COVID-19 Relief for Individuals - American Rescue Plan
Congress recently passed the $1.9 trillion relief bill called the American Rescue Plan (ARP). We’d like to highlight a few of its important provisions that affect many of our clients, as well as some other relevant topics.
TAX FILING DEADLINE
The IRS is extending the tax return filing and payment deadline until May 17 of this year to allow for the implementation of the many new provisions in this new bill. Today the North Carolina Department of Revenue announced that it will mostly follow the IRS lead on this, and many other states are contemplating the same. However, if your return is one that will be significantly impacted by the many tax law changes, we will likely recommend an extension to you rather than filing a return only to have to go back and amend it (this can create a bigger headache when the government is behind on processing tax returns, as they currently are). Note: this extension of time to file and pay applies to 2020 tax returns, but currently DOES NOT apply to Q1 2021 estimated payments.
STIMULUS PAYMENTS
As most of you may already be aware, there is a third round of economic stimulus payments (technically “Economic Impact Payments” or “EIPs”) en route to many Americans. There are a few differences from the first two rounds of payments, including the following:
1. All dependents are now eligible for stimulus payments ($1,400 each). Previously, children over the age of 16 and adult dependents were not eligible.
2. The phase out range is significantly lower than the first two times. Single taxpayers earning more than $75,000 and married taxpayers earning more than $150,000 generally saw their payments reduced by $0.05 for every dollar earned above those amounts (for #1) and by $0.056 (for #2). This time around, the phase-out is much steeper such that single taxpayers earning more than $80,000 and married taxpayers earning more than $160,000 will generally not receive any stimulus.
Timing of Payment #3. Many people have already begun receiving your payments by electronic deposit. Others will be seeing them shortly, and still others will receive them either by check or prepaid debit card depending on how the IRS is able to get them to you quickest.
2021 Child Tax Credit Changes. Congress has increased the maximum amount of the child tax credit from $2,000 to $3,000 per child ($3,600 for children under 6 years old) and made the full amount refundable. However, taxpayers with adjusted gross income above $75,000 ($112,500 for head of household) and married taxpayers filing joint returns with AGI above $150,000 will see their credits reduced down to the “old” amount of $2,000 per year per child and then subject to the “old” phaseout scale for single taxpayers earning more than $200,000 and married (filing joint returns) taxpayers earning more than $400,000 annually. Finally, the American Rescue Plan broadened the age for children qualifying for the credit for 2021 to include 17 year old children. The changes to the child tax credit are likely to have significant implications for taxpayers in certain income ranges, so we plan to follow up with an additional email when the details of these changes are more fleshed out.
UNEMPLOYMENT BENEFITS
Taxability. The first $10,200 of unemployment benefits paid to people who made less than $150,000 during 2020 are nontaxable for Federal purposes. The North Carolina Department of Revenue has not yet stated whether it will follow the IRS’s lead on this issue. For those of you who fit this criteria and have already filed your tax returns, the IRS has instructed taxpayers to await guidance before attempting to file amended tax returns, as they may be able to deal with the issue on their end. Tax software companies are currently updating their software to reflect the changes for returns that have not been filed.
Extended Benefits. Unemployment benefits were set to expire on March 14, but have now been extended through September 6. The federal government that was set to expire has also been extended through that date at $300 per week. This is widely expected to be the last extension of unemployment benefits.
CHANGES TO MARKETPLACE INSURANCE
Healthcare.gov (aka the Healthcare Marketplace, Exchange, etc.) has extended the Open Enrollment period due to the COVID-19 emergency for February 15 through May 15. In addition, the threshold for qualifying for the Premium Tax Credit is set to increase for approximately 2.5 million families. This may affect your 2021 tax return to be filed next year, so as we become aware of additional information in this area we may follow up with additional recommendations.