The American Rescue Plan Act of 2021 (ARPA 2021) was signed into law on Thursday, March 11th. With an astounding $1.9 trillion in relief, the primary focus of this Act is to provide a third round of stimulus payments. It also bolsters credits for families with children, and it provides extra support for unemployed individuals.
The headline of ARPA 2021 is the stimulus checks. Those who received the second stimulus check at the beginning of this year, should have no issues with receiving the third check, right? Not quite. On the plus side, every eligible household member will receive a payment of $1,400. This includes all dependents. Unfortunately, as the table below illustrates, the phaseouts on the checks this year have a narrow window.
Stimulus by Income Level (AGI) and Filing Status
|Married Filing Joint
|Head of Household
Income will be determined based on the most recent tax return that the IRS has on file. If a taxpayer has not yet filed their 2020 return, and believes they would qualify for a stimulus check in 2019, but not 2020, it is most advantageous to wait to file the return until the checks have been distributed. Alternatively, if a taxpayer earned less income in 2020 but has not filed their return yet, they will be made whole once the return has been filed and the IRS has confirmed the numbers.
It is important to remember this is a 2021 tax credit being paid out early. If a taxpayer's income is less this year than in previous years, they could claim the credit on next year's tax return. Similar to the past two payments, there is no clawback if income is higher in the current year than expected.
The first round of payments is expected to start on March 17th via direct deposit.
Child Tax Credit
Previously, the child tax credit offered eligible families a $2,000 tax credit per child under 17. With changes made under the new legislation, the child tax credit is temporarily expanding for 2021. Eligible families may receive up to $3,600 for children 5 and under and up to $3,000 for children ages six to 17.1
Here is how the American Rescue Plan is changing conditions and stipulations regarding the child tax credit:1
- The $2,500 earning floor will be waived.
- The credit will be fully refundable.
- The federal government will send eligible families credit in advance between July and December 2021.
Unemployment and Healthcare Benefits
Eligible unemployed individuals may continue receiving an additional $300 in federal unemployment benefits through early September 2021.1 Additionally, the first $10,200 of unemployment income earned in 2020 will be non-taxable. This benefit is per person, not per tax return. The phaseout on this allowance is different. The limit is $150,000 for all filers. The cliff is at $150,000. If a taxpayer earns $150,001, they will lose the entire allowance.
Also, this Act offers COBRA to recently released employees and covers 100% of the premium starting April 1st through September 30th, 2021. Qualified individuals must not be medicare eligible or have other group insurance options. Also, a person cannot quit and receive this benefit.
As of last month, 78% of Americans supported the $1,400 stimulus checks.2 If there was going to be a bill that could get some level of bipartisan consent, it would seem to be this. However, this bill was voted straight down party lines in the Senate with a narrow one-vote margin. Moreover, this bill had to pass via budget reconciliation, requiring a simple majority to pass. Had this bill gone through the usual procedure process, it would have required 60 votes to pass. All of that is to say, good or bad, it looks like it will be difficult for President Biden to implement his proposed policies without some concessions. Most specifically, his proposed tax plan. It will be interesting to see how this moves forward.
Another important note is that while this bill did not provide any student debt relief, it did make a point to identify how any future forgiven student loan debt would be taxed. This legislation states that any student loan debt that is forgiven between 2021 and 2025 will be considered non-taxable income. This would include federal and private loans. There is not much more guidance available at this time, but this may be setting up President Biden to sign an Executive Order to provide a limited amount of student loan debt relief in the short-term.
Furthermore, there is no indication that required minimum distributions (RMDs) will be frozen for a second year. We think it is unlikely that will change going forward. We will continue to work with those clients to ensure your distribution is taken this year.
On a final note, the IRS announced today that the filing deadline would be pushed from April 15 to May 17 for all filers.3 For our clients in Texas and Oklahoma, the deadline was already extended to June 15 due to the winter storms last month. The June 15 extension includes the first quarter estimated tax payments.4
This bill will hopefully provide some short-term relief to those that need it the most. How this will affect the market and the economy in the long term is yet to be determined. We will continue to keep you informed of any changes that could affect you. If you have any questions, please don't hesitate to contact us. As always, we thank you for the opportunity to serve.