Here are some of the highlights of the American Rescue Plan Act, a $1.9 trillion relief bill, which was signed into law on 03/11/2021. We will update this article as guidance is released and rules are further clarified. If you have any comments or would like to see other details explained, please reach out.
Table of Contents
- Individuals
- Businesses and Self-Employed
- More…
Stimulus Checks – Round 3
Stimulus Checks are direct payments of $1,400 per person. Both adults and children get the full $1,400. (Dependents aged 17+ were excluded from EIP 1 and 2)
Income Requirements
Income is based on Adjusted Gross Income (AGI). For 2019, your AGI is reported on 1040 line 8B. For 2020, your AGI is reported on 1040 line 11. See sample 1040 below.
The following receive the full amount of $1,400 per filer and $1,400 per dependent:
- Individual filers who earn up to $75,000
- “Married-filing-jointly” who earn up to $150,000
- “Head-of-Household” filers who earn up to $112,500
Those earning more than the above amounts will see their $1,400 phased out. If your Adjusted Gross Income AGI is above $80,000 (single filers), $120,000 (head-of-household filers), or $160,000 (joint filers) then you (and your dependents) won’t get any stimulus.
Which Year is Looked At?
- If you already filed your 2020 return, it will be based on your 2020 return.
- If you didn’t file a 2020 return yet, it will be based on your 2019 return.
Getting the Payment
The payments will be automatic, like the first two Stimulus Checks.
The funds get sent to the tax filer. So, if you are a dependent on someone else’s tax return, that person gets the $1,400 and not you.
If the IRS has your bank account details, you should receive the funds straight to your bank account. If not, you should receive a check in the mail.
If you were not eligible based on 2019 or you are eligible for an increased amount of stimulus based on your 2020 tax return, you should receive the stimulus or the difference between what you received already and for what you are eligible based on your 2020 return.
If you are not eligible based on 2020 AGI but will be eligible based on 2021 (or you are eligible for more based on your 2021 situation), you will be able to claim the credit when you file your 2021 taxes, being that the third stimulus check is really a 2021 tax return credit. (Stimulus checks 1 and 2 were 2020 tax credits, so anyone who didn’t get those payments can request them when they file their 2020 tax return)
Use ‘Get My Payment‘ from the IRS to check the status of your stimulus payment. To see the status of the first two stimulus payments, check your IRS account.
Stimulus payments are not taxable income.
Unemployment Changes
Unemployment offers weekly payments to those who are eligible.
$10,200 Tax-Free
As a general rule, Unemployment payments are taxable. As part of this relief bill, $10,200 in Unemployment payments received in 2020 will be tax-free for households with under $150,000 modified Adjusted Gross Income (AGI) in 2020. The $150,000 is for the total household on the tax return and is the same for single filers as it is for those filing jointly. If both spouses on a joint return received Unemployment, each spouse will have $10,200 tax-free (totaling $20,400).
Based on updated guidance from the IRS (03/23/2021), the $150,000 income limit does not include Unemployment payments. So, for example, if your income (not including unemployment) was $140,000, and you received $30,000 in Unemployment payments (totaling $170,000) you would still be eligible for the $10,200 tax-free. If you are just over the $150k, look into options to reduce your modified AGI to under $150k.
Don’t file an amended return
If you had taxes withheld from Unemployment payments in 2020, you will get it refunded when you file your 2020 taxes. If you already filed 2020 taxes before this bill was passed, you do not have to file an amended federal return. The IRS will adjust your account and send any refund amount directly to you.
On 03/24/2021 the IRS updated their guidance once again that they will “issue additional guidance as soon as possible”, so it may not be automatic after all. Stay tuned.
Federal vs State
The $10,200 tax-free Unemployment is for federal taxes. Each state will make its own decision. We will post an update on what NY decides to do.
Unemployment Extension
- In short, whoever is currently collecting Unemployment can likely continue claiming Unemployment until after the summer.
- If you are getting PUA (Pandemic Unemployment Assistance), you now have 79 payable weeks (up from 50 – or 57 in states with high unemployment)
- If you are getting “regular” Unemployment (UI) and finished your “base weeks” (in NY for example it’s 26 base weeks), you start collecting PEUC (Pandemic Emergency Unemployment Compensation) weeks. These were now raised to 53 payable weeks (up from 24). So for people who have 26 base weeks (like NY), they now have (53 + 26 =) 79 payable weeks. This is besides for EB weeks that many have received.
