AMERICAN RESCUE PLAN PART THREE

American rescue plan part three. Multiple provisions of the American Rescue Plan have been discussed, as the tax provision has many aspects. The law was passed in response to the Covid pandemic, and it represents efforts to confront the economic fallout from the health crisis. Taxpayers who, for 2020, purchased health insurance through a federal or state Health Insurance Marketplace and have excess advance payments of the premium tax credit won’t report an excess APTC repayment when they file their own 2020 tax return. Taxpayers use Form 8962 to figure the amount of the premium tax credit they are allowed and reconcile it with any advance payments of the premium tax credit made for their health insurance through the Marketplace. If the APTC is less than the PTC, they claim a net premium tax credit. The process remains unchanged for taxpayers claiming a net PTC for 2020. They must file Form 8962 when they file their 2020 tax return. American rescue plan part three.

The new law increases the amount of the credit and eligible expenses for child and dependent care, modifies the phase out of the credit for higher earners and makes it refundable. For 2021, the top credit percentage of qualifying expenses increased from 35% to 50%. In addition, eligible families can claim qualifying child and dependent care expenses of up to $8000 for one qualifying individual, up from $3000 in prior years, or $10,000 for two or more qualifying individuals. This means that the maximum credit in 2021 of 50% for one dependent’s qualifying expenses is $4000, or $8000 for two or more dependents. When figuring the credit, employer provided dependent care benefits, such as those provided through a flexible spending account, must be substracted from total eligible expenses.

As before, the more a taxpayer earns, the lower the credit percentage. But under the new law, more people will qualify for the new maximum 50% credit rate. That’s because the adjusted gross income level at which the credit percentage is reduced is raised substantially from $15,000 to $125,000.