President Biden announced The American Rescue Plan of 2021 in January and signed it into law on March 11th in response to those affected by the COVID-19 crisis. This includes support for individuals, small businesses, state and local governments, schools, industries and communities. The plan is lengthy so we thought we would share the detail of the items that pertain to most people.
Here are the specifics on the plan:
$1.9 trillion economic stimulus of which approximately $350B will be used for state and local government support, $90B for infrastructure and transportation, $170B to support the efforts of schools trying to reopen (mostly K-12) and $85B for Coronavirus testing, tracing and vaccinations.
Provide small businesses, like restaurants and bars, that have been hit particularly hard during the pandemic with the funding they need to reopen and prosper.
Provides a third round of stimulus checks in the amount of $1,400 per eligible individual. Eligible individuals are those with AGI starting at $75,000 and completely phases out at $80,000 for individuals. For married couples, the phaseout starts at $150,000 and completely phases out at $160,000. For Head of Household, the phaseout starts at $112,500 and completely phases out at $120,000.
Expands eligibility of stimulus checks to all dependents in the household, not just those under the age of 17.
Expands the Child Tax Credit from $2,000 to $3,000 for children under the age of 17 (and an extra $600 on top of that for kids under 6 years of age). The phaseout thresholds will match the stimulus check phaseouts.
Dependent and Child Care Credits including advance payments and refunds.
Extension of Unemployment Compensation Benefits and changes to the taxation of these benefits. Up to $10,200 per person will not be taxed if your household income is under $150k. This change came just a few weeks ago so if you already filed your tax return, the IRS said there is no need to amend the return at this time and anyone affected by this should wait for additional guidance from the IRS.
Tax Credits for lower income households and buying health insurance on the state exchanges and have paid premiums.
Generous Tax Credits for employers that offset COBRA costs for up to three months for employees who were involuntarily laid off from work due to the pandemic.
A provision that will make student loan debt forgiveness tax free in the future. Before this update, a person would owe regular income taxes on any forgiven student debt.
Some other notable changes was the extension of the federal tax filing deadline to May 17th which also extended the amount of time you have to make final IRA and HSA contributions to your accounts! There were no changes to Required Minimum Distribution requirements in 2021 (unlike 2020 under the CARES Act). Also, no changes were made to minimum wages or student loan forgiveness so far. Most of the provisions outlined in the American Rescue Plan are temporary, but some may become permanent or be extended (notably the child tax credit).
If you received a stimulus check in 2021 it is based on your previous year’s income. There is no clawback of this amount on your 2021 tax return, even if your 2021 income will be higher (and in the phaseout range).
If you have any questions about this topic or any other related financial planning areas, please feel free to reach out to the advisors in our office. We welcome the conversation.