Blog

Sharing business sense to fuel B2B growth

Interesting ARP Updates Related To The Third Stimulus Check And Other Tax Credits

Interesting ARP Updates Related To The Third Stimulus Check And Other Tax Credits

 

President Biden signed the American Rescue Plan Act on March 11, 2021. ARP is a $1.9 trillion relief package for individuals and businesses affected by the pandemic.

Provisions in the ARP have been enhanced to offer higher relief to taxpayers in the current year.

In this post, we explore the updates to the American Rescue Plan regarding the third stimulus check and other tax credits.

Let’s have a look at some of them.

1. Recovery Rebate to Individuals:

The ARP has made the third stimulus check payments more attractive.

Eligible individuals whose AGI is $75000 or less will receive the full $1400. 

In the case of marriage joint filers, the amount will be $2800 if their AGI is $150000 or less.

Additionally, you can add $1400 for every dependent of any age to this amount. In the previous stimulus packages, dependents of 17 or more years of age did not qualify for payment.

HOH with AGIs of $112,500 or less will get the full $1400 payment plus $1400 for every eligible dependent.

Single filers with incomes above $80,000, MFJs with income above $160,000 and HOHs with AGI more than $120,000 in 2020 are not eligible for the third stimulus check.

The gross income considered will be as per the 2019 tax return if an individual has not filed his 2020 tax return or the IRS has not processed the 2020 tax return.

2. Children Tax Credit Improvement:

This provision in the act is related to children 17 years or under and is applicable for 2021. The children tax credit is fully refundable. Currently, the amount of credit has been raised from $2000 to $3600 for children under 6. An amount of $3000 is allowed as a credit for children from 6 to 17 years.

Again, this credit is dependent on the adjusted gross income with deductions in the amount as the AGI crosses the thresholds defined for different tax filers.

An advance from this amount is payable to individuals from July 2021.

3. Earned Income Tax Credit:

There are two significant modifications made in EITC for 2021. First is an increase in the credit amount available to childless filers. Second is the age range of eligible filers that has been expanded from ages of 24 to 65 to ages of 19 and above. 

The credit and phase-out percentage is now 7.65% instead of 15.3%. There has been a reduction in the calculation of the eligibility for the credit. The investment income test is now at $10000 instead of $2000.

When filing the tax return for 2021, for calculation of the earned income tax credit, the taxpayer can use the earned income of 2019 in place of the earned income of 2021 if they think it is less due to the pandemic. Thereby, they can avail a higher tax credit.

4. Dependent Care Assistance:

This tax credit has seen a significant increase and is applicable for 2021. It has increased from $3000 in 2020 for one child and dependent to $8000 and from $ 6000 for two or more children or dependents to $16000.

The applicable percentage has been modified from 35% to 50%, and the phase-out starts at $125,000 (from 150000).

Under prior law, filers could exclude up to $5,000 (or $2,500 if married filing separately) of employer-paid child care expenses from taxable income. For 2021 only, the exclusion amount has seen a raise to $10,250, or $5,250 for married filers filing separate returns.

5. Extension of Unemployment:

An amount up to $10,200 per person can be excluded from taxes in 2020 and 2021. If married, $20,400 is nontaxable for both parties.

The extension has been shifted from 3/14/2021 to 9/6/2021Individuals will continue to get $300 weekly payment or $1200 monthly payment as unemployment compensation.

A taxpayer’s unemployment amount will not be taxed if the household makes a gross income less than $150000.

6. Premium Tax Credit:

Temporary changes have been made in the percentages concerning premium tax return calculation. Work with a tax professional to see that you get the benefit of these changes.

● Conclusion:

The American Rescue Plan Act has many provisions under its umbrella to help individuals deal with the financial detriments of the pandemic.

Understand what benefits the act offers and try to get the highest possible payments and tax credits. Don’t hesitate to seek the help of an accounting and taxation professional as some of these provisions are complex to decipher.

Our firm, FinAccurate, has an experienced team that can help you understand what you are eligible for and also how to apply for these benefits.

If you would like to watch the video of this article, click on the link below:- Interesting ARP Updates Related To The Third Stimulus Check And Other Tax Credits

Connect us on social media: Facebook,  InstagramTwitterLinkedIn

Other Accounting Related Information

Get Started.

Let’s schedule time to talk.

    I'm interested in:

    BookkeepingFinancial AnalysisController ServicesPayroll Support

     
    Please help us control spam by entering the following characters:
    captcha

    I opt in to receive valuable email newsletter blasts for upto date knowledge on my Business Accounting & Tax.