The global pandemic has affected people all over the world physically, emotionally, and economically. It has caused global economies to crumble and businesses to shut their doors forever. The resulting impact of this domino effect is that the average American family who was once financially stable, is now struggling to pay their mortgages and keep their families fed. Fortunately, the government has created a series of stimulus packages designed to provide relief for both Americans in the country, as well as American taxpayers abroad.
The American Rescue Plan Act Of 2021 was signed into law on March 11, 2021 and it included a wide range of stimulus payments, tax credits, and payment forgiveness exclusions which will not only give Americans some financial relief, but also inject money into the failing economy, namely the retail sector. When consumer confidence increases and more Americans feel comfortable spending money again, the economy should strengthen and begin to grow once again.
With that in mind, we are going to take a look at the American Rescue Plan Act Of 2021 and provide a brief summary of what you can expect once stimulus payments are underway and tax credits become available.
American Rescue Plan Act Of 2021 Summary
Recovery Rebate And Round 3 Stimulus Payment
If you received a previous stimulus check, you are not guaranteed to receive a second one. According to the IRS, some people won’t be eligible for a second or third round stimulus payment and anyone that has a court appointed debt, will lose their stimulus payment to cover the debt first.
Those who are eligible for a stimulus payment could qualify for up to $1,400 per taxpayer ($2,800 MFJ), plus $1,400 per dependent. It is important to note that stimulus payments will begin to phase out when a household’s adjusted gross income exceeds $75,000 (Single, MFS), $150,000 (MFJ, QW), and $112,500 (HOH). The stimulus payment will be fully phased out at $80,000 (Single, MFS), $160,000 (MFJ, QW), and $120,000 (HOH).
Child Tax Credit
The updated Child Tax Credit (CTC) will only be effective for 2021 and it features the following changes:
• CTC increased to $3,000 per qualifying child.
• CTC is $3,600 in the case of a qualifying child age five or younger as of December 31, 2021,
• The age limitation for the CTC has been increased from age 16 to age 17.
Just like the stimulus payments, the CTC will also phase-out based on a household’s adjusted gross income. The increased CTC (over the $2,000 prior amount) phases out when modified AGI exceeds $75,000 (Single, MFS), $150,000 (MFJ, QW), and $112,500 (HOH).
Dependent Care Expense Credit
The Child and Dependent Care Expense Credit will also be fully refundable, but this is only effective for 2021. The dollar limitation on expenses paid for a qualifying person has also been increased with the new totals rising from $3,000 to $8,000 for one qualifying person and from $6,000 to $16,000 for two or more qualifying persons.
For household’s with an adjusted gross income up to $125,000, the maximum percentage has increased from 35% to 50%, and this will begin phasing out until it is reduced to zero when a household’s adjusted gross income hits $438,000.
COBRA Coverage Assistance
The American Rescue Plan Act Of 2021 also provides a law which will provide funding to help pay COBRA continuation coverage premiums.
Limitation On Excess Business Losses Of Non-Corporate Taxpayers
The American Rescue Plan Act Of 2021 includes a new limitation on excess business losses which will be extended to tax years beginning before January 1, 2027.
Contact British American Tax
To learn more about the American Rescue Plan Act Of 2021, contact British American Tax today and consult with an expert tax advisor who can answer any questions you might have about taking a pro-active approach to your tax planning.
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