President Biden signed the American Rescue Plan Act (ARPA) into law last week to deliver, among other things, a third round of stimulus payments to qualifying individuals. This round will be $1,400 per person, including dependents.
While the qualifying threshold remain the same as last year’s stimulus payments ($75,000 for singles, $112,500 for heads of household and $150,000 for married couples filing a joint return), the amount at which no stimulus payments are paid is much lower ($80k for singles, $120k for HOH and $160k for MFJ). Payments have already started going out. If you’re eligible for one, you can find out when it will be paid by going to irs.gov and clicking on “Get My Payment.”
Another major feature of the Act is to exclude from income $10,200 of unemployment compensation for taxpayers with adjusted gross income of less than $150,000. For married couples, each spouse receiving unemployment benefits can exclude up to $10,200.
For those taxpayers who have already filed and paid taxes on their unemployment benefits, the IRS has said NOT to file an amended return. Guidance will be forthcoming as to how those taxpayers should proceed.
“For those who haven’t filed yet, the IRS will provide a worksheet for paper filers and work with software industry to update current tax software so that taxpayers can determine how to report their unemployment income on their 2020 tax return,” the IRS said. I interpret that statement to mean hold off filing your return if you received unemployment benefits in 2020.
It also extended federal unemployment benefits through September 6, 2021.
The Act also made significant changes to the child tax credit. Currently, the credit is $2,000 for children under the age of 17 (see Publication 972 for details). ARPA increases the credit to $3,000 ($3,600 for kids under 6), makes 17-year-olds eligible, and makes the credit fully refundable.
There are also changes to the earned income credit and the child and dependent care credits, among several other changes. But the ones that will have the broadest impact will be the recovery rebate credits (stimulus payments) and the changes to the taxation of unemployment benefits, along with the extension of those benefits.
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