American Rescue Plan Act / Stimulus 3.0: Large Tax Season Adjustments – And What They Imply For You

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American Rescue Plan Act / Stimulus 3.0: Huge Tax Season Changes - And What They Mean For You

President Biden signed the American Rescue Plan Act of 2021 on March 11th. I tend to refer to this as “Stimulus 3.0” as the most notable point is the direct payments of $ 1,400 to certain citizens in a nutshell. In fact, one of my customers already received his payment on Saturday March 13th!

However, this law contains many more provisions than just direct payments.

This article is not intended to be a complete explanation of the plot. Rather, it is meant to be an attempt to share the highlights of key regulations for individuals I encounter in the college’s Volunteer Income Tax Assistance (VITA) program or in my own small practice and other similar taxpayers in the Clinton County community.

I found some of these individual provisions quite amazing. Of course, the timing of the tax law in the middle of the tax season couldn’t have come at a worse time, as some of these changes will apply to 2020 tax returns – including those already filed!

Stimulus payments

Individual taxpayers receive $ 1,400 payments for AGI (Adjusted Gross Income) of $ 75,000 or less with a hard exit (zero is received) of $ 80,000.

Married Filing Joint Taxpayers $ 2,800 with an AGI of $ 150,000 or less with a hard exit at $ 160,000 and a household head of $ 112,500 or less with a hard exit of $ 120,000.

However, each taxpayer also receives $ 1,400 for each “dependent” on the most recently known tax return filed.

Historically, the dependent had to be defined as a child who is younger than 17 under the current Internal Revenue Code. Essentially, each qualified household will receive $ 1,400 for each person in that household.

As with Stimulus 1.0, payments will be made based on your most recent return (2020 or 2019 if you did not submit your 2020 return). The payments are neither taxable nor reduce your refund for returns for 2020 or 2021. As with Stimulus 1.0 and 2.0, you will need these numbers to prepare for your return next year

Earned Income Credit and Child Additional Tax Credit

What hasn’t made the news, but is sure to be soon, are the changes to the Earned Income Credit and Child Tax Credit.

Although both credits have been improved, the child tax credit is the real winner here.

Currently, the child tax credit is $ 2,000 per child under the age of 17. For 2021, age will be increased to under 18 with $ 3,000 per child credit! In addition, there is a “super credit” of 600 US dollars for children under 6 years of age!

As exciting as it is, this is where things take an extra turn.

The law gives the US Treasury Secretary the power to send monthly payments between July 1, 2020 and December 31, 2020. Yes, you read that right: Starting this summer, families will receive monthly prepayment credits for these advanced payments!

It is not apparent from what I have read exactly how much of this payment will be released. It assumes that the additional amount of $ 1,000 (or $ 1,600 for children under 6 years of age) is spread over 6 months.

A portal will also be set up on the IRS website through which taxpayers can refuse these payments or report changes in marital status, changes in family household, etc.

I expect this will lead to more confusion in 2021.

Extended unemployment

As you have probably heard, the additional unemployment payments will continue. What you may not have heard, however, is that the first $ 10,200 of unemployment received for AGI under $ 150,000 will not be taxable for 2020.

What does that mean? This means you may not want to prepare your 2020 return until the forms or software have been updated.

What does this mean if you’ve already submitted a return? This means you may need to change (resubmit) your return!

However, for now, the IRS is asking taxpayers not to change their tax returns. I suspect and certainly hope that you can access electronic data and reimburse any differences.

So, if you’ve already registered for unemployment and received an additional “mystery payment” from the IRS, this may be just that.

The next problem is what about Ohio or a state that is returning? Government returns begin with the federal AGI. It is not clear that states will allow this exclusion.

What can a taxpayer do? Perhaps filing a Form 4868 extension is the best guideline. This extends the tax return until October 15th.

The enlargement is a federal form and is accepted by the state and the cities. Once the federal unemployment problem software is updated, you can file the federal statement to get it out of the way, but file the state statement later when we know if it complies with federal rules.

Note, however, that an extension only provides time to add to the time it takes to submit the forms. You should do your best to estimate your tax and pay it by April 15th and make up your mind when you file your state tax return.

Dependent day care

In 2021, employers can increase childcare support from $ 5,000 to $ 10,500 to help these families with the ever-increasing costs of daycare.

Premium Tax Credit / Obamacare

You may recall that a few years ago when the Affordable Care Act (Obamacare) was passed, people had the opportunity to get health insurance through “the exchange” at www.healthcare.gov. While purchasing insurance this way could be expensive, the government provided prepayments for this purchase.

The problem was that these loans were based on the previous year’s income. Once you’ve prepared your tax return, you may need to repay some or all of the credit on the tax return. This ACA repayment policy has been suspended for the 2020 return.

So if you’ve received another 1095-A from the marketplace, you probably don’t want to submit your return just yet. Once you’ve filed, you may need to make changes, just like those who filed for unemployment.

Of course, the IRS is asking us to suspend the change for now. They don’t like processing modified returns, just as we don’t like submitting them!

COBRA

A few years ago a law was created – COBRA (Consolidated Omnibus Budget Reconciliation Act) that allows you to get your health insurance from your employer for up to 18 months and sometimes 36 months at group rates plus an administrative fee of 2% after your departure from your employer.

I’ve used COBRA in the past. It can be expensive, but it’s a way to stick with your group schedule individually.

The American Rescue Plan Act provides financial support for these rewards, although I don’t understand how much at this point.

You should consult your tax advisor on how these provisions directly apply to your situation.

Allen “Al” Beatty, EA, CPA, MT is Assistant Professor of Accounting at Wilmington College.

Here’s what you need to know