The persistent COVID-19 pandemic continues to create economic and financial challenges for government agencies, businesses, organizations, and individuals. While there has been a reduction in the number of new cases, thanks in part to the vaccine, many of the protective restrictions across Atlanta remain. It is against this backdrop that President Biden signed the American Rescue Plan Act of 2021 (the Act) into law. The Act provides an economic boost to state and local governments, schools, healthcare institutions, airlines, small businesses, and more. For individuals, it includes a well-documented $1,400 economic impact payment, extends unemployment benefits, and expands the value of several tax incentives and credits. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.
- Economic Impact Payments – Another economic impact payment for individuals was approved and will be sent out within weeks. The amount of the payment is $1,400 for individuals, $2,800 for joint filers, and $1,400 for each qualifying dependent which includes any full-time students younger than 24 and adult dependents. Phase-outs start for individuals with an Adjusted Gross Income (AGI) of $75,000 ($150,000 for couples) and disqualifies individuals with an AGI of $80,000 ($160,000 for couples) or more. Qualification is determined based on the 2019 tax return if the 2020 return has not yet been filed.
- Federal Unemployment Benefits –The Act includes an extension of the federal unemployment benefit of $300 which was set to expire this month. The benefit amount was renewed at the current rate with a termination date of September 6, 2021.
- Pandemic Unemployment Assistance Extension– This program is designed to help those who typically do not qualify for traditional unemployment benefits such as the self-employed who are out of business or those with a limited work history. The Act extends the program through September 6, 2021, and increases the total number of qualifying weeks to 79.
- Child Care Tax Credit – The credit is available to taxpayers that support and have children/ stepchildren under the age of 17 living with them. The Act increases the maximum credit amount of $2,000 per child to $3,000 for those between the ages of 6 and 17. It also increases the maximum to $3,600 for those under age 6. The phase-out rules have been lowered to $150,000 for married filed jointly, $112,500 for heads of households, and $75,000 for other taxpayers. The credit has also been changed from partially to fully refundable which could result in a refund if the credit amount exceeds an individual’s income tax liability.
- Earned Income Tax Credit – The credit is designed to provide support to low- and middle-income taxpayers equal to a percentage of earnings. The Act raises the maximum credit amount for adults without children from $543 to $1,500 and lowers the eligibility age for taxpayers without children from 25 to 19. In addition, the rule prohibiting taxpayers from claiming children without a social security number has been eliminated. Finally, separated couples can now claim the credit assuming they live with their child for more than half a year.
- Dependent Care Credit – The credit is designed to help taxpayers who pay out-of-pocket expenses to pay for the care of a qualifying child or a disabled dependent while working or looking for work. The Act now makes the credit refundable, increases the maximum allowable expenses to $8,000 for one dependent and $16,000 for two or more. In addition, the credit has been expanded to cover 50% of qualifying expenses.
- 2020 Unemployment Tax Exclusion – For 2020, taxpayers with an AGI of less than $150,000 that received any unemployment benefits can qualify to receive a tax exemption of up to $10,200.
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The additional relief provided in the American Rescue Plan Act provides an additional dimension of economic and tax relief for Atlanta individuals and families. While the impact payments will be sent soon the tax provisions apply to 2021 and will not be included as part of the 2020 tax return. If you have questions about the information outlined above or need assistance with another tax to accounting issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.