$1.9 Trillion American Rescue Plan Act Gives Taxpayers Four New Tax Breaks
Last week, the American Rescue Plan Act, a $1.9 trillion stimulus package, was passed by both the House and Senate, and the bill was signed by President Joe Biden on Thursday. In addition to stimulus checks and other benefits, it includes helpful tax breaks for numerous taxpayers. These tax credits were designed to lift a certain portion of the financial burden caused by last year’s economic shutdowns, a direct result of the Covid-19 pandemic. Whether or not you are planning to consult a tax attorney in San Francisco, below are the four tax breaks you should know about:
Earned Income Tax Credit. The stimulus package expanded the Earned Income Tax Credit (“EITC”) for the 2021 tax year, increasing the age requirements and providing bigger benefits to taxpayers who do not have children. Childless taxpayers are allowed to claim the credit beginning at age 19, with the exception of certain full-time students. The 65-year age limit was also eliminated. Such taxpayers can expect to receive about three times more from the credit, an increase from $530 to approximately $1,500. Pandemic job losses have affected low earners disproportionately, but the expansion of this credit will benefit them.
Internal Revenue Service federal building Washington DC
Child Tax Credit
Once the package was passed, the previous Child Tax Credit was enhanced for the 2021 tax year as well. This credit is now $3,000 for each child under the age of 18, and $3,600 for each child under the age of six. The former child tax credit was $2,000 for each child 17 years of age or younger.
In addition, the credit is fully refundable for 2021. That means that taxpayers will get a refund for the credit, even if the total is higher than the amount of their owed taxes. This credit was designed to help the bottom 20 percent of taxpayers who have children in the home.
Child Care Tax Credit
President Biden has also expanded the Child Care Tax Credit for one year on an emergency basis. This means that families with children will receive a tax credit equal to half of their expenses for child care for minors in their household who are 13 years of age and under. The specific amounts are $4,000 for one child and as much as $8,000 for multiple children. It is a refundable credit. Additionally, families will receive a partial credit if they earn between $125,000 and $400,000 annually. According to the Tax Policy Center, this credit helps middle- and higher-income households.
Unemployment Benefits Tax Exemption
Most tax lawyers would agree that unemployment compensation benefits are virtually always considered taxable income. However, an amendment to the stimulus bill by the Senate has resulted in the first $10,200 of unemployment benefits being tax free. This benefit applies to individuals who earned $150,000 or less last year and will benefit the tens of millions of taxpayers who were forced to survive on unemployment compensation throughout one or more periods during last year’s pandemic. To learn more about these tax breaks, or for help with filing your return, contact a tax attorney in San Francisco to get additional information.