- The expiration date for the PEUC and PUA programs has been extended to September 6, 2021
Extra $300 FPUC
The $300 weekly “bonus” of FPUC (Federal Pandemic Unemployment Compensation) will continue until September 6, 2021
MEUC (Mixed Earner Unemployment Compensation)
This was actually not in the American Rescue Plan, rather it was in the Response and Relief Bill (12/27/2020), but the DOL only launched MEUC after the American Rescue Plan was passed.
If you are on regular unemployment (UI – for those with sufficient W2 work before going on Unemployment) AND you earned $5k+ in self-employed earnings during the year BEFORE going on unemployment (for people who started their unemployment in 2020, that would mean $5k+ in self-employment earnings in 2019), then you are eligible for an additional $100 a week in Unemployment payments from Jan-Sep 2021. For those in NY, check your ‘online forms‘ section to request the extra $100 a week. You will need to submit proof of your self-employment income from 2019.
Note: Those who are on PUA are not eligible for MEUC.
Child Tax Credit
Child Tax Credit is a $2,000 credit per qualifying child under the age of 17 ($1,400 per child (ACTC) is fully refundable even if no taxes are owed).
Changes for 2021
- Increased Amount. The Child Tax Credit for 2021 increased to $3,000 a year for each child ages 6 to 17 (including 17-year-olds), and $3,600 for each child under age 6.
- Fully Refundable. The credit is fully refundable. Everyone who qualifies will get the full amount. (Usually, only $1,400 of the $2,000 is refundable, the rest is only a credit if taxes are owed).
- Paid in advance. Usually, the credit is received after the year is finished – when filing taxes. Starting from July 2021, families will be able to request monthly payments in advance of the refund. $300/month per child under 6 and $250/month per child age 6-17. Over the six months July-December 2021, families will be able to collect $1,800 per child under 6 and $1,500 per child age 6-17, so 50% will be an “advance” and the other 50% will be paid after filing 2021 taxes.
Note: The “enhanced” child tax credit is only available for US residents.
Your Child Tax Credit Account on the IRS Website
Besides for confirming your eligibility, you can also unenroll from receiving the advance payments. If you unenroll, you cannot re-enroll once again. Though, you will still get any credit you are due once you file your 2021 tax return.
Why some people would want to unroll from receiving the advance payments: The credit is really an advance on your 2021 tax return. If you know that you won’t be eligible for the credit based on your 2021 tax return, it might make more sense to unenroll. For example, if you are not going to be a US resident for the 2021 tax year and as such not be eligible for the increased CTC.
Income Requirements
Couples who make up to $150,000 and “head-of-households” with up to $112,500 will receive the full amount. Those who have a higher AGI will be phased out, though will still be eligible for the standard child tax credit of $2,000 per child. For each $1,000 earned above the limit, the refund will be reduced by $50 (5%). There is no minimum earned income amount in order to claim the credit in 2021.
2020 income is used to calculate the credit. If 2020 is not yet filed, then 2019 is used.
Dependent Care Credit
Dependent Care Credit is available for families with child care and senior care expenses. You (and spouse, if married) must have “earned income” during the year. You must have paid for care so that you could work or look for work. Being a full-time student counts as “working” for the purposes of the credit, even if you don’t receive any income for it.
Acceptable Expenses
Childcare
For children under 13 years old. Childcare expenses for children below kindergarten age are acceptable for the entire day. Expenses to attend kindergarten or a higher grade in school are not acceptable expenses. However, expenses for before – or after -school care of a child in kindergarten or a higher grade is acceptable. The cost of sending your child to an overnight camp isn’t considered a work-related expense. The cost of sending your child to a day camp may be a work-related expense, even if the camp specializes in a particular activity, such as computers or soccer.
Dependent Care
Eligible disabled dependents
Some changes for 2021
- Credit is fully refundable (instead of just a credit off taxes that are owed)
- The credit will cover up to 50% of expenses (instead of up to 35%)
- The amount of expenses that can be applied to this tax credit is:
- $8,000 if you have one child (instead of $3,000), meaning your maximum refundable credit would be $4,000
- $16,000 if you have two or more children (instead of $6,000), meaning your maximum refundable credit would be $8,000
- Couples earning up to $125,000 (instead of up to $15,000) are eligible for the full 50% credit. For each $2,000 in income over $125k, the credit is reduced by 1% (49% instead of 50% etc). Once your available credit goes down to 20%, it stays at 20% up to an annual income of $400,000, at which point the couple is no longer eligible.
