The American Rescue Plan Act of 2021 has been passed by the House of Representatives and is expected to be signed into law by President Biden shortly after it hits his desk. We have compiled key provisions included in the Act, so you can take the best advantage of the relief it provides.
Immediate stimulus checks in the amount of $1,400 ( or $2,400 for joint filers). The payment amount decreases for filers whose adjusted gross income is greater than $75,000 ($112,500 for heads of household and $150,000 for joint filers), and is phased out for filers whose adjusted gross income is greater than $80,000 ($120,000 for heads of household and $160,000 for joint filers). Eligible recipients will also receive identical payments for each of their children and non-child dependents.
For 2021, the amount eligible individuals without children can receive is temporarily increased, going to $1,502 from $543. Additionally, the upper age limit of individuals eligible to receive this credit (65 years old) was eliminated, and the lower age limit was decreased to 19 from 25 for qualifying taxpayers.
Currently the child tax credit is worth $2,000 per eligible child; the bill temporarily increases this amount for tax year 2021 to $3,000 per eligible child, and $3,600 for any child under the age of 6. It also increases the maximum age of qualifying children to 17. The credit is subject to phase-out rules based on adjusted gross income.
Currently, the amount of credit is equal to 35% of qualified expenses for a qualified individual, up to $3,000 for one individual and $6,000 for two or more. Credit percentage is reduced by one percentage point for every $2,000 of adjusted gross income over $15,000, until reaching 20%, at which point percent can no longer be reduced. For 2021 the credit will be temporarily equal to 50% of qualified expenses for a qualified individual, up to $8,000 for one individual and $16,000 for two or more. Credit percentage will be reduced by one point for every $2,000 of adjusted gross income in excess of $125,000. Once credit percentage has been reduced to 20% it will only continue to be reduced after adjusted gross income is greater than $400,000. Reduction will continue for every $2,000 until the percentage reaches zero. The maximum exclusion of employee provided dependent care assistance is increased to $10,500 ($5,250 for married filing separately).
The $300 per week enhanced unemployment benefits, which were set to expire in March will now run through September. The first $10,200 of relief is tax exempt for households that have up to $150,000 in income.
Initially the period in which the credit could be claimed was set to expire on March 31,2021, but it has been extended until September 30, 2021. It also increases the limit on applicable wages for which credit can be claimed to $12,000 from $10,000. It resets the 10 day per employee limit, and expands the potential reasons for asking for leave to include the vaccine and vaccine related illness and injuries. For self-employed individuals, the number of days for which the credits can be claimed increased to 60 days (from 50), retroactively in effect after December 31, 2020.
The popular ERTC was set to expire on June 30, 2021, and it has been extended through the end of 2021. The credit is equal to 70 percent of qualified wages paid, for up to $10,000 in wages per employee per quarter. Therefore the maximum credit available would be $7,000 per employee per quarter.
To find out how to get the most out of this new plan, or if you have any other questions,
your DDK Tax Advisor is here to assist you with further guidance.
