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The American Rescue Plan Act is More than A Stimulus Check

(This was first emailed to Saver Street Subscribers, so if you'd like to get periodic updates like this, please subscribe to saverstreet.com.)


The American Rescue Plan Act changed child tax credits, unemployment taxes, commonly asked questions, and more. Also, the 2020 Federal Tax Filing and Payment Deadline is Extended. Let's take a deeper dive into what the American Rescue Plan Act changed and what that means for you.


Child Tax Credit Change and Options

The American Rescue Plan Act of 2021 expanded the Child Tax Credit from $2000 in 2020 to now $3000 for children age 6 and over and $3600 for children under 6. This higher tax credit is also available to households with no income, which is a massive shift, and phases out to the normal $2000 level for higher-income families ($170,000+). Additionally, and this is where you might need to take action, this tax credit will automatically start paying out monthly to parents once the IRS figures out a mechanism to do so. There will be an option to opt-out of monthly payments and opt back in for the annual tax credit, which I personally plan to do. A warning: You cannot claim this Child Tax Credit twice. If you receive monthly payments from this tax credit, then you may want to consider changing your W4 elections or, if you're a small business owner, paying higher quarterly tax payments. Please consult your tax professional for the right next steps for you.


Unemployment Taxes Owed Change

The American Rescue Plan Act of 2021 made the first $10,200 of unemployment income-tax-free for individuals who claimed unemployment in 2020 and had a household income under $150,000. This is a federal tax refund of approximately $1026. Action required: If you earned any income from unemployment insurance (you filed for unemployment and received money) in 2020, then you might need to refile your taxes to get these income taxes back. Many people filed taxes for 2020 already, owed taxes on unemployment income, and have had to file an amendment to get this refund. If that is you, then please check with your tax professional or the company you use to file your taxes to find your next steps. Read the IRS's refiling instructions here.

Federal Tax Filing and Payment Deadline Extended to May 17

If you're scrambling to gather all the documentation you need to file your taxes, breathe a little. The 2020 federal tax filing and payment deadline has been extended to May 17, 2021. That's a full extra month. But please do file your taxes. You don't want to owe any interest or fees to the IRS. This does not necessarily apply to state tax filings. Please check your state tax website to see if they have extended their deadlines as well.

Other Important ARPA Updates

Dependent Care FSAs: Contributions increased from $5000 to $10,500 for 2021 (and only in 2021). This is a significant additional tax saving for those who pay out the wazoo for childcare. Dependent Care Tax Credit: Also for 2021 only, if your household's Adjusted Gross Income (AGI) is $125,000 or below, then you could receive a higher refund on your childcare expenses. Previously, the child care expense limit was $3000 for one child and $6000 for two or more children. For 2021, this limit is expanded to $4000 for one child and $8000 for two or more children. This tax credit continues to reimburse 50% of expenses. For example, if my two children were in daycare and we paid only $10,000 for the year, then we would be reimbursed $5000, not the full $8000. We could only be reimbursed $8000 if we paid $16,000 or more for child care evenly split among both children. COBRA Benefits FREE: If an individual has been laid off or furloughed and has COBRA Health Insurance benefits available, that individual could receive free COBRA coverage from April 1, 2021, through September 30, 2021. Once eligible for other coverage (group health insurance or Medicare), this benefit expires. Extra Unemployment Benefits: Anyone claiming unemployment benefits will receive an extra $300 per week through September 6, 2021. The first $10,200 in unemployment benefits are nontaxable this year as well. Student Loan Discharge Income Exclusion: If you are fortunate enough to have a part of or all of your student loans discharged (forgiven or canceled), then the amount that was discharged will not count as income for income tax purposes.


Rental and Mortgage Assistance: If you're behind on your rent, mortgage, or utilities, there's specific help set aside for those who meet certain criteria. Read more here.

 

If you find that you need help budgeting or sticking with a budget, please check out our programs at Saver Street. We have courses and services that help many, many people earn more, save more, and give more (eventually). Not sure how to get started? Follow these steps. Step 1: Get The Knowledge You Need Online Course: Budgeting Made Easy Online Course: Money and Marriage

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