The following is a summary of a few of the key provisions in the American Rescue Plan that was signed by President Biden on March 11, 2021. Check back for updates as we learn more...

Stimulus Payments – Round 3

The American Recovery Plan provides for $1,400 payments for taxpayers, spouses, and all of their dependents. This is different than the first two stimulus payments that only included payments for Qualifying Children (those dependents under age 17 at the end of the tax year). Those claimed as dependents, non-resident aliens, and estates and trust are not eligible for stimulus payments. Neither are those people who died in 2020.

As with the prior stimulus payments, Single filers with Adjusted Gross Income (AGI) less than $75,000, Head of Household filers with AGI less than $112,500, and Married Filing Joint filers with AGI less than $150,000 will receive their full stimulus payments.

What is different this time is the speed and method by which your payments will phase out. With the prior two rounds of stimulus, the amounts issued to taxpayers were reduced by 5% of the amount they exceed the above limits. This time around if you are a Single filer with an GAI above $80,000, a Head of Household filer with AGI above $120,000, or a Married Filing Joint filer with AGI above $160,000 will be fully ineligible for any payments.

WHAT YOU NEED TO KNOW: Payments were set to begin the weekend of March 13, 2021. The payments will be based on your 2020 tax filing if it has been completed, or your 2019 tax filing if 2020 has not been completed. We have been told that IRS has been directed to send a second round of payments out approximately 90 days after the close of the filing season to use the information submitted with 2020 tax returns to update payments.

Unemployment

Federal unemployment benefits have been extended from March 14, 2021 through September 6, 2021. This includes Pandemic Unemployment Assistance which extends unemployment benefits to self-employed people, freelancers, and gig-workers as well as the federal Pandemic Unemployment Compensation program which adds additional funds to regular unemployment benefits.

The American Rescue Plan also includes a provision that exempts up to $10,200 of unemployment benefits per taxpayer from income taxes. This provision only applies to taxpayers with incomes below $150,000. Please note that this is applicable only to the 2020 tax year.

WHAT YOU NEED TO KNOW: IRS has already issued guidance as to how to calculate and report the excludable amount of Unemployment benefits from tax returns that are yet to be filed. What has not been addressed are the millions of tax returns that had been filed prior to the passage of the American Rescue Plan. At this time, IRS has advised us not to file amended returns while they evaluate the best way to accommodate this late tax law change. As we learn more on this topic we will update this space.

Premium Tax Credit

Several provisions of the American Rescue Plan impacted the Premium Tax Credit. These are tax credits claimed by people who use the Health Insurance Exchange (such as Access Health CT here in Connecticut) for the medical insurance. For 2021 and 2022, enrollees in the health insurance exchanges will not pay more than 8.5% of their incomes for health coverage.

Furthermore, anyone who receives at least one week of unemployment benefits in 2021 will be treated as though they are at 133% of the Federal Poverty Limit (FPL) for purposes of calculating their Premium Tax Credit. Also for 2020, the repayment of any Advanced Premium Tax Credit is suspended.

WHAT YOU NEED TO KNOW: With all the changes to the calculation of the Premium Tax Credit for 2021 and 2022, anyone who is using a health insurance exchange for the health insurance should check with their exchange to ensure that they are getting the appropriate amount of Premium Tax Credit applied to their insurance premiums. IRS has not issued guidance as to returns that have been filed already that included a Premium Tax Credit repayment. As with the changes affecting unemployment, IRS has asked us not to file any amended returns while they evaluate the situation. Again, as we learn more, we will update this space.

This is by no means is an exhaustive summary of the changes caused by the American Rescue Plan of 2021. Other provisions in the bill effect the Child Tax Credit, Employee Retention Credit, and Employee Sick and Family leave. We will post a second summary of the remaining provisions as time allows and we will be updating this summary as we learn more about the provisions listed here.