Both chambers of Congress have passed the $1.9 Trillion Stimulus Package, a plan based on President Biden’s proposal. Our tax attorneys in San Francisco have learned that the plan includes four primary tax changes to assist taxpayers in several different income brackets. The package was designed to help lessen a bit of the financial stress and tax problems that came from last year’s pandemic and the subsequent shutdown. Listed below are the proposed tax changes.
Child Tax Credit
The current Child Tax Credit would increase for the 2021 tax year from $2,000 per child under 17 years of age to $3,000 per child under 18 years of age, and $3,600 per child under six years of age. It would also be a fully refundable credit for 2021, meaning filers would get a refund for the credit even if the amount ends up being more than the amount of their owed taxes. Previously, the credit was only partially refundable.
The full credit is available for heads of household earning $112,500 or less annually, those who file jointly or surviving spouses earning $150,000 a year or less, and for single filers earning $75,000 or less annually. After that, the credit amount is lowered by $50 for each $1,000 the filer earned above the threshold. Beginning in July, 50 percent of the credit may be advanced to families over a six-month period based on tax information available from either 2019 or 2020.
Our tax lawyers have not yet discovered if these payments would be distributed on a monthly basis or some other way. The people who will benefit from this change include the bottom 20 percent of earners who have children. People in that category would receive an average benefit of $3,400.
Child Care Tax Credit
President Biden also has plans to expand the Child Care Tax Credit for one year on an emergency basis. Families would receive a tax credit equaling half of their child-care expenses for children 13 years of age or under, up to $4,000 for one child, and up to $8,000 for several children. This credit is refundable as well, and partial credits would be given to families earning between $125,000 and $400,000 per year. Previously, this credit was applied to a smaller portion of child-care expenses, approximately 20 to 35 percent. Middle- and higher-income households are the primary people who would benefit from this change.
Earned Income Tax Credit
President Biden’s proposal also expands the current Earned Income Tax Credit (“EITC”) to include the 2021 tax year. The age requirements will be increased, and a larger benefit would be provided to employed individuals who do not have children. Workers without children could claim the credit beginning at 19 years of age; previously, the age limit was 25. This change would also eliminate the previous ceiling age for the benefit, which was 65 years of age.
Workers who qualify for this benefit would receive approximately three times more from the credit, up from $530 to $1,500. This benefit would primarily help lower earners who have experienced disproportionately higher losses than those in other income brackets.
Unemployment Benefits Tax Exemption
Under normal circumstances, unemployment benefits are taxable. However, an amendment to the bill made by the Senate would make the first $10,200 of jobless benefits tax-free for those who earned less than $150,000 in the 2020 tax year. Internal Revenue Service tax lawyers warn that you may need to file an amended tax return to benefit from this new break if you have already filed your taxes. This benefit obviously helps those who had to collect unemployment in 2020 due to job loss as a result of the pandemic.
Anyone who is confused about these changes should contact one of our attorneys in San Francisco for more information or for help with filing an amended tax return.