On March 11, 2021, the American Rescue Plan Act became law, and this $1.9 trillion relief package has several components that put money right into the hands of Americans. Wondering how the newest stimulus plan might benefit you and your family? Check out the details below.
Direct $1400 Stimulus Payments
The plan includes a provision to send $1400 stimulus payments directly to qualifying Americans. This is the biggest stimulus check issued to date, and although it has stricter income limits than previous payments, it also includes a wider range of dependents.
People with adjusted gross incomes (AGI) under the following thresholds should receive a stimulus check:
- Individual filers — $75,000
- Head of households — $112,500
- Married couples filing jointly — $150,000
Individual filers should receive a partial payment if their AGI is up to $80,000, while heads of households and married couples filing jointly should receive partial payments if their AGIs are up to $120,000 and $160,000 respectively.
With previous stimulus payments, taxpayers only received payments for dependents under age 17, but under the terms of this law, qualifying recipients will receive payments for dependents of all ages including 17-year-olds, college students, and adult dependents. Additionally, the government is not planning to hold back any payments for federal liability or back taxes.
Extra Unemployment Payments
This act also authorized the addition of an extra $300 per week to qualifying unemployment recipients. Called Federal Pandemic Unemployment Compensation (FPUC), these payments have been approved to go out from the weeks of March 14 to September 6.
Unemployment recipients with a mix of employment and self-employment income may be able to receive an extra mixed-earned supplement of $100 per week, through September 6 as well. When applying for Medicaid or Children’s Health Insurance Program (CHIP) assistance, the $300 payment is not taken into account, but the $100 payment is considered.
Reduced Income Tax on Unemployment Benefits
Normally, unemployment benefits are considered to be taxable income, but this relief package shields the first $10,200 in unemployment benefits from federal income tax. This rule only affects unemployment benefits received in 2020, and it only applies to taxpayers with a modified AGI of less than $150,000.
Couples filing jointly can each exclude up to $10,200 in unemployment benefits. For instance, if both members of a couple each received $12,000 in unemployment benefits, they could exclude a total of $20,400 (or $10,200 each), but if one person received $20,000 and the other person received $5,000 in unemployment, they could only shield $15,200 from income tax ($10,2000 for the first person and $5,000 for the second).
Because fewer than 40% of unemployment recipients opted to have federal or state income taxes withheld from their checks, this law is expected to provide relief to a lot of people. California, New Jersey, Virginia, Montana, and Pennsylvania have also passed laws to give some unemployment recipients relief from state income tax.
Child Tax Credit
The child tax credit has been increased from $2,000 per child to $3,000 per child over age five and to $3,600 for children age five and under. While this credit only used to apply to children under age 17, it now applies to children through age 17. Additionally, the credit is now fully refundable for couples with an AGI of up to $150,000 per year and for individuals with an AGI up to $75,000 per year.
To put these funds into the economy sooner, the government plans to send advance payments to families, and qualifying recipients may start receiving up to half of their credit as early as July.
For instance, a qualifying couple with two children is eligible to receive a $6,000 credit. They may receive $500 a month in July, August, September, October, November, and December. Then, they should receive the remaining $3,000 as a refundable tax credit when they file their 2021 tax return.
Increased Tax Credit for Dependent Expenses
The bill also increases the credit for dependent care expenses. Families earning up to $125,000 will receive a credit of 50% on up to $8,000 of child care expenses for a single child or up to $16,000 of expenses for two or more children. In other words, the credit can be up to $4,000 or up to $8,000.
Families with incomes between $125,000 and $400,000 will receive a partial credit worth between 20 and 50% of eligible child care expenses. This is a significant expansion — in the past, this credit was only $1,050 for one kid or double for two or more, and it was only available to people with very low incomes.
Income Tax Relief on Forgiven Liability
Normally, you have to report forgiven liability of $600 or more as taxable income, but this bill says that taxpayers do not have to pay income tax on liability forgiven between January 1, 2021, and the end of 2025.
For instance, if you owe $2,000 on a delinquent credit card and your creditor agrees to let you settle the liability for $1,200, you save $800. Usually, in this situation, your creditor mails you a 1099 at the end of the year, you report the $800 as income, and you face income tax based on your situation. Thanks to this bill, you do not have to report the canceled liability as income.
Emergency Housing Assistance
The bill earmarked $22 billion for emergency rental assistance. These funds replenish the Coronavirus Relief Fund and are distributed through state, local, and tribal governments to people with household incomes under 80% of the area median, in which at least one person is at risk of homeless and someone qualifies for unemployment benefits or faces other economic stress due to the pandemic. Priority goes to families who have been struggling with unemployment for three months or longer.
An additional $10 billion goes to help homeowners with mortgage payments and utility bills, and another $10 billion goes to emergency housing vouchers and other projects to help the homeless.
Lower Health Insurance Bills
People who lost their jobs or had their hours cut no longer have to worry about expensive COBRA payments— the government will pay the entirety of COBRA premiums from April 1 to September 30. People who purchase insurance through the exchanges are also going to save, as this bill limits total costs to 8.5% of MAGI through the end of 2022 for these people. The change should be automatic, and recipients don’t need to re-enroll to receive the lower premiums.
Higher Earned Income Credit for Childless People
The earned income credit (EIC) is often several thousand dollars for people with children, but childless people can usually only receive a maximum credit of $543. For the tax year 2021, this number has been bumped up to $1502, and childless taxpayers can use their 2019 income to qualify if their 2019 income exceeds their 2021 income.
Additionally, the bill also allows childless EIC recipients to have up to $10,000 in investment income. The limit used to be $3650. This new threshold for investment income is permanent and indexed to inflation.
How to Learn More About the American Rescue Plan
For more information on this stimulus bill, check out the following resources.
- What is in the American Rescue Plan? To learn more, check out the full text of this act on Congress’s website.
- When will I get my stimulus check? Use the IRS tool to track the location of your $1,400 stimulus payment.
- What should I do if I haven’t received the first two stimulus checks? If you qualified for but haven’t received the first two rounds of stimulus checks, you can claim the Recovery Rebate Credit on your 2020 tax return.