American Rescue Plan update March 11, 2021
Good morning, I’m Donna Bordeaux with CalculatedMoves.com. Well, we had a busy day yesterday, spent a lot of money and came home without many shopping bags. The house and the Senate have passed the new American Rescue Plan. Our third stimulus bill with 1.9 trillion, yes trillion with a T dollars of spending in it.
Let’s talk a little bit about how that will affect you. The biggest thing everybody’s been talking about stimulus payments, there’ll be a third round of stimulus payments with checks, probably going out by the end of March. And we think it’s going to happen very quickly and soon. We’ll talk about the timing in a moment. It’s going to be $1,400 per taxpayer dependent. If you have income in the ranges under the phase out, you need to have $75,000 or less if you’re single or $150,000 if you’re married.
Are you going to lose it if you go over the 75, if you get to $80,000, it’ll be completely phased out or $160,000. If you’re married, there’ll be no stimulus. Then the big question comes based on what year. Well, this is kind of a confusing situation, and it’s gonna include some timing issues that you need to be concerned about.
So let’s talk two scenarios right now. If we look back at 2019, if you qualified them, but your income increased in 2020, to where you don’t qualify, you’re gonna want to hold off on filing your 2020 return until you get that stimulus payment. Once you get the payment on this part, you’re not going to pay it back. If you weren’t supposed to get it, you get to keep it. However, if you only got a portion of new you were supposed to get more than that, that’ll be trued up when they file your 2021 tax return.
A second part of that, let’s say that in 2019, you did not qualify, but in 2020 your income debt, and now you do. Well, it would be in your benefit to file the 2020 taxes now, if you can’t, let’s say we’re waiting on something. We don’t have enough information to still have time to get that stimulus payment without having to wait until your 2021 taxes.
Now, with these income phase outs we’re going to be looking at a couple of scenarios that might be a little different than usual. If you are married and you go over that $150,000 mark, you might want to look at married filing separately. We can analyze that to see if that helps, now a lot of times it may not because a lot of the other deductions, and credits, phase out or not available at all. If you’re using the married filing separate status, the other factor here is college students.
If you have a college student who is your dependent, it’s usually been beneficial for you to continue to claim them as long as you can. We don’t have dependency deductions anymore or exemptions. So they may not be getting you anything like they used to on your tax return. And if that’s the case, they may be better off filing on their own this year so they’ll get the $1,400 stimulus payment.
That is something you really want to compare a dollar for dollar looking at your personal return with. And without that student on that return versus filing them in a separate scenario. If we’re working on your tax returns, we can definitely help advise you on how that works and what is to your best benefit.
All dependents are now eligible for these stimulus payments. So if you had a child over 16 or an adult dependent that didn’t receive the stimulus before this time, they would still get the $1,400. Now let’s look at a way that you can figure out this timing issue between the 2020 and the 2019 returns. You can check out a calculator built by my friend, Jason Stats. It’s at Stimmy.me. So check that calculator out, you can plug in your AGI from your previous tax returns and determine if you should file that 2020 return or if you should wait.
I promised we’d talk about the timing issues going on here. So how is this gonna work? How will they know if I’m supposed to get my money? Well, as I mentioned, they’re probably going to be passing this money out on the first go round within a couple of weeks, probably by the end of March.
So, if you didn’t qualify based on 2019, but you would if your 2020 return was filed, you might be in a hurry to get that filed. And we don’t want you to be in such a hurry that you’d get it messed up or that you miss out on things. So hold off, don’t go too crazy, 2019 return will be used on the first go round come March. They will do a second pass at determining the stimulus payments, so they’re going to take a second pass at that stimulus calculation. 90 days after the tax return due day or September 1st, whichever is earlier.
So as you can see, they’re kind of keeping that door open because I think there’s a pretty good bet that they’re going to extend the April 15th deadline probably to July like they did last year. No guarantees there yet, but I think we may see that coming. Last year when they did that extension that was not done until March 21st. You don’t have to rush, but do want to make sure you get your 2020 return file.
