April 10, 2021 Paul Glantz, CPA

The American Rescue Plan Act of 2021 – Individual Provisions

Below we have assembled a brief summary of some of the individual taxpayer provisions of the American Rescue Plan Act of 2021 (ARPA), passed on March 11, 2021.

A Third Round of Stimulus

Recovery rebate credits (stimulus checks). ARPA provides a third round of nontaxable stimulus checks directly payable to individuals. These payments are structured as refundable tax credits against 2021 taxes but will paid in 2021 and reconciled on your 2021 tax return.

This round of stimulus offer’s a maximum payment of $1,400 per eligible individual ($2,800 for married joint filers) and $1,400 for each dependent.

The income phase out limitations for this round set in quicker than previous predecessor payments. For this round of payments, the phase outs will occur between the following Adjusted Gross Income (AGI) amounts:

  • Single – $75,000 – $80,000
  • Head of Household: $112,500 – $120,000
  • Married filing joint: $150,000 – $160,000

Eligibility is based on information from 2020 income tax returns (or 2019 returns, if 2020 returns haven’t been filed when the advanced credit is initially issued). For households whose payment was based on 2019 income data, and who would be eligible to receive a larger payment based on 2020 data, no need to worry, as there is a provision that allows for the IRS to issue a supplementary payment.

Changes to the Child Tax Credit and Dependent Care Credit

Child tax credit. For 2021, the child tax credit has been increased significantly from $2,000 per qualifying child to $3,000 per child or $3,600 for children under 6 years of age.

Additionally, the IRS will begin making advanced payments of a taxpayer’s estimated 2021 tax credit during the later part of this year. These advances are expected to be 50% of the anticipated credit a taxpayer would receive on their 2021 return.

Child and dependent care credit. For 2021, the amount of expenses taken into consideration for the child and dependent care credit has been increased from $3,000 to $8,000 for taxpayers with one qualifying dependent and from $6,000 to $18,000 for taxpayers with two or more qualifying dependents. This is a massive increase to a credit that was historically insignificant to high-earners.

Dependent care assistance programs. For 2021, the amount excludible under a dependent care assistance program has been increased to $10,500 (or $7,500 for a married taxpayer filing a separate return).

Change in Taxability of Unemployment Benefits

Income exclusion for unemployment benefits. For 2020, taxpayers with modified AGI less than $150,000 can exclude from gross income $10,200 of their unemployment benefit. As of the date this was written, this limit inconveniently applies to taxpayer’s of all filing statuses, whether married filing joint, separate, head of household, or single.

We hope you find these updates useful. If you have any questions, please don’t hesitate to contact our office.

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About the Author

Paul Glantz, CPA Paul Glantz is a Certified Public Accountant licensed in both Texas and New York. Paul has an extensive background in public accounting with a specific focus on individual, fiduciary, and business taxation. Paul currently resides in Austin, Texas.

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