Tax Changes Under the American Rescue Plan Act

Dark Horse CPA

Learn about the tax credits and deductions that have changed for 2020 and 2021 as a result of the passage of the American Rescue Plan Act and why you might want to do whatever you can to reduce your 2021 AGI.

Podcast Transcript

This is taxes made simple. The only podcast that gives you the tax information you need  without going too far into the weeds. Chaseburg here again with you today to talk about the  tax changes that you need to be familiar with coming from the American rescue plan act,  which let’s face. It is just another grandiose over the top name for a stimulus bill.

There’s quite a few tax provisions in this bill that are taxpayer friendly. So let’s  take a closer look. The most covered of these is the stimulus check, AKA economic impact  payment, or when it’s claimed on a tax return, it goes by the name of the recovery rebate  credit. It goes by many names, but at the end of the day, it is straight cash.

This time around the check is $1,400 per person that’s listed on your tax return.  So you, your spouse, your kids, and any adult dependents that you might be supporting. The  phase out limits are much lower this time around as discussed in detail on our last episode.  And if you haven’t filed your 2020 return yet, then you’re probably not going to be able to  get the stimulus check based on 2020 information since the IRS has already processed the  checks and would have already used 2019 info.

However, if you would qualify based on your 2021 tax return, you’ll get the  stimulus check as a recovery rebate credit. When you file next year. If that’s your situation,  then you’d be wise to do whatever you can to keep your AGI below $150,000. If married  112,500, if you’re a head of household and 75,000, if you’re single moving on the child tax  credit is now $3,600 per child under age six and $3,000 per child between ages six and 18.

And this is the child’s age at the end of 2021. So if your kid turns six, this year  you’ll get $3,000 as opposed to 3,600, the income limits are the exact same as those for the  stimulus check, which is another reason you’ll want to do whatever you can to reduce your  adjusted gross income. In 2021, the IRS will be making advanced payments for this credit on  a monthly basis from July through December of this year.

And unlike the stimulus check. However, if you get more tax credit than you  should have, based on your income, when you file your 2021 return, you’ll have to come out  of pocket for the difference. And the earned income credit will now be paid out to more  people, including those without children who are at least 19 years old previously, you had to  be between 24 and 65 and have quit kids to qualify on top of this increased eligibility.

The income phase out range has been increased as has the amount of investment  income one can have, which is now $10,000 without being disqualified for the credit. And to  put the cherry on the sundae. Taxpayers can also use their 2019 income to qualify instead of  2021 income, if your income seizes, because you get laid off after April 1st, you’ll be eligible

to have your Cobra premiums paid through September of this year, by your employer, who  will then have to claim a tax credit for these payments, which might not come until as late as  when they filed their tax return in 2022.

So the employer might be incentivized to let low performing employees go prior  to April 1st, in order to avoid this moving on to the child and dependent care credit, this  credit will be refundable in 2021. Whereas it was not in previous years. And the amount an  employee can exclude from wages for employer provided dependent care assistance  increased from $5,000 a year to $10,500 for 2021.

The bottom line here is that taxpayers with dependence. When under this act  across the board, the family and sick leave tax credits from the very first COVID relief bill are  expanded and extended through September 30th of 2021. The maximum credit per  employee is now $12,000. A self-employed person can now use a maximum of 60 days as  opposed to 50 when calculating their family leave credit.

And the limit of days used for all leave related tax credits taken whether by an  employer or self-employed individual resets on March 31st of this year. So how about the  employee retention credit, better known as the ERC. Importantly, this credit now allows for  the utilization against Medicare tax instead of just social security tax.

And finally, the first $10,200 of unemployment compensation received per  person is non taxable by the IRS retroactive to 2020. So a total possible deduction of  $20,400. If you’re married and both you and your spouse were unemployed. If you filed your  return without backing that amount out of your taxable income, the IRS has stated that it  will automatically process a refund for you without the need for you to amend your 2020 tax  return.

Anyway, that’s it for now? Thanks for tuning into TMS or taxes made simple. If  you’re not into the whole brevity thing because there’s teams and then there’s TMS. See you  next week.

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