Congress passed the $1.9 Trillion COVID Relief Package (CRP) on Wednesday, March 10. The President signed the bill later in the week. This bill has been tagged as COVID relief, but it is so much more than that. There are a lot of earmarked dollars (over one-half of the funds) that are going for purposes not related to COVID as well as many tax provisions. This summary will be mostly focused on the tax provisions with a couple of other interesting issues included as well.
- The most publicized aspect of the plan involves the $1,400 stimulus payments that will be to a number of taxpayers. By now, we’re getting used to these, right? This is round three since COVID began a year ago. And the rules are similar in many ways, with a few differences.
- The amount to be paid is $1,400 per person. This amount will be paid for every person in the household. Unlike the first two rounds, your dependents will get $1,400 as well.
- You will get money for your dependent children even if they are over 16 years old, in contrast to the first two stimulus payments.
- You will also get a payment for other dependents – if you can claim them for tax purposes, you will get $1,400 for them as well. Again, a change from rounds one and two.
- But, only single tax filers with less than $80,000 in income and married couples with less than $160,000 in income will get these checks. This is down from the limits for the first two rounds which were $100,000 and $200,000 respectively.
- You can get these payments based on either your 2019 or 2020 income, if you qualify for either year. There is no indication yet as to which year’s dependents count – I would assume it would be the year for which your income qualifies, but no indication if the dependents change from year to year whether or not they will pick the year with the highest number of dependents.
- What if you haven’t filed your 2020 tax return yet? Again, 2019 will qualify you for payment. What if your income was too high in 2019 but not in 2020? There will be subsequent payments issued after 2020 returns are received by the government, as long as the return is received by July 15 (possibly later if on extension, up to September 1).
- If you file your 2020 return after September 1 and have not received your stimulus payment at that point, you likely will have to wait to get those funds when you file your 2021 tax return after the end of this year.
Whew! Lots of information on this important topic. Basically, more dollars per household, but less households qualifying because of the reduced income limits.
Other Tax and Financial Provisions:
- The federal government has been providing supplemental unemployment benefit checks to individuals who are out of work since last April after passage of the CARES Act. These payments at one point in time were as much as $600 per week in addition to state benefits. After they ran out in the fall last year, the government continued these at a smaller amount up through March 14, 2021. The COVID Relief Package (CRP) extends these benefits for another six months through September 6, 2021, at a level of $300 per week.
- In a “late to the party” twist, CRP also grants tax relief to individuals who received unemployment benefits for 2020 tax filings. Up to $10,200 per person ($20,400 for a married couple if both received benefits) are exempted from taxes if the income on the taxpayer’s return is less than $150,000. As you might imagine, lots of returns have already been filed. Because of this, there will be a need to amend those returns to get this benefit. At AIA, we are currently holding returns with unemployment benefits on the returns because the forms changes will require some time for the IRS to get written. So we are watching and waiting for those changed forms currently.
- For 2021, the child tax credit (currently $2,000 for 2020 per child) is being increased and expanded for 2021. The credit will now be available for children 17 years old (16 was the previous upper age). The new credit amount will be $3,000 per child, or $3,600 for children under 6. There will be income phase out rules for the increase in the credit – the amount over the $2,000 base amount for 2020. These will be using the same phase outs as for other provisions of the bill – starts phasing out at $75,000 for single taxpayers and $150,000 for married couples. The $2,000 base has a much higher phase out of $400,000 of income.
- The earned income credit for low income taxpayers has been enhanced as well, especially for single taxpayers starting with the 2021 tax year.
- The child care tax credit has also been enhanced and increased. This credit has never been refundable before – it will be in 2021. There is an increase in amount of expenses that qualify – up to $8,000 for one child and $16,000 for two or more. And the percentage of the expenses which are allowed as a credit increases to 50% for low income taxpayers, and gradually reduces to 20% as income rises. And the credit becomes refundable as well.
- For those who buy their health insurance on the exchanges available around the country, the premium tax credit is being expanded. In particular, the amount of 2021 income allowed to retain the credit is being increased.
While there are numerous other tax provisions, these are the high points that will affect the majority of taxpayers in the country. There is one other significant provision that primarily affects employers – the Employee Retention Credit. Check out the COVID Relief Package (CRP) for Business Owners post for more on this topic.