American Rescue Act
By Michael Aston, E.A.
Alhambra Tax Center
On March 11, 2021 President Joe Biden signed into law the American Rescue Act. Below are the three major tax-related benefits.
Third Stimulus Payment – This payment is up to $1,400 for adults and any dependent. Households with earning of more that $80,000 for single filer, $120,000 for Head of Household and $160,000 for married filing jointly will not receive any payment. The payments begin to phase out at $75,000 for single filers, $112,500 for head of household filers and $150,000 for joint filers. This payment is based on your 2020 tax filing, if you have not filed a 2020 return yet, the IRS will base it on your 2019 tax return. If your 2020 income increased above the limits over 2019 and you have not yet filed a tax return, you may want to wait to file to get your third stimulus. That being said at the time of writing this, the tax deadline is still April 15, 2021. You will need to let your tax preparer know how much you received from this third stimulus when filing your 2021 tax return next year. It is not taxable but if you did not get the full amount, then it will come as a rebate on the 2021 tax return, same as the first two stimulus’ on the 2020 tax return.
Unemployment Benefits – The American Rescue Act, contains a new provision to exempt $10,200 of unemployment benefits received from income taxes in 2020. This will reduce the issue of surprised tax bills that taxpayers are receiving. This benefit only applies to income below $150,000. If you have already filed your 2020 tax return, at the time of writing this, the IRS has asked not to make an amended return until they figure how they are going to handle it.
Expanded Child Tax Credit – The American Rescue Act Temporarily expands the child tax credit for 2021. For 2021 only, parents with 17-year-olds will be eligible to receive the child tax credit. Previously this credit was only for qualifying children 16 and under. The child tax credit will be increased from $2,000 to $3,000 and if your child is under 6, then there will be an additional $600 per qualifying child. There is also a provision that half of this credit will be given in an advance credit starting July 2021. If this happens look for my August article with more details and how it will affect your taxes.
If you have any other questions, go to irs.gov or contact your tax professional.