What is the American Rescue Plan Act of 2021?
This bill was passed on March 6, 2021. Provides relief to address the continued impact COVID-19 has had on the economy, public health, individuals, and businesses.
What will the American Rescue Plan Act Provide?
The American Rescue Plan Act of 2021 will provide funding for individuals and entities. Including but not limited to, schools and institutions of higher education, small businesses, and emergency rental and homeowner assistance.
The Act will also provide an extension on unemployment benefits, expand and otherwise modify certain tax credits, including the child tax credit and the earned income tax credit.
What is the Child Tax Credit?
This credit is for parents who have children under the age of 17 years old. Taxpayers can claim a child tax credit of up to $2,000 for each child under the age of 17 years old who is an American citizen. The credit reduces by 5% of adjusted gross income over $200,000 for a single parent and $400,000 for married couples.
What is the Earned Income Tax Credit?
The earned income tax credit is a way to support working parents who are either of low or moderate income. Working parents can get a credit equal to a percentage of their earnings for up to a maximum credit. In 2019, this credit could be up to $6,557 and $6,660 in 2020. However, once the credit reaches its maximum, the credit will lower with each additional dollar of income made until no credit is available.
In What Way Specifically Will the American Rescue Plan Act Effect Taxes?
As mentioned, the American Rescue Plan Act of 2021 alters existing tax policies. For example, the child tax credit will be increased from $2,000 to $3,600. Per child that is under the age of 6. Also, those who have children ages 6 to 17 years old and low tax bills can expect a tax credit of $3,000 per child. This is a new system that will pay a portion of the child tax credit in advance over the last 6 months of the year. Additionally, tax credit will be extended for single individuals who make more than $75,000 and married individuals who make more than $150,000. The existing credit tops out for single individuals making more than $200,000 and married individuals making more than $400,000.
The legislation also effects the tax credits that parents receive to subsidize the cost of child care this year. Currently, the credit is worth 20% to 35% of eligible expenses with a maximum value of $2,100 for two or more qualifying individuals. The stimulus bill increases that amount to $4,000 for one qualifying individual or $8,000 for two or more. KAASS LAW will guide you through the complexities of the American Rescue Plan Act of 2021 and help you maximize your tax credits and relief benefits.
Expanded Health Insurance Tax Credits and State Support
The American Recovery and Reinvestment Act of 2021 (ARRA) has a significant impact on health care by expanding access to insurance and easing the financial burden for millions of Americans. The Act significantly modifies the current Premium Tax Credit (PTC) provisions. which is designed to reduce the cost of health insurance policies purchased through state exchanges
Under the provisions of ARPA, taxpayers with incomes above 400% of the federal poverty level became eligible for tax subsidies in tax years 2021 through 2022. Only if the cost of the insurance policy exceeded 8.5% of their income. Prior to the passage of ARPA, these taxpayers were completely excluded from the PTC program. This change allowed more people to purchase affordable health insurance. Especially in light of the economic instability caused by the COVID-19 pandemic.
In addition, ARPA included a special provision for individuals who received unemployment benefits for at least one week in 2021. In such cases, the taxpayer was eligible for the maximum premium tax credit regardless of actual income for the year. This provision temporarily removed barriers to health insurance coverage for unemployed individuals.
Funding for State and Local Governments
The act also provided significant funding for state and local governments to recover from the effects of the pandemic. In total, ARPA provided $350 billion to support various levels of government. These funds will be used to ensure:
- Keep critical infrastructure running
- Pay the salaries of government employees
- Fund health care, education
and other socially important sectors. States have flexibility in how they use the funds. However, they must comply with federal transparency and accountability requirements. Some of the funds have also been earmarked for investments in:
- Broadband Internet
- Water supply
- Sanitation
This is especially important for rural and sparsely populated areas. If you would like to learn more about your eligibility for tax credits, the attorneys at KAASS LAW are available for a free consultation. Call (310) 943-1171 for professional assistance.