On March 11, 2021 President Joe Biden signed the American Rescue Plan into law. This $1.9 trillion economic relief package includes financial assistance for most Americans – including direct payments for 90% of households. However, there are some important distinctions from the relief package of last March or typical tax credit implementation.
There is diminished eligibility for direct payments.
The new bill provides stimulus checks of up to $1,400 per person, and that amount begins to reduce at incomes of $75,000 (for individuals), $112,500 (for single heads of households), and $150,000 (for married couples) – just like last time. However, the payments phase out sooner than before. Individuals who earn $80,000 per year, heads of households who earn $120,000, and married couples who earn $160,000 will not receive this round of direct payments – regardless of how many children they have.
The direct payment per child/dependent is larger.
So long as income thresholds have not been exceeded, households will receive $1,400 per child rather than the previous $600 payment.
The child tax credit increased – but not permanently.
Normally, the maximum child tax credit is $2,000, but President Biden’s economic relief package temporarily increases it for one year to $3,600 for kids 0-6 and $3,000 for kids 6-18. The credit, however, does have income phase-outs. Individuals who earn less than $75,000 and married couples earning less than $150,000 will receive the full amount while families above the threshold should continue to claim the base $2,000 credit. Although intended to reduce COVID-19 related financial hardship for American families, child tax credits are considered by many to be a tool in fighting poverty and might be a longer-term strategy of the Biden administration. Extension of a similar increase could appear in future tax law proposals.
Child tax credits will be partially distributed before your 2021 tax return is filed.
Rather than receiving a child tax credit when your tax return is filed, Biden’s plan disburses the credit in monthly cash payments from July through December with the remainder paid upon filing.
Unemployment assistance has been enhanced.
Although President Biden’s plan originally called for an additional $400 in weekly jobless payments, the final version boosts benefits by $300 per week – the first $10,200 of which is tax-free for households earning less than $150,000 annually. Special assistance for freelancers, gig workers, independent contractors, and others uniquely affected by the pandemic has been extended through September 6.
Emergency financial aid grants will be available for college students.
The American Rescue Plan allocates nearly $40 billion to colleges – half of which must be spent on emergency financial aid grants to students with the remainder used to offset costs associated with declining enrollment and increased safety measures.
Additional aid is available to help small businesses, states, and municipalities recover from the pandemic. If you have questions about how your household can maximize benefits available through the new law, schedule time to chat with one of our financial advisors.
Category: Financial Service Team