|How will the rescue plan affect you?|
|Submitted by Edward Jones, |
09:05AM / Tuesday, April 06, 2021
As you know, President Biden has signed into law the American Rescue Plan Act of 2021 to provide more economic relief from the COVID-19 pandemic. What elements of this legislation will affect you?
Of course, you may have already received the most publicized part of the package – a direct payment. Depending on your income level, you may have gotten $1,400, or $2,800 for joint filers, plus $1,400 for each eligible dependent. If you don't need the money for immediate expenses, you could use it to build an emergency fund, pay down debts or invest it for retirement or other goals.
As for how you might be affected by the rest of the law, it depends somewhat on your individual situation. Here are a few scenarios:
If you're a parent … For 2021 only, the child tax credit has been increased to $3,000 per child ($3,600 for children 5 and younger), up from $2,000, and the maximum age of a qualifying child has been increased from 16 to 17. Plus, the tax credit is fully refundable, and half of the credit can be advanced to households in periodic payments, beginning as early as July. You're eligible for this increased tax credit if your adjusted gross income is up to $75,000 ($150,000 for joint filers). The payment amount will be reduced, and eventually phased out, at higher income thresholds.
If you're unemployed … The new legislation extends, until Sept. 6, the unemployment assistance provisions of the CARES Act of 2020: an additional $300 per week payment and the expanded eligibility and increased duration of benefits. Plus, the first $10,200 of unemployment benefits will be tax-free, for 2020 only, for individuals whose adjusted gross income is less than $150,000. (If you've already filed your tax return, consult your tax professional to determine whether you need to amend it to benefit from the new tax exclusion.)
If you're a business owner … The relief package expands eligibility for Paycheck Protection Program (PPP) loans to some nonprofit organizations and digital media companies. And the law extends two tax credits: The Employee Retention Tax Credit and the Sick & Family Leave Tax Credit. Contact your tax advisor to determine your eligibility for these credits.
If you're a student … If you qualify for forgiveness or cancellation of loans for post-secondary education expenses, you won't have to pay taxes on any amount forgiven between Jan. 1, 2021, and Jan. 1, 2026.
These aren't the only provisions of the new relief package, but they are some of the more far-reaching ones. And you'll also want to be aware of what the new act doesn't do. For example, in 2020, the CARES Act temporarily loosened some of the rules for withdrawals from retirement accounts. But now, the previous rules have returned, so, if you're 72 or older, you generally must withdraw a certain amount from your 401(k) or traditional IRA this year (called a required minimum distribution) or face a penalty. Also, the 10 percent penalty on early withdrawals from retirement accounts will typically apply.
The American Rescue Plan Act is truly a massive piece of legislation, and, as such, it will affect just about all of us. Make sure you know its impact on you.