5 Key Takeaways from The American Rescue Plan Act Of 2021

  1. 2021 Stimulus Payments (Recovery Rebates)
    • $1,400 for single filer ($2,800 married filing jointly)
    • $1,400 per dependent
    • Phaseout ranges:
      • Single Filers and Married Filing Separate: $75,000 – $80,000
      • Head of Household: $112,500 – $120,000
      • Married Filing Joint: $150,000 – $160,000
    • 3 “Checkpoints” for stimulus calculation:
      • ‘Checkpoint 1’: Most Recent AGI On File With IRS (When The IRS First Processes 2021 Recovery Rebates)
      • ‘Checkpoint 2’: The Additional Payment Determination Date (For Those Taxpayers Who Have Not Filed Their 2020 Tax Returns Yet)
      • ‘Checkpoint 3’: Filing of A Taxpayer’s 2021 Tax Return

*Please note, you won’t receive a stimulus at all 3 checkpoints. You will only receive a stimulus if a subsequent checkpoint calculates a higher stimulus than the ones before.  

For example, if you don’t qualify at checkpoint 1 and subsequently file your 2020 return before July 15th and now qualify for additional stimulus, you will receive a payment at checkpoint 2.

If, however, you receive your fully calculated stimulus at checkpoint 1, you won’t be due any additional stimulus at checkpoint 2 or 3 (since you already received the full amount).

  1. Temporary Increases/Changes To The Child Tax Credit For 2021
    • Increases the maximum amount of the credit to $3,000 (up from $2,000) per qualifying child for 2021.
    • The enhanced maximum credit is further increased to $3,600 per qualifying child under the age of six (as of December 31st, 2021).
    • The increase in child tax credit begins to phase out at income levels ($50 decrease in credit for every $1,000 over the phaseout level):
      • Joint Filers: $150,000
      • Head of Household: $112,500
      • All other filers: $75,000
    • Children age 17 and under qualify for the child tax credit for 2021 (rather than 16 and under)
    • Portion of Taxpayer’s 2021 Child Tax Credit Amount May Be Paid In Advance
      • Starting July 1st, the IRS is instructed to pay out 50% of the expected child tax credit in equal monthly installments July 1-December 31.
      • Expected credit determined by your most recent tax filing.
      • The credit is subject to be paid back if you receive too much and it is determined you were due less child tax credit when your file your 2021 tax return.
  1. Increases/Changes To The Child And Dependent Care Tax Credit For 2021
    • Increase in qualified expenses:
      • Was: $3,000 per qualifying child and $6,000 when taxpayer has 2 or more qualifying children.
      • Now for 2021: $8,000 of expenses when a taxpayer has one qualifying child and $16,000 of expenses when a taxpayer has two or more qualifying children.
    • Change to credit percentages of qualified expenses:
      • Was: 20%-35% of qualified expenses (based on income)
      • Now: 0%-50% of qualified expenses (based on income)
  1. Increase In Maximum Dependent Care FSA Contribution Through Employer
    • Was: $5,000 maximum
    • Now: $10,500 maximum (2021 only)

*Please note, employers are not required to incorporate this temporary, increased limit. We recommend you ask your employer to see if the have enacted this change.

  1. Up To $10,200 Of 2020 Unemployment Compensation Per Worker May Be Tax-Free
    • Phaseout limits of $150,000 to all filing statuses.
      • If income including unemployment is greater than $150,000, than all unemployment is taxable.
      • If income including unemployment is less than $150,000, than all unemployment is nontaxable.
    • Both taxpayer and spouse may qualify for the $10,200 exemption.
    • States will determine individually whether or not they conform to this change in tax treatment.