The new stimulus bill, The American Rescue Act, contains sweeping provisions that will impact the personal finances of millions of Americans. Here are some of the key provisions:
Everyone gets a $1400 stimulus payment, subject to income limitations of $75,000 on a single return and $150,000 on a joint return. (Above that level the stimulus phases out at $80,000 and $160,000 of Adjusted Gross income.) Hint: you can make an IRA contribution from earned income to reduce AGI, until April 15th.
Stimulus for Children and Dependents:
Unlike the first round of payments, all children, students, and elderly adults claimed as dependents receive the same $1400 check – although the check goes to the parent taxpayer and not the child or elderly person.
Note: It appears that children born in 2021 will be eligible for a stimulus check, although the IRS has not said how it will know to send it!
• When: The IRS says it will start getting the checks out as soon as possible. The White House says “checks will start going out by the end of March.”
• How: They have not yet said whether they will use the original formula of direct deposit for taxpayers whose banking information is on file, and for Social Security beneficiaries, or deposits on cards for SSI, recipients, and others. An update will be posted when the IRS makes an announcement.
• Which return is used: The IRS says it will use the most recent year on record. If you already filed 2020, that year will be used. Or they may default to 2019. You will not have to return any stimulus money if they use 2019, but income in 2020 is higher than the limits. If eligible based on 2020 return, but you haven’t filed by the time they send out checks, you can claim a refund in 2021.
Scheduled to run out this weekend, all unemployment benefits are extended, along with a $300 weekly addition, until September 6th. No reapplication is necessary, but it will take some states a while to adjust their overwhelmed computer systems.
Special Note: This Act provides that the first $10,200 of unemployment benefits for 2020 are NOT TAXABLE. If you have already filed your return, do NOT amend your return now. The IRS says it is working on an automatic refund of those taxes.
Child Tax Credit:
Subject to the same income limits as the stimulus payment, parents will receive a one-time credit of $3600 for any child age 5 or younger, and $3,000 for children ages 6-17.
That money is expected to be paid out on a monthly basis, starting in July. Any unpaid credits at the end of the year will be claimed on your 2021 income tax return.
Child CARE (and dependent care) credit:
This credit increases for one year from the current $1500 for one child and $2000 for two or more children to $4,000 and $8000. This is a refundable credit, meaning no earnings are needed to claim the childcare credit. But you’ll need to file a 2021 tax return to get it.
Note: income limits and eligibility are complex to receive this credit, based on eligible expenses as well as income.
Getting coverage under the Affordable Care Act will be much less expensive and more people will qualify. The income caps (at 400x the poverty level) have been dropped. Subsidies have been increased, making premiums more affordable.
There is currently an Open Enrollment for the ACA running through May 15th. Learn more at www.Healthcare.gov.
Special Note: Many people received unemployment benefits in 2020 that put their income levels above the level they estimated, and on which the ACA subsidy was based. This bill provides that you will not have to return any subsidy payments as a result of increased unemployment benefits.
If you lose your job because of Covid and are offered continuation of company health benefits under COBRA, the government will pay your entire premium from April 1 through September 30, 2021.
While the bill did NOT create student loan forgiveness, it did something equally important. Typically, forgiveness of a debt creates a taxable amount on your return for the amount forgiven. This bill says that IF, down the road and perhaps by executive order, some portion of student loans is forgiven, then the first $10,000 of forgiveness will NOT be taxable. (If you’re in the 25% tax bracket, that saves $1500 in potential taxes!)
This posting will be revised as more details of process are revealed by the IRS.