Special Alert for America
After passing the House and the Senate, President Biden signs the new law in to effect on March 11, 2021,
This new Act will through many American a much needed lifeline that will help recover from the impact of the COVID-19 pandemic.
With the signing of this new law many changes are expected for 2021 and retroactively for 2020.
We have summarized some of the main points below but of course, like any new law that has passed, careful consideration must be given to each individual case, all eligibility criteria and expert advice must be sought out.
What are The Main Changes In the Act?
Below are some of the main points that the American Rescue Plan Act addresses:
- Tax Free unemployment Benefits
- Retroactive Advanced Premium Tax Credit
- Recovery Rebates to Individuals
- Refundable child Tax Credits
- Earned Income Tax Credits
- Refundable and enhanced child and dependent care yax credits
- Increase in exclusion for employer-provided dependent care assistance
- Extension and expansion of the Families First Coronavirus Response Act (FFCRA) paid sick leave and paid family leave credits
- Extension of employee retention credit
- Modification of the premium tax credit
- Change to the tax treatment of targeted economic injury disaster loan (EIDL) advances
- Exemption of student loan forgiveness from federal taxation through 2026
- Expanded COBRA continuation coverage premium assistance credit
Let’s Talk about the Stimulus Payments?
The new Act approved a third round of Stimulus payments for eligible taxpayers and their child or adult dependents.
$1,400 will begin being deposited to bank accounts and checks mailed to those who filed a 2019 or 2020 tax return. Each amount is based on the taxpayers and their qualifying dependents.
Taxpayers with AGI below $75,000 ($150,000 for MFJ status) will receive the full payments. Those who are above the income threshold will have their payments phased out until completely disallowed above AGI of $80,000 ($160,000 MFJ status).
Those who are not eligible include:
A non-resident alien individual
Taxpayers who can be claimed as a dependent on another person’s tax return.
An estate or Trust.
The Recovery Rebate amount is an advanced credit for 2021 and liek 2020, those who do not receive the payment can reconcile for this on their 2021 tax return due in 2022.
Taxpayers living abroad are also entitled to this credit so long as they meet all the criteria and file their tax returns.
If you have not filed a tax return but live overseas then please get in touch to find out how we can assist you.
What other Credits and Reliefs are available for individuals?
Child Tax Credits
Typically a qualifying child can receive a $2,000 tax credit.
This is normally not refundable and limited to how much you tax is on the U.S. return, but the new act seeks to change this by expanding the child tax credit to $3,000 and making it a refundable credit.
The credit is available for Qualifying children under the age of 18 and claimed as a dependent on the taxpayers US tax return.
Children under 6 will receive up to $3,600 and those aged between 6 and 17 will receive $3,000. This is of course subject to the income thresholds and phase out range.
Government aim to begin paying 50% of this refundable credit to taxpayers direct beginning in July 2021 with the remaining credit to be claimed as a refund on the 2021 tax return.
Many 2020 tax returns were being held up in wait for the Government to decide on whether or not to retroactively provide tax relief on unemployment benefits taken by taxpayers last year.
After much debate and compromise the Bill included additional amounts of $300 per week on Federal unemployment benefits to last through to September 6 2021.
It was also agreed to make the first $10,200 of unemployment benefits non taxable. That’s $20,400 per joint return filed but limited to only $10,200 per taxpayer and only for households with total earnings of less than $150,000.
Dependent Care Assistance
This credit is now fully refundable with the allowable expenses increasing from $3,000 to $8,000 for one eligible child and up to $16,000 for two or more eligible children.
The allowable credit is now 50%, up from 35% and the AGI phase out range increased from $15,000 to $125,000, meaning taxpayers with AGI of less than $125,000 are entitled to the full credit rather than a phased out credit. Those with AGI of more than $400,000 will not receive the credit.
What other Credits and Reliefs are available for Business?
The Devil is in The Detail as they say and of course ever case should be examined based on the facts and circumstances for eligibility.
We will release more information on some of the credits and relief available for businesses but below area few of the main points we picked up from the new Act.
Paid Sick and Family Leave
This has been extended from April 1, 2021 through to September 30, 2021 for eligible employers providing sick or family leave that meets the criteria under the Families First Coronavirus Response Act (FFCRA).
Some of the new providing included in the are:
paid leave credits to obtain COVID-19 Vaccine
restart of the 10-day limit for qualified sick leave wages
increase of the qualified family leave wages from $10,000 to $12,000
Employee Retention Credit
This has also been extended through to December 31, 2021 and applies to wages paid after June 30, 2021. After this date employer’s Medicare Tax can be offset by the credit but only on wages paid before January 1, 2022.
Hope is on the horizon and support has been delivered. There are of course still so much that needs done to support individuals and businesses through these tough times and keep people from falling into hardship and poverty.
Always seek advice from a professional to make the most of these reliefs, credits and deductions. Put a solid plan in place and unlock the potential benefits that are available to you.