Summary of American Rescue Plan Act of 2021 for Individuals

Taxability of 2020 Unemployment Benefits

For taxpayers who received unemployment in 2020 and have an Adjusted Gross Income of $150,000 or less, the first $10,200 of unemployment received is considered non-taxable. Adjusted Gross Income determination is made without including the unemployment received. This is only in effect for 2020 and does not impact your unemployment benefits received in 2021.

2021 Recovery Rebate Checks

As many individuals received Economic Impact Payments (stimulus checks) in 2020 and early 2021, another round of rebates will be distributed in the coming weeks. The eligible credit is $1,400 for single taxpayers and $2,800 for married filing joint filers. A credit of $1,400 is also available for eligible dependents. The income limits and phaseout for the recovery rebates will be determined by your 2020 tax return (if it has been filed), otherwise will default to income on your 2019 tax return.

There are a number of online calculators that can be used to determine the projected amount of the third stimulus check. If your 2020 return has been filed, you will need your Adjusted Gross Income (AGI) amount, which can be found on line 11 of your 2020 Form 1040. Otherwise, you will need your 2019 AGI, which can be found on line 8b of your 2019 Form 1040.

Here is a link to a calculator to calculate your recovery rebate: https://www.forbes.com/advisor/personal-finance/third-stimulus-check-calculator/

Expansion and Advance Payments of Child Tax Credit (currently in place for 2021 only)

The Child Tax Credit has been increased from $2,000 to $3,000 per child ($3,600 for certain children under 6). The child tax credit is now applicable to children under 18; it was previously applicable for children under 17.

Along with increasing the Child Tax Credit, the Department of Treasury will also begin sending advance payments of the credit. This means you will get a monthly amount during 2021 instead of getting the full credit when filing your tax return. A few things to note:

• The advance payments of the child tax credit could cause your 2021 tax refund to be lower. It could even cause you to owe tax.
• The IRS will send you a tax form reporting all advance payments you received. This form will be required to complete your 2021 return.
• For children born during the tax year, you will not receive an advance payment in the first year, you will receive the credit when filing your 2021 tax return.

Dependent Care Benefits (currently in place for 2021 only)

The credit now goes from a max of $1,050 for one qualifying child or $2,100 for two or more qualifying children, to $4,000 for one qualifying child and $8,000 for two or more qualifying children. The Dependent Care Credit has multiple changes in place for 2021, including:

1. The calculation of the credit is now 50% of the eligible expenses (previously 35%).
2. The amount of eligible expenses is now $8,000 for one qualifying child or $16,000 for two or more qualifying children (previously $3,000 for one qualifying child or $6,000 for two or more qualifying children).
3. There is still an income phaseout for the credit, but the phaseout now starts at $125,000, instead of $15,000.
4. Starting in 2021, the credit is now a refundable credit.

Dependent care benefits offered through an employer (reducing taxable income) have also been increased for 2021. The amount of dependent care benefits that can be excluded has been increased from $5,000 to $10,500 per family.

Expansion of Earned Income Tax Credit (currently in place for 2021 only)

The Earned Income Tax Credit has been expanded to most individuals 19 and over, instead of 25 and older, and will no longer have a maximum age of 65.

The income limits and phaseout have also been increased. The credit has also been expanded to certain married filing separate filers.

Student Loan Forgiveness (for Tax Years 2021-2025 currently)

Certain student loan debt forgiven between in 2021 through 2025 can be excluded from gross income. Currently, the amount of student loan forgiveness is considered taxable income.