Are you wondering about the American Rescue Plan?

The newest coronavirus relief bill called the American Rescue Plan (ARP) has now passed both the House and the Senate.

It is expected to be signed by the President tomorrow. Below are some of the highlights pertaining to taxes, as provided by our friends at Kongs & Seib, P.A.

Stimulus Payments –This third round of payments are going to be up to $1,400 per taxpayer and per dependent. We are uncertain when payments will start going out, but we expect it will happen quickly. The second stimulus payments started going out about a week after the President signed the bill. We suspect it could take longer this time as the IRS is in the middle of tax season. This round is a little bit different than the first two rounds as highlighted below:

  1. The income phase out range for this third round is much smaller. The first two rounds phased out from $75k-$100k (if you file single) and $150k-$200k (if you file married jointly). This round, the phase out is from $75k-$80k (single) and $150k-$160k (married filing joint). There is some potential planning to be done here especially for married couples. We are evaluating each situation to determine how to best take advantage of stimulus payments. We may be recommending to some married couples that they should file separate returns.
  2. The first two payments did not factor in children over 17 or adult dependents. This payment will include $1,400 for ALL dependents if the above income limitations are met
  3. The payments are going to be based upon your most recently filed return. For most of you, that is probably 2019. For anyone who’s income increased from 2019 to 2020, we are evaluating the timing of filing your 2020 return. Anyone whose income in 2019 is over the threshold, but expects their 2020 income to be under the threshold should try to file as soon as possible. At this time, if you receive too large of a stimulus payment, you do not have to pay it back.
    1. If your 2020 income would provide for a bigger stimulus and your 2020 return is filed and/or processed after the IRS sends you a stimulus check, but before July 15, 2021 (or September 1 if the April 15 filing deadline is pushed back), the IRS is supposed to send you a second payment for the difference between what your payment should have been if based on your 2020 return and the payment actually sent based on your 2019 return.

Unemployment is potentially nontaxable — The ARP calls for the first $10,200 of unemployment benefits to be nontaxable, but only for people who made less than $150k of income in 2020. We are going to have to wait and see how the IRS interprets this when it comes to joint versus separate versus single tax returns. This provision is also going to require the IRS to revise tax forms and reprogram computers. We suspect we may not know the details on all of this for a while. If you have already filed your 2020 tax return and received unemployment income, we will evaluate your return and potentially contact you about amending it to reflect this change.  We currently are uncertain how the various states will treat this change.

Unemployment benefits — The $300 per week of expanded federal unemployment was set to run out on March 14th. This has now been extended through September 6th.

Expanded Child Tax Credit (CTC) for 2021 Only — This is currently only for 2021, but it is possible it will become permanent. If you have a child under the age of 17, you typically receive a child tax credit of $2,000. This new bill modifies it as highlighted below:

  1. The expanded credit is phased out for people who make over $75k (single) or $150k (married)
  2. Children under the age of 6 will receive a credit of $3,600
  3. Children ages 6-17 will receive a credit of $3,000
  4. Dependents aged 18+ remain at $500
  5. On a monthly basis from July through December, the IRS is going to pay out half of the expanded CTC. This means that if you qualify, you should receive $300 per month per child under the age of 6 or $250 per child between ages 6 and 17. If you receive too much, you will be required to pay this back with your 2021 tax return. The IRS has indicated that they plan to set up a system to allow you to opt in or out of receiving these advanced payments.