in unemployment insurance benefits received by each spouse would be nontaxable. This may affect income tax returns already filed for 2020. The IRS will need to advise taxpayers whether it will be necessary to amend 2020 income tax returns.

Increased Child Tax Credit and Earned Income Tax Credit For me this is the real potential change in the social “safety net” fabric of America. The Act increases the Child Tax Credit and the Earned Income Tax Credit. For 2021, the Child Tax Credit is increased from $2,000 to $3,000 per child over age six and $3,600 for each child who is under age six as of the close of the calendar year. Phase-out limits begin at $75,000 in income for single filers and $150,000 for married filing jointly. The Child Tax Credit is fully refundable for 2021, and children remain eligible through age 17 (previously, 16).

The IRS is directed to send periodic (most likely monthly) advance Child Tax Credit payments to qualifying families, beginning in July 2021. These payments would represent half of the Child Tax Credit to which a taxpayer is entitled for 2021. The remaining half will be claimed on the 2021 income tax return.

For 2021, the Act expands eligibility requirements and the maximum credit amount for the Earned Income Tax Credit (EITC) for taxpayers without dependents, reducing the minimum age from 25 years of age to 19 years of age. It also increases the upper age limit to include taxpayers over 64 years old. Special age provisions apply to students, qualified former foster youth and qualified homeless youth.

100% COBRA Health Coverage Subsidy

The Act provides a 100% COBRA Subsidy for qualified employees and dependents who lose coverage as a result of involuntary terminations or reductions in hours (qualified individuals). In addition to new qualified employees and dependents, qualified individuals who are still within their COBRA maximum period but who had not previously elected will be given the opportunity to now elect COBRA as well. (Totally free to the particpants!) The subsidy would be effective for coverage periods beginning in April through September 2021. The subsidy is only available for so long as the qualified individual is not eligible for other group health plan coverage, is within their COBRA maximum period (typically 18 months from the date of the qualifying event) and/or the end of the subsidy period.

New notices should be expected, that will advise potential qualified individuals of the availability of COBRA premium assistance for health coverage, and the option to enroll in coverage.

We tax professionals are still sifting through the new law to find more information that can help taxpayers save money on taxes within The Act. So stay tuned for forthcoming information, and if you’re unsure about your tax situation this upcoming tax season, we would be happy to help. Please feel free to contact us