Provisions in the $1.9 trillion American Rescue Plan Act of 2021, signed into law on March 11, 2021, are intended to help alleviate the financial impacts of COVID-19. Key provisions include:
Economic impact payments. Qualifying taxpayers receive direct payments of $1,400 (single filers) or $2,800 (joint), in addition to $1,400 per dependent. The provision broadens the definition of dependents to include children under 19, certain students under 24, disabled adult children and others. Payment amounts phase out based on the filer’s adjusted gross income:
- $75,000 single, capped at $80,000
- $112,500 head of household, capped at $120,000
- $150,000 joint, capped at $160,000
Child tax credit. The tax credit is fully refundable for the 2021 tax year. In addition, the amount and eligibility age are higher.
- Up to $3,600 total for each child age 5 and younger
- Up to $3,000 total for each child age six through 17 (previously age 16)
- Eligible families may receive half of the credit in direct periodic payments from the IRS, July through December 2021. Families can elect out of these direct periodic payments or update relevant information by using the IRS website.
- Any remaining credit can be claimed on the 2021 tax return.
- The credit phases out for filers with modified adjusted gross income of $75,000 single, $112,500 head of household or $150,000 joint.
Child and dependent care tax credit. In 2021, households earning up to $125,000 may qualify for the full credit, up to $4,000 for one qualifying individual or $8,000 for two or more.
Unemployment insurance (UI). The weekly supplemental benefit remains $300 per week but is extended through Sept. 6, 2021 (except for states that terminated benefit payments early). For the 2020 tax year, the first $10,200 in assistance is federally tax-free for households with modified adjusted gross income under $150,000. Rules may vary for state tax purposes.
Continuation of health coverage (COBRA). Individuals who choose employer health insurance through COBRA (for up to 18 months) due to involuntary job loss or reduction in hours are entitled to a 100% federal subsidy for the premiums for up to six months, April 1 through Sept. 30, 2021. The subsidy is not provided to individuals who become eligible for coverage through another employer plan or Medicare.
Health Insurance Marketplace. Through the end of 2022, the cost of premiums is lower for many individuals and will not exceed 8.5% of modified adjusted gross income. New enrollees can sign up until May 15.
Employee retention tax credit (ERTC). To help keep employees on payroll, the credit extends through Dec. 31, 2021. Eligible businesses would receive up to a maximum $14,000 payroll tax credit per employee: specifically, up to $7,000 in the third quarter and up to $7,000 in the fourth quarter.
We are here to help
If you or someone you care about have questions related to this newest round of aid and could benefit from a second set of eyes, we would be glad to help. Ameriprise is committed to providing personalized financial advice based on your goals and needs.