AMERICAN RESCUE PLAN PART THREE

June 29, 2021 - Douglas Myser

American rescue plan part three. The American Rescue Plan suspends a portion of the Unemployment Compensation paid a taxpayer, under Section 9042. In taxable year 2020, if the standard gross income of the taxpayer for the taxable year is less than $150,000, the gross income of such taxpayer shall not include a portion of the unemployment compensation as does not exceed $10,200. The IRS has issued instructions for the process in reporting the excluded portion of the unemployment compensation for those returns not yet filed. As of yet, no guidance has been issued for those returns which have already been filed and accepted by the IRS which included unemployment compensation which was fully taxed. The act eliminates the recapture provision applicable to 2020 for taxpayers receiving excess premium tax credits. American rescue plan part three.

For tax years beginning in 2021 or 2022, the premium tax credit may be available for a taxpayer who purchases coverage through a health exchange, even if their household income for the year is 400% or more of the poverty line for their family size. The act also gives improvements to the Child Tax Credit for 2021. The Child Tax Credit is increased for 2021 only, from $2000 per eligible child to $3000 per eligible child for age 6 and older, the child tax credit for children under the age of 6 is increased to $3600. The age for qualifying children has also been increased from children under age 17 to children under age 18 which allows for all children 17 and younger to be considered eligible dependent children for purposes of the child tax credit. The act makes the credit fully refundable.

The act provides for a separate income threshold for the increased amount of the child tax credit. The income limitations for the original $2000 child tax credit remains at $200,000 for single taxpayers and $400,000 for married filing joint. The income limitations for the additional child tax credit is phased out by $50 for every $1000 of modified adjusted gross income in excess of the threshold amount for singles of $75,000 and $150,000 for married filing joint, with $112,5000 for head of household. This may ease the tax burden of many families, lessening their need for tax resolution services.