The American Rescue Plan Act of 2021

A year ago in March of 2020, we all experienced the world shutdown. We saw the World Health Organization declare a global pandemic as we continued to watch the death toll rise from COVID-19. We saw market volatility that shook many investors. We changed our lifestyles drastically to stop the spread. 

It’s hard to believe a year has passed, but we are now looking through a more hopeful lens as vaccines are being distributed. Even so, many Americans are still facing real struggles from the pandemic. In response, the $1.9T American Rescue Plan was passed to offer fiscal relief and economic stimulus.

Let’s look at the major points from the plan that may impact you. Specifically, we will cover Recovery Rebates (stimulus checks), Child Tax Credits, Child And Dependent Care Tax Credit For 2021, and Unemployment Compensation & Healthcare Updates.

Recovery Rebates

The Recovery Rebates, or ‘stimulus checks’, have been a central point of discussion around the American Rescue Plan. Compared to the first two rounds of stimulus checks, the 2021 Recovery Rebates have some fairly significant changes, both positive and negative. 

The Good News: Credit Increases & Revised Eligibility

The Recovery Rebate credits this round have increased to $1,400 per person. The total rebate for a taxpayer is calculated by multiplying $1,400 times the number of total eligible individuals.  

Who is an eligible individual for the rebate?

This is a major difference between the 2021 Recovery Rebate and the previous relief we saw in 2020 (CARES Act and the Consolidated Appropriations Act). The eligibility requirements are now more lenient, allowing many families to receive larger checks. 

$1,400 per person, including dependents.

Compared to the 2020 Recovery Rebates, where only taxpayers and their children under 17 were considered when calculating the amount of the taxpayer’s 2020 Recovery Rebates, this is big news. The expanded eligibility allows taxpayers with older dependent children or those who claim elderly family members as dependents to benefit more than they would have in 2020. ‍

The Bad News: Restrictive Phase-Outs 

On the other hand, the American Rescue Plan Act of 2021 also includes a change that will lower the rebate value for many taxpayers. The phaseout ranges this round are much more narrow compared to those in 2020, where we saw a more gradual phaseout. Here are the American Rescue Plan Act of 2021 phaseout ranges:

• Single filers: $75,000 - $80,000
• Head of Household filers: $112,500 - $120,000
• Married-Joint filers with income below $150,000 - $160,000

The phaseout is now almost a cliff structure that will impact all taxpayers the same, regardless of how many dependents they have. If you fall between one of these ranges, your Recovery Rebate will be phased out proportionally.  

Example: If you and your spouse are Married-Joint Filers with no dependents and income of $155,000, you will lose 50% of your Recovery Rebate. 

Calculation: ($155,000 - $150,000) divided by ($160,000 - $150,000) = 50%

• ‍$1,400 * 2 eligible individuals = $2,800
• ‍ $2,800 - ($2,800 * 50%) = $1,400‍

Do I get a check?

Many taxpayers want to get to the bottomline - will I get a check front the IRS? Here are some checkpoints you can follow to see if you qualify to receive a Recovery Rebate. 

Checkpoint #1: What is your most recent AGI on file with the IRS? 

If your 2019 or 2020 AGI (Latest on File) is less than or equal to the lower threshold…

• IRS sends full amount (No additional checkpoints needed) 

If your 2019 AGI is in between the lower threshold and upper threshold…

• IRS sends pro rata amount (Move to checkpoint #2)

If your 2019 AGI is too high and you haven’t filed for 2020 yet...

• Move to checkpoint #2

Checkpoint #2: Is your 2020 AGI lower than your 2019 AGI?

If your 2020 AGI is less than your 2019 AGI and filed before the payment determination date (90 days after the 2020 calendar year filing deadline or September 1st, 2021)... 

• IRS sends additional balance if adjustments are needed (No additional checkpoints needed)

If your 2020 AGI is greater than your 2019 AGI or if your 2020 return was filed after the additional payment determination date (90 days after the 2020 calendar year filing deadline or September 1st, 2021)…

• Move to checkpoint #3

Checkpoint #3: If your 2021 AGI is less than the upper threshold

• IRS sends additional balance if adjustments are needed‍

‍

Child Tax Credit

The American Rescue Plan also includes significant changes to the Child Tax Credit for 2021. In 2020, the maximum credit was $2,000. Here are the increased tax credits for 2021:

• $3,600/child under age 6
• $3,000/child ages 6-17

Another point to note, however, is that these amounts are subject to lower phaseouts than the standard Child Tax Credit:

• Joint filers: $150,000
• Head of Household filers: $112,500
• All other filers: $75,000

‍ Phases out the temporary 2021 increases by $50 for each $1,000 that a taxpayer exceeds their applicable threshold. 

Child And Dependent Care Tax Credit For 2021

Another feature of the American Rescue Plan that will benefit parents in particular is the upgrade to the Child and Dependent Care Tax Credit. Previously this credit was calculated using a maximum of $3,000 of expenses for one child and $6,000 for two or more qualifying children (those who are under the age of 13 for the entire year). The new expense limit is now $8,000 for one qualifying child and $16,000 for more than one qualifying child. The credit is based on 50% of the expense amount, meaning there is a max credit of $4,000/child or $8,000 for 2 or more children (for 2021 only). 

Unemployment Compensation & Healthcare Updates

A few updates that will benefit those facing unemployment were included in the American Rescue Plan Act of 2021. The Pandemic Unemployment Assistance is now extended through September 6th, 2021. We also will see an increase in state compensation by an additional $300 a week over the same timeline, ending September 6th 2021. 

The Act also allows those who have been laid off to maintain current employer-sponsored health coverage (via COBRA) through the end of September 2021.