EITC – Earned Income Tax Credit
Earned Income Credit (EIC) is a tax credit/refund of up to $6,660 for people who have earned income up to $57,414. The Earned Income Credit is a percentage of your earned income and depends on your filing status and other details.
Some of the changes for 2021
- Up to $10,000 in investment income is allowed (up from $3,650)
- If your earned income was higher in 2019 than in 2021, you can use your 2019 earned income amount to figure your EIC for 2021. (You cannot use 2020 earned income.)
- Those without children can get up to $1,502 (instead of $543).
Health Insurance
- COBRA
- For employees who lost their jobs and elected to retain health insurance coverage through COBRA, premium payments will be 100% subsidized April 1, 2021 through September 30, 2021
- Affordable Care Act (health insurance exchange plans)
- Currently, there are credit subsidy limits for households earning between 100% and 400% of the Federal Poverty Levels (multiply by 4 for 400%). The cap would be changed as follows for 2021 and 2022:
- Up to 150% FPL- 0% premiums
- 150% to 200% FPL- premiums from 0% up to 2% of AGI
- 200% to 250% FPL- premiums from 2% up to 4% of AGI
- 250% to 300% FPL- premiums from 4% up to 6% of AGI
- 300% to 400% FPL- premiums from 6% up to 8.5% of AGI
- 400% FPL and higher- premiums up to 8.5% of AGI
- Federal Marketplace (for states that do not have their own Marketplace)
- New York
- New Jersey
If you’re not currently enrolled in a plan you have until May 15, 2021 to enroll.
Funeral Assistance
FEMA’s Funeral Assistance reimburses up to $9,000 of funeral costs for people whose death certificate says that the death was attributed to COVID-19.
Rent Assistance
$21 billion additional funding for the Emergency Rental Assistance program
PPP
The Paycheck Protection Program (PPP) offers up to $10 million for businesses with employees and up to $20,833 for self-employed and individuals on a 1099.
In the bill…
Additional 7.25 billion in funding added for PPP. Check our PPP Resource Center for everything you need to know about PPP.
EIDL
Economic Injury Disaster Loans & Grants (EIDL) offers grants and loans for businesses. “Businesses” includes self-employed individuals / 1099 workers and non-profits.
In the bill…
An additional $15 billion in funding for EIDL and a $5k Targeted Grant for businesses with 50% loss and less than 10 employees.
FFCRA
FFCRA (Families First Coronavirus Response Act) is Paid-Covid-Leave. If you need to take off work due to an eligible Covid-related reason, you get paid time off. W2 employees and self-employed / 1099 workers are all eligible.
In the bill…
FFCRA has been extended through September 30, 2021. Plus an additional 10 days of paid leave. It also extends the program to cover leave needed to get and recover from vaccination.
ERC
Employee Retention Credit (ERC) provides refunds to eligible small businesses for each employee on payroll.
In the bill…
This new bill extends ERC to December 31, 2021, which means that employers can get up to $28,000 per employee in 2021. The new bill also includes an option for new businesses (started after 02/15/20) to get ERC, capped at $50,000 per quarter.
Restaurant Revitalization Fund (RRF)
$28.6 billion fund to for RRF, to help restaurants which were financially affected by the pandemic.
Shuttered Venue Operators Grant (SVOG)
An additional $1.25 billion in funds for the Shuttered Venues Operators Grant. The grant will help eligible businesses that were affected by the pandemic.
More…
SNAP Increase
Extends the 15% increase in Supplemental Nutrition Assistance Program (SNAP) benefits through Sept. 30, 2021
P-EBT
Funds for families to cover school lunches during school closures to continue through the summer 2021.
WIC Increase
More funds allocated for WIC (monthly food budget for expectant women and children under 5)
Student Loan Forgiveness
Student loan forgiveness (there was talk of $10k forgiveness) is not in the bill, but the bill says that any forgiveness between 12/31/2020 and 01/01/2026 will be tax-free (usually loan forgiveness is taxable).
1099 Requirements – Change from 2022
Beginning in 2022, third-party payment processors (like PayPal) will have to send a 1099 to people who received over $600 for goods or services during the year. Previously, they only had to report this income if it was BOTH: (a) $20,000 or more during the calendar year, and (b) 200 transactions or more. It’s unclear exactly how this will be implemented.
Published: 03/11/2021. Last updated 6/28/2021