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Tax Changes in the Biden Stimulus Plan

Updated: Mar 18

The Democrats' $1.9 trillion stimulus plan signed by President Biden on March 11, 2021 - The American Rescue Plan Act - has goodies for almost everyone, from individuals getting stimulus checks - officially called recovery rebates, or, as the IRS calls them, economic impact payments, to states getting billions of dollars to help balance out of whack budgets. We take a look at some of the help coming to individuals and businesses.


Recovery Rebates


Individuals earning under $75,000 will receive stimulus payments of $1,400 and married taxpayers filing jointly will receive $2,800. There's an additional $1,400 for each dependent (including college students and relatives claimed as dependents). Anyone who can be claimed as a dependent (even if they're not actually claimed) will not get the credit. Sorry college students or teenagers living with parents. You will get nothing. Heads of household earning under $112,500 will get similar amounts.


For individuals earning above $75,000 and joint filers earnings $150,000, the credit starts to phase out and is completely gone for individuals with incomes above $80,000 and joint filers with incomes above $160,000. Household heads earning over $120,000 gets nothing.


Unemployment Compensation


The first $10,200 in unemployment benefits are tax free in 2020 for taxpayers making less than $150,000 per year. The income limit of $150,000 applies to both single and joint filers. This benefit does not have a phase-out range; it disappears completely for persons who made $150,000 or more in 2020.


Child Tax Credit


The child tax credit increased to $3,000 for children 6 and older and $3,600 for children under 6. Children up to 17 now qualify for the credit. The credit is fully refundable for 2021 and starts phasing out for single filers earning over $75,000, for joint filers earning over $150,000 and for heads of household earning over $112,500. Single filers earning $200,000 or more and joint filers earning $400,000 or more do not qualify for the expanded benefits, but can claim the existing $2,000 per child tax credit. The plan allows for monthly payment of the credit from July to December 2021. That's up to $300 per month per child. The Democrats are hoping to extend the payments and make them permanent.


The Act removes the requirement that households earn at least $2,500 to receive the credit. You don't have to earn anything to get the maximum credit. The expanded credit will be reported on 2021 tax returns.


Earned Income Credit


The Act made the Earned Income Tax Credit (EITC) more favorable to workers with no qualifying children for 2021 by lowering the age for them to claim the credit to 19. Previously it was 25. Also, for taxpayers without children for 2021 the maximum age of 64 for claiming the EITC is removed.


For workers with no qualifying children the Act increases the credit percentage and the phaseout percentage from 7.65% to 15.3% of earned income. The amount of earned income eligible for the credit is increased for these taxpayers to $9,820 from $4,220 and the phaseout threshold increases to $11,610 from $5,280 of earned income.


Child and Dependent Care Credit


For 2021, the dependent care tax credit is refundable for taxpayers with a principal place of abode in the United States. The credit is increased to 50% of eligible employment expenses from 35%. The maximum credit is $4,000 for one qualifying individual and $8,000 for two or more. Credit phase-out increases to adjusted gross incomes over $125,000 from the existing $15,000. Taxpayers with incomes over $440,000 are not eligible for the credit.


Premium Tax Credit


Persons enrolled in Obamacare health plans and who received too much in advance premium tax credits in 2020 will not have to repay the excess. Anyone who received or has been approved to receive unemployment compensation in 2021 is eligible for this benefit.


Student Loans


Student loans discharged after December 31, 2020 and before January 1, 2026 is not included in gross income. Loans must have been made specifically for post-secondary education and were made, insured or guaranteed by the federal government.


Economic Injury Disaster Grants


The Act clarifies that Economic Injury Disaster Loan (EIDL) grants received from the Small Business Administration (SBA) are excluded from gross income.


Shuttered Venue Operators Grant (SVOG)


Entities that receive a receive a first or second Paycheck Protection Program (PPP) loan after December 27, 2020, are now eligible for the Shuttered Venue Operators Grant. The grant will be reduced by any PPP loan received.


Unemployment Benefits Extended


Federal unemployment benefits of $300 per week is extended through September 6, 2021.

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