If the IRS sends you a check based on your qualifications now, but then you end up not being qualified to get that stimulus payment, you still get to keep it. They’re not going to come to claw that back, but if you didn’t get it now and you were supposed to be eligible for it, you’ll get it in that second pass. If let’s say you don’t follow the 2020 return by that second deadline either you’re extended and you filed up October 15th, you’ll still get the money it’ll come in on your 2021 tax return this is all going to be trued up there. Check out the calculator at Stimmy.me.
All right, next to what else is in this bill? Unemployment benefits now are non-taxable for at least a portion of the public. If your income was less than $150,000 in 2020, your first $10,200 of unemployment benefits is non-taxable for federal income tax purposes. So, that’s going to save you probably about $1,500.
Now, if you’ve already filed your return, you need to amend it to take care of this. If you have not filed yet, you’ll still want to wait. We still have some timing issues going on here, the IRS has to update their systems. The software companies are going to have to update their systems. It’s going to be a little bit of time, and we’re probably going to have to extend after April 15th.
If you live in a state that has a state income tax, you may still have to pay state income tax on this. The other reason to wait is some States may say, eventually we’ll follow the federal and not tax it. And that’s going to be on a state by state basis. And we’re just going to have to give it some time for that decision to come through. If you have unemployment benefits for 2020, we may need to wait a little while on your tax return. But we can go ahead and get everything ready and hold it open until the time is ready that the software and the IRS are ready to accept that return.
Next up expanded child tax credit. Oh boy, this one’s a fun one. If you have children under the age of 17, normally you would get a $2,000 child tax credit. The ARP is going to increase it. So if your child is under the age of six, that dollar amount would move from 2000 to $3,600. If your child is aged 6 to 17 is $3,000 per child. And if they’re over 18, they’re still getting a $500 credit. And this change is effective for 2021, not your 2020 taxes, but it could become permanent later on.
Here comes a weird part, they’re gonna split up and send you this money if you qualify over each month, July 2021 to December 2021. So that means you would get a check each month for $300 for the children under the age of 6 and $250 for those ages 6 to 17. If you have a $500 dependent over the age of 18, they’re not gonna send that out to you in advance. You can get that with your tax return.
Let’s say you qualify based on 2020 returns, but you’re not gonna qualify on the 2021. You’d have to pay that money back that would be collected on your tax return. Their income phase out is very similar to the stimulus at 75,000 or 150,000 if you’re married if you’ll still get the $2,000 child tax credit if you go over those numbers. The IRS is going to also create a portal to let you opt out of receiving that advance payment. If you know, you’re not going to be able to use it. I personally would take the money, it’s an interest free loan from the IRS, I like money.
But if you say, look I just don’t want to deal with the hassle. And I don’t want to have to pay it back, I’m bad at setting money aside. You can go to the IRS website someday soon, maybe, and opt out of receiving those advanced payments. Now we know how well the IRS does with all their technologies so that might take a little while and it’s going to be ugly. But what I can tell you on all of these stimulus payments, my best advice to you is any time you receive a payment from the government. Write it down, tell me the amount and the date we’re going to need that come tax time next year. You’ll save yourself a lot of headache of trying to look that all up.
Let’s talk about what’s not in there. All right, you may be hearing a lot of people talk about this in the media and your friends are saying it. The first item, they are not raising the federal minimum wage to $15 an hour. They’re going to keep trying, but we don’t think this idea’s gonna have a good probability that it’s going to pass. I think it’s going to keep getting removed. They’ll keep talking about it for a while and maybe they’ll give up, but in its possibility that could pass it, but it’s not in this bill.
Secondly, student loans are not being forgiven, yet. Now the one thing that’s in this bill that kind of sets the stage is that they do have a clause that says if student loan debt has ever forgiven, it’s not going to be subject to federal income tax. Typically if you have a debt that’s canceled, you still have to pay taxes on it. They’ve set the foundation to say, that’s not gonna be taxable. So it’s not in this bill that they’re going to forgive any student loans. But if at a future date, they decide to do that. It would not be subject to federal income tax, state laws a whole different matter.
Keep an eye out we’ll have plenty of more details about things coming out over the next few weeks and months. As usual, there are a lot of unanswered questions that we’ll just have to wait and see, but know that we’re looking out on your behalf. I’m Donna Bordeaux with CalculatedMoves.com.
Donna Bordeaux, CPA with Calculated Moves
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