AMERICAN RESCUE PLAN

AMERICAN RESCUE PLAN
Review, Resources, Child Tax Credit Emphasis

The American Rescue Plan was enacted in response to the families, workers and employers impacted by the ravages of the COVID-19 pandemic. In this article, we’ll highlight those elements of the Plan that are most likely to deliver meaningful relief for readers of the Pearson Perspective.

One of the key provisions is the Child Tax Credit which authorizes payments to eligible households on July 15. That date being imminent … special attention is dedicated to the Credit in this piece.

Click here if you choose to review the American Rescue Plan in detail.

CHILD TAX CREDIT

The credit amount has been increased from $2,000 to $3,600 for children under age 6, and $3,000 for other children under age 18.

Qualifying dependents has been expanded to include children 17 years old and younger.

Advance payments of one-half of the Credit will be made in 2021 via periodic payments from July 1, to December 31, 2021 … thus providing immediate financial assistance rather than waiting for tax filing in 2022.

Most people will receive their money via direct deposit. The IRS will also mail checks or deposit funds to debit cards.

Here’s a breakdown of maximum payments.

Note: The amount of the credit is determined by the child’s age on December 31, 2021.  Newborns and U.S. citizen children adopted in 2021 may qualify for the credit.

Income Qualifications

The Child Tax Credit is based on the taxpayer’s adjusted gross income. To qualify for the remaining half-payment next year the following 2021 AGI amounts will apply:

• Single taxpayers – $75,000 or less;
• Head of household – $112,500 or less;
• Married filing jointly – $150,000 or less.

To accelerate financial relief to taxpayers, the IRS will review your 2020 income tax return to determine qualification. For those who have not yet filed for 2020, the IRS will accommodate by basing qualification on the 2019 return. In the event a taxpayer’s 2021 income exceeds the qualifying amounts, any excess credits will be refunded to the Treasury when filing their 2021 return.

Important! There is a phaseout provision. For every $1,000 a taxpayer earns over the AGI limit will reduce their credit by $50. That can be significant. For example, a single filer declaring an AGI of $85,000 will forfeit $500 per child.

Your Choice of When to Receive Payments

Beginning immediately, taxpayers may access two IRS portals to choose to receive checks monthly or opt for a single payment in 2022.

One portal will support people who don’t usually file an income tax return to provide information to receive payments. The other of the two portals will provide families the facility to update their info if their circumstances have changed … and to choose monthly payments in 2021 or a lump sum next year.

Accessing the Update Portal: The IRS says to access the Child Tax Credit Update Portal, a person must first verify their identity. If a person has an existing IRS username or an ID.me account with a verified identity, they can use those accounts to easily sign in. People without an existing account will be asked to verify their identity with a form of photo identification using ID.me, a trusted third party for the IRS. Identity verification is an important safeguard and will protect your account from identity theft.

For those qualifying taxpayers that choose advance monthly payments, here’s what to expect.

Child Tax Credit Payments Timeline

Note: The amount of tax you owe when you file your 2021 tax return next year will be reduced by the credits you enjoyed this year … or increase your tax refund if applicable.

What If You Received Too Much?

When you file your 2021 tax return next year, you may find that you received more money than you were entitled to. The payment amount is based on an IRS estimate. Overpayments may result in a smaller tax refund next year or a larger tax bill.

And If You Don’t Qualify?

The new Act does not negate the Child Tax Credit provided for in 2017 under the Tax Cuts & Jobs Act. The existing Child Tax Credit is still available!  Single taxpayers with an AGI of $200,000 or less or taxpayers filing married with an AGI of $400,000 or less will still qualify for a $2,000 tax credit for each child under age 17.

ECONOMIC IMPACT PAYMENTS

Those eligible will automatically receive an Economic Impact Payment of up to $1,400 for individuals or $2,800 for married couples, plus $1,400 for each dependent. Unlike the prior rounds of Economic Impact Payments, families will get a payment for all their dependents claimed on a tax return, not just their qualifying children under 17.

Normally, a taxpayer will qualify for the full amount if they have an adjusted gross income of up to $75,000 for singles and married persons filing a separate return, up to $112,500 for heads of household, and up to $150,000 for married couples filing joint returns and surviving spouses. Payment amounts are reduced for filers with incomes above those levels.

HOMEOWNER ASSISTANCE FUND

Nearly $10 billion is allocated to provide relief for America’s most vulnerable homeowners. Applicable funding uses include delinquent mortgage payments to minimize foreclosures, alleviate emergency shelter capacity, and mitigate potential COVID-19 infections.

EMPLOYEE RETENTION CREDIT AND PAID LEAVE CREDIT PROGRAMS

The Employee Retention Credit for small businesses is extended through December 2021. This permits businesses who have suffered revenue decline or closing due to C-19 to offset their current payroll tax liabilities by up to $7,000 per employee per quarter … up to $28,000 per employee for 2021.

Paid Leave Credits for small and midsize businesses that offer paid leave to employees due to illness, quarantine, or caregiving are extended through September 2021. Businesses can take dollar-for-dollar tax credits equal to wages of up to $5,000.

UNEMPLOYMENT COMPENSATION

Federal income taxes are waived on the first $10,200 of unemployment benefits received in 2020 by middle- and lower-income taxpayers … whether received by workers through federal unemployment programs as well as those who received traditional benefits through their state unemployment insurance fund.

You’ll likely have questions regarding your specific circumstances, so be sure to give us a call or drop an email.