Rescue, Relief, Revival

The American Rescue Plan, “President Biden’s plan to provide direct relief to Americans, contain COVID-19, and rescue the economy” and his first major piece of legislation, was signed into law on March 11, 2021. The American Rescue Plan includes another round of direct stimulus checks to Americans, further extended unemployment benefits, increased tax credits for individuals and families, and funding for COVID-19 testing and vaccinations as well as for reopening schools safely. Here’s a detailed summary of what’s included in this piece of legislation.

• Stimulus Checks (aka Recovery Rebates)
  • This round of stimulus includes direct payments to Americans of $1,400 per person (including per dependent, which includes children and any other dependents claimed like elderly family members) for those under certain Adjusted Gross Income (AGI) thresholds (and the rebate amount is phased out thereafter):
    • Single and Married Filing Separately (MFS): $75,000 (rebate fully phased out for income above $80,000)
    • Head of Household (HOH): $112,500 (rebate fully phased out for income above $120,000)
    • Married Filing Jointly (MFJ): $150,000 (rebate fully phased out for income above $160,000)
  • These income phaseouts are much narrower than the last round of recovery rebates, but still provide helpful money to many families in the country.
  • These rebates are being paid now based on your most recent AGI on file with the IRS (2019 or 2020 tax return) and will still be paid to those who don’t qualify now based on their last tax return on file, but who will qualify when they file their 2020 or 2021 tax returns.
  • It’s important to note that these recovery rebates can be kept (there will be no ‘clawback’) if received based on a prior year’s AGI, even if your 2021 AGI would not qualify when you file your 2021 tax return in 2022.
  • Millions of Americans have already received their $1,400 payments!

• Unemployment Benefits
  • Traditional unemployment compensation has been extended again, this time through September 6^th, 2021. The additional $300 weekly unemployment benefits have also been extended through September 6^th, 2021.
  • Pandemic Unemployment Assistance (PUA), unemployment benefits being paid to self-employed individuals who wouldn’t otherwise qualify for traditional unemployment, has also been extended through September 6^th, 2021.
  • For the 2020 tax year (current tax returns being filed), the American Rescue Plan also determined that up to $10,200 per person of unemployment compensation received in 2020 is tax free (for Federal tax purposes) if your 2020 AGI is below certain thresholds ($75,000 if single, $150,000 if MFJ).
    • If this applies to you and you’ve already filed your taxes, consult with your tax professional for the appropriate next steps to take (whether it’s waiting for the IRS to issue supplemental guidance or filing an amended return, they will be the expert to help you determine what to do).
    • If you haven’t yet filed your taxes, be sure to take advantage of this if it applies to you.

• Tax Credits
  • Child Tax Credit
    • The Child Tax Credit is for families with children – the maximum credit for the 2021 tax year has been increased to $3,000 (up from $2,000) per qualifying child. If the qualifying child is under age 6 as of 12/31/2021, the credit has been increased to $3,600.
    • This credit is usually available for children 16 and under; for 2021 the age has increased to 17 and under.
    • This tax credit is phased out by $50 for each $1,000 of income over certain thresholds:
      • Single: $75,000
      • HOH: $112,500
      • MFJ: $150,000
  • Child and Dependent Care Tax Credit
    • This credit is for families with childcare or dependent care costs. The maximum amount of expenses that can qualify has increased to $8,000 (up from $3,000) for one-child families and $16,000 (up from $6,000) for families with two or more qualifying children.
    • This credit is subject to specifics on the taxpayer’s AGI that determines the Applicable Percentage of the credit available for expenses incurred and high-earning taxpayers will be fully phased out of qualifying for this credit.
  • Earned Income Tax Credit
    • This credit has been expanded to provide additional relief to workers not raising children and to expand the eligible age range for the credit (19-24 now qualify, as do taxpayers 65 and over). This update could benefit more than 17 million workers in the U.S without children.

• Student Debt Forgiveness
  • While there are no provisions for forgiving any student debt (yet), this act potentially sets the stage for that in the future by dictating that any student debt forgiven between 2021-2025 will be income tax-free (which is generally not the case for forgiven loans).

• Health Insurance Support
  • The American Rescue Plan provides support for full coverage of COBRA premiums through September 2021 for those involuntarily terminated from their jobs prior to then.
  • The Premium Assistance Tax Credits for Affordable Care Act health insurance policies purchased through a state health insurance Exchange have also gotten a boost. This assistance applies for both 2021 and 2022 and has been increased and extended to more taxpayers depending on household income as a percentage of the Federal Poverty Line.
    • Additionally, for those with one of these plans who receive at least one week of unemployment compensation in 2021, the Premium Assistance Tax Credit will cover the full cost of the second least expensive Silver Plan on the appropriate state Exchange!

There are other provisions for funding provided to increase COVID testing and vaccination availability, as well as to support efforts to reopen schools safely, and funding to state and local governments. Although potentially expected, this bill does not include an increase in the Federal minimum wage or changes to Required Minimum Distributions (RMDs) for 2021.

If you’re interested in reading more, you can see the White House website here and read a very detailed account aimed towards financial planners by Jeff Levine on Kitces.com here.

As always, please don’t hesitate to contact us if you have any questions on the American Rescue Plan and how it may or may not affect you – we’re here to help you think it through!