The American Rescue Plan Act of 2021 was signed on March 11, 2021 and will impact taxpayers in the 2021 tax year. There are rebates and benefits that may affect every taxpayer, especially in households where qualifying dependents reside.
Recovery Rebate and Stimulus Payments
Taxpayers who are eligible for the Rebate Recovery Credit may qualify for a rebate of up to $1,400 per taxpayer plus $1400 per dependent. This amount increases to $2800 if the taxpayer is Married Filing Jointly (MFJ). This rebate will be treated as a credit on tax returns filed in 2021. Any further stimulus payments received will reduce the amount of the Recovery Rebate Credit; however, the credit cannot be adjusted below zero. Taxpayers should be aware that there are credit limitations based upon Adjusted Gross Income (AGI). Phase-out of the Recovery Rebate Credit will begin with an AGI of $75,000 for Single filers, $150,000 for those filing Married Filing Jointly, and $112,000 for Head of Household filers. A 2020 tax return is required to be filed in order to receive the credit. The Free File System is available to taxpayers who would ordinarily not be required to file but want to receive the credit.
Child Tax Credit
For the 2021 tax year only, the Child Tax Credit (CTC) will be increased to $3,000 per eligible child, with the age limitation being increased to age 17. The previous age limit for CTC was age 16. For children, ages five and below on December 31, 2021, the credit is further adjusted to $3,600 per child. This credit also begins to phase out with the same income limits as the Recovery Rebate Credit. Single filers begin phasing out when they have an AGI of $75,000, Married Filing Jointly phase-outs begin at an AGI of $150,000 and the AGI limit for Head of Household filers is $112,000.
Advanced Payments of CTC
Beginning in July, monthly advanced payments of the CTC will start rolling out for qualifying taxpayers. The payment amount will be determined automatically based on previously filed tax returns. Please see our previous blog post for more specific details on CTC advanced payments and to learn how you can make changes to your account.
Dependent Care Expense Credit
This is another credit that is only slated to be adjusted for the 2021 tax year. For this year alone the Dependent Care Expense Credit a refundable credit. Essentially this means that even if your tax liability is zero you will receive the money for this credit, similar to other refundable credits such as the Earned Income Tax Credit. The credit is limited on the expenses a taxpayer paid for a qualified person but is increased from $3,000 to $8,000 for one qualifying individual and from $6,000 to $16,000 for two or more qualifying persons. Please visit this tool on the Internal Revenue Service (IRS) website to determine who is a qualifying person before claiming the credit.
Please call Valentine CPA at 801-444-3710 or email firstname.lastname@example.org if you want to discuss your individual situation.