ARPA Act 2021

Today, Thursday, March 11, 2021, the President signed the American Rescue Plan Act of 2021 (ARPA), which includes tax benefits for individuals and businesses alike. Here is a summary of the most significant provisions of the ARPA for individuals. Significant business provisions has been posted separately and can be found [here].

Retroactive Provisions

Two provisions are retroactive to 2020. 

Unemployment benefits received in 2020 partially excluded from income

  • Taxpayers with adjusted gross income of less than $150,000 can exclude up to $10,200 of unemployment benefits. The $150,000 limitation applies to all taxpayers.
  • The $10,200 exclusion applies separately to each spouse.
  • Once adjusted gross income reaches $150,000, the exclusion no longer applies.

We are waiting for IRS guidance on whether amended returns will be required for individuals who have filed their tax returns and paid taxes on their unemployment benefits.

Excess advance premium tax credit payments for 2020

  • Taxpayers receiving advance payments over the allowable amount will not be required to repay the excess.

2021 and Later Provisions

2021 Individual Recovery Rebate/Credit

Another round of stimulus payments (advance rebate) of $1,400 per individual and each dependent is available for 2021. Individuals filing a joint return will receive $2,800.

  • The IRS will be sending payments based on the 2019 tax return filed. However, the IRS will use the 2020 tax return if it has been filed by the time the IRS sends the rebates.
  • The rebate is for taxpayers with adjusted gross income of less than:
    •  $75,000 for all taxpayers;
    • $150,000 for taxpayers filing a joint return; and
    • $112,500 for taxpayers filing as head of household.
  • The rebate is ratably reduced for those earning over the above listed amounts, but is eliminated once adjusted gross income exceeds:
    • $80,000 for all taxpayers;
    • $160,000 for a joint return; and
    • $120,000 for head of household.
  • The credit is refundable.
  • Nonresident aliens, estates, trusts and individuals allowed as a dependent of another taxpayer are not eligible.
  • The advance rebate will reduce the recovery credit to be calculated on the 2021 tax return. 
  • The advance rebate will not be applied to past-due support payments, debts owed to federal agencies, past-due legally enforceable state income tax obligations, or unemployment compensation debts.

Child Tax Credit Expanded for 2021

  • The child tax credit is increased from $2,000 to $3,000 per child ($3,600 for children under age 6 as of the end of 2021.
  • The eligibility is expanded to include children under the age of 18.
  • The expanded credit amount phases out when an individual’s adjusted gross income reaches $75,000, $112,500 for head of household, and $150,000 for joint filers and surviving spouses, and it is phased out once the adjusted gross income reaches $80,000, $120,000 for head of household and $160,000 for joint filers and surviving spouses.
  • The IRS will make monthly advance payments of the credit equal to 50% of the eligible amount of the credit between July 2021 and December 2021.
  • The credit will be based on the most recently filed return of either 2019 or 2020. However, the advance payments will reduce the child tax credit reported on the 2021 tax return. Some taxpayers may have to reimburse the IRS for any overpayment.
  • IRS will create an online portal to allow taxpayers to update their marital status, change the number of qualifying children, reflect a significant change in income or to elect out of the advance payments. 

Child and dependent care credit enhanced and made refundable

Expenses incurred to allow the taxpayer to work are eligible for the child and dependent care credit. The credit is equal to 50% of eligible expenses, based on income. 

  • The expenses eligible for the credit have been increased to $8,000 for one child or $16,000 if there are two or more qualifying individuals.
  • The credit phases out for taxpayers with adjusted gross income greater than $125,000.

The premium tax credit is expanded

The premium tax credit for taxpayers purchasing health insurance on a state exchange will be increased because of a revision to the tables used to calculate the taxpayer’s share of funding the health insurance. 

  • Taxpayers will income above 400% of the federal poverty line are now also eligible for the credit.
  • The expansion applies to 2021 and 2022.
  • Taxpayers collecting unemployment benefits are eligible for an increase in the premium tax credit.

Student loans discharges

  • Discharges of certain student loans are excluded from gross income for periods after December 31, 2020 and before January 1, 2026. 

Earned income tax credit provisions

Several earned income tax credit provisions have been expanded for:

  • Taxpayers with no qualifying children
  • Certain married individuals not filing jointly
  • Taxpayers without  meeting the identification requirements
  • Taxpayers with up to $10,000 of investment income
  • Some U.S. Possessions inclusion
  • Using 2019 earned income rather than 2021 income.

For questions or more information, you can contact us at 401-831-0200.

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