How the New American Rescue Plan 2021 Can Help You
The economic devastation due to the COVID crisis is continuing to hit several families throughout the country. The American Rescue Plan was recently signed into law by President Biden in an effort to curb the drastic effects of the pandemic on American citizens. This new plan comes as a relief to all those people whose income has been affected significantly due to the pandemic.
There are some significant pointers to note under this plan, especially for the Americans. This article will talk about some of these major numbers under this new plan.
Immediate Relief Delivery
Under the American Rescue Plan, every American is set to receive $1400 payments, which is almost $200 greater than the previous payments. Every dependent, college student, and older relatives whom you are taking care of would also qualify for this payment. You would qualify for this payment if you do not make more than $80,000 per year. If you are a joint filer, this limit is $160,000 per year.
What you need to look into here is, if you have children or older relatives, does it seem feasible to have them listed as your dependants? Also, you need to think about whether you would be filing for them or should they be filing their own returns. There are plenty of tax strategies and special forms around this.
The next big development that was brought about by this new plan is the unemployment benefits. Due to the ongoing pandemic, the unemployment numbers are huge and they are continuing to rise with every passing day. According to the American Rescue Plan, the additional $300 federal level unemployment benefit kicker is going to get extended till 6th September 2021.
Another huge unemployment benefit that was announced is that if the total income of your household is under $150,000 per year and you received unemployment benefits, the first $10,200 of the benefits acquired in 2020 would not be taxable. However, this can be a bit of a hassle for all those people who have already filed their taxes for the year 2020. If that’s the case, you can take the help of your CPA or contact us at Tax Goddess and get the necessary help for tax amendment.
When it comes to the amendment of taxes you may be worried about problems with the audit. Well, this should not be a concern since the amendment of taxes does not automatically flag an audit. You would also be relieved to know that due to this current case, the IRS has gone on to release a statement wherein they state that they are well placed to receive multiple amended tax returns at this particular point. Just like this year, every year you can expect some retroactive changes in the tax laws that directly affect your tax returns and this is why it is highly recommended that you file an extension every year.
Child Tax Credit
There have also been some significant enhancements to the child tax credit for 2021. For starters, the maximum CTC has increased from $2000 to $3,600 for kids under the age of 17 and to $3000, for older than 17. Furthermore, this credit is now 100% refundable compared to the situation in 2020 when only up to $1,400 of $2,000 was refundable.
An important thing to note here is that the higher credit begins to phase out at the lower income levels. This means that the phase-out begins at $75,000 and $150,000. This limit has become much lower in 2021 when compared to 2020 where the limit was $200,000. However, if you are out of those thresholds, you can elect to use the old rules.
Now coming to the dependent care credits, you are eligible to get a maximum credit of up to $4,000 per child and $8,000 for two or more children with an AGI of less than $125,000 adjusted gross income.
Student Loan Forgiveness
The American Rescue Plan also lists out certain benefits when it comes to student loan forgiveness. Basically, if you have a student loan and $300,000 of it gets forgiven, you do not have to pay the tax on this amount, which was not the case up until last year. This new rule is applicable from 2021 to 2025. So, if you are looking for a way to get out of your student loans in a 100% legal way, the student loan debt forgiveness route is a great option.
Flexible Spending Accounts
A few key changes with regards to flexible spending accounts are also a part of the new American Rescue Plan. The limits that can be contributed to dependent care FSA for 2021 has been increased. Employees can choose to fund the plan with up to $12,500 now, which is significantly greater than the current limit of $5,000. This is especially useful for all those individuals who have children and are paying dependent care expenses.
At the moment, these are the new laws under the American Rescue Plan. These new rules would help all the people that have some investment, generally outside of a strict W2. Tax planning is now even more important since there are so many benefits that are being offered right now.
There are so many tax credits that come under this new plan. If you just have a CPA to assist you, they may or may not know some key pointers to help you benefit from these new laws. This is why it is important that you work along with a tax strategist and a CPA to ensure that you’re getting every penny that you deserve and that you qualify for.
When it comes to choosing a tax strategist, there is no other better firm than Tax Goddess. We work with and focus on business owners, real estate owners, and cryptocurrency people, among many others. Contact us now and know how you can plan and strategize your taxes better and save as much as possible.