On Thursday, the American Rescue Plan Act was signed into law which makes big changes to the current tax law. These changes are taking affect immediately and will have an impact on both your business and personal tax returns for 2020.
The total package is $1.9 trillion and expands the Child Tax Credit, Economic Impact Payments, and includes changes to Unemployment. These are just a few of the multitude of other expansions meant to help Americans recover from the hardships of 2020. Below, we will dig into three of the biggest changes to impact individuals immediately.
Economic Impact Payments – will I be phased out due to my income?
One of the biggest things to come out of this package is the direct payments to taxpayers. A single person making less than $75,000 in adjusted gross income will receive $1,400; the payments start phasing out between $75,000 and $80,000 of AGI. A married couple filing jointly making less than $150,000 will receive $2,800 and payments begin to phase out with an AGI of $150,000 to $160,000. If the taxpayer files as head of household, they will receive the $1,400 if they make less than $112,500 and phases out to zero after $120,000 of AGI.
Dependents also qualify for the $1,400; this includes adult dependents. For anyone who has not yet filed their 2020 tax return, eligibility will be determined by their 2019 return. Payments have already begun going out in the form of direct deposit.
Changes also took place for the amount of unemployment that can be taxed for 2020. Up to $10,200 of any unemployment benefits that were earned in 2020 are tax free if the earner made less than $150,000.
Child Tax Credit – additional amounts are subject to income phase-out
An increase on the Child Tax Credit was also included in the newly passed bill. The credit for children aged 0 to 5 has increased to $3,600; children 6 to 17 increased to $3,000. Secondary to this, partial payments for this credit are expected to start going out in July and go through December. This means that the IRS will be issuing monthly payments to those who qualify, in order to get that money to them sooner.
Where We Come In
These changes can be overwhelming and confusing. If you need some help understanding it all and want to see how CPA On Fire can transform your business, schedule a free financial review. We will show you how we can bring insight to your financials and execute transformational growth.