Tag: American Rescue Plan

Child Tax Credit 2021 Update: Advanced Payments

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**Updated October 15, 2021. Original Post June 25, 2021.**

There have been important changes to the Child Tax Credit (CTC) that will help many families receive advance payments this summer. In order to receive the new credit, you may need to take some steps to ensure you get the funds. Families who are filing taxes and do not currently receive the Child Tax Credit must take action before October 15, 2021, otherwise you will have to wait to receive the credit when you file your taxes in 2022.  If your family does not earn enough to file taxes, and you want to get the child tax credit in monthly payments now, you must enroll online by November 15, 2021.

The CTC is a tax credit that taxpayers can get for each qualifying dependent child on their tax return. A tax credit directly reduces the amount of taxes you owe, giving you a dollar-for-dollar reduction of your tax liability. The CTC in 2021 is a fully refundable tax credit, meaning that eligible families can receive it, even if they owe no federal income tax. Before this year, the refundable portion of the CTC was limited to $1,400 per child. 

The American Rescue Plan has expanded the CTC for the 2021 tax year. These changes will only apply for the 2021 tax year. The CTC has been revised in the following ways: 

  • An increase to $3,600 per qualifying child under the age of 6.  
  • An increase to $3,000 per qualifying child between the ages of 6 and 17.  

Is My Family Eligible for the Credit?

Your family qualifies for the credit if:

  • The child is your son, daughter, grandchild, stepchild or adopted child; younger sibling, step-sibling, half-sibling, or their descendent; or a foster child placed with you by a government agency.
  • The child was under 17 at the end of 2020.
  • The child has a valid Social Security Number.
  • The child lived with you for more than half of 2021.
  • The child did not provide over half of their own support for 2021.

To Qualify 
Filers must have had a 2019 or 2020 adjusted gross income below the following levels to qualify for the full monthly payment: 

  • $75,000 for individual taxpayers 
  • $112,500 for heads of households
  • $150,000 for married taxpayers filing jointly and widows/widowers

What to Expect  

  • The Internal Revenue Service (IRS) has started sending out letters to let families who it knows, based on tax returns, might be eligible to receive advanced monthly CTC payments beginning July 15.   
  • Eligibility is based on either a filers’ most recent tax return or information submitted to the IRS using the simplified sign-up tool.  
  • Families eligible for advance CTC payments will receive a second, personalized letter listing an estimate of their monthly payment.   
  • The advance CTC payments are worth up to $300 per month for each qualifying child under the age of six and up to $250 for each child between the ages of 6 and 17.  
  • The IRS will pay half of the total credit through the advanced monthly CTC payments and pay the other half of the credit when the taxpayer files their 2021 tax return.  
  • Taxpayers can verify their eligibility for the payments or opt-out of the advanced payment program by visiting the IRS Child Tax Credit Update Portal.  
  • For more information about the unenrollment process, including a schedule of deadlines for each monthly payment, visit the IRS FAQ page.

Eligibility is Determined from 2020 or 2019 Tax Returns   

Filers who have filed a return in either 2019 or 2020 will not need to do anything. The IRS will take the information from those tax returns to determine eligibility for the advanced CTC payments. The IRS will only use a 2019 return if a 2020 return has not been filed or is otherwise unavailable to use.  

What about Filers who don’t regularly file taxes?  

Filers who have not filed for 2019/2020 may register online with the IRS simplified sign-up tool. This tool will allow non-regular filers to provide the IRS with the basic information needed to determine if they qualify for the CTC.  

Who should unenroll?

Instead of receiving the advanced monthly payments, some families may prefer to wait until the end of the year to receive the entire credit as a refund when they file their 2021 tax return.

The unenroll feature may also be helpful to some families that no longer qualify for the Child Tax Credit or believes they will not qualify when they file their 2021 tax return. This could happen if, for example:

  • Their income in 2021 is too high for them to qualify for the credit
  • Someone else (an ex-spouse or another family member, for example) qualifies to claim their child or children as dependents in 2021
  • Their main home was outside of the United States for more than half of 2021

What About Immigrant Families?

You can apply for and receive a tax credit with NO negative effect on any immigration application you might file. Immigration does NOT ask about tax credits or consider them negatively in your immigration application process.

Is a Social Security Number Needed to be Eligible for the CTC?  

Parents are not required to have a social security number to be eligible for the CTC. However, parents must have an Individual Taxpayer Identification Number (ITIN) to claim the CTC for their eligible children.   

Do Children need to have a Social Security Number to Qualify for the CTC?  

Yes. The CTC is only available for children 17 years and younger with social security numbers.   

What about Dependent College Students?  

Dependent college children who are under the age of 24 at the end of the tax year, who are full-time students for at least five months of the year, and who are younger than the tax filer may be considered a qualifying child for the Earned Income Tax Credit (EITC). The EITC is a tax break that helps low to moderate-income taxpayers.

For more information, visit the IRS EITC page: https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit-eitc.   

Additionally, dependent college children may be claimed for a $500 non-refundable tax credit as an Other Dependent Child. Claiming an Other Dependent Child will not affect advance CTC payments but may affect a qualifying filer’s 2021 tax return.  

How to Receive CTC Payments?  

The IRS is calculating this payment based on the most recent of 2020 and 2019 returns. Potentially qualifying filers should file their tax return as soon as possible to receive the CTC.  Filers who have not filed for 2019/2020 may register online with the IRS simplified sign-up tool. Families who are not currently receiving the Child Tax Credit must take action before October 15, 2021, otherwise you will have to wait to receive the credit when you file your taxes in 2022. 

Advanced CTC Payment Options  

  • The IRS will be using information from tax filers’ most recent tax returns or from non-filers tools to send out advanced monthly CTC payments. Eligible families will receive the advanced payments by direct deposit or check.   
  • Direct deposit is available to tax filers who include their bank information and select it as an option.  
  • Filers can also elect to have advance CTCs mailed out.  

How to update direct deposit information

To update direct deposit information, families should use the Child Tax Credit Update Portal to provide the IRS with their most recent bank account information to receive their monthly payments.

To change the bank account receiving the advanced payments, update the routing number, account number and indicate whether this is a savings or checking account. The advanced payments will start going to this updated account August 13.

It is important to note that the advanced payments can only be direct deposited into one account.

How to switch from paper check to direct deposit

The Child Tax Credit Update Portal will indicate whether families are enrolled to receive their advanced payments by direct deposit. If they are not enrolled to receive their advanced payments by direct deposit, they will receive a check each month.

To receive the advanced payments by direct deposit, they can use the Child Tax Credit Update Portal to add their bank account information. The Update Portal will need their routing number, account number, and indicate if this is a savings or checking account.

The IRS urges any family receiving checks to consider switching to direct deposit. With direct deposit, families can access their money more quickly and eliminates the chance of a stolen, lost, or undelivered check.

Watch Out for Scams  

The IRS urges everyone to be on the lookout for scams relating the advanced CTC payments. The only way for eligible families to get the advanced CTC payments is to have filed a tax return with the IRS or registered online through the non-filers signup tool, which can only be done on the IRS.gov website. These are the only two ways to get the advanced CTC payments; any other option is a scam.  

People who receive emails, phone calls, or text messages related to advanced payments should be cautious. The IRS never sends electronic communications, which were not requested, to anyone asking them to open attachments or visit non-governmental websites.  

For more information on how to protect yourself from scams, visit the IRS Tax Scams page. This webpage provides information on how scammers might target you to obtain your personal information or money. 

We are still waiting on additional details from the IRS and will update our website with more information. For more information about the CTC, visit the IRS advanced CTC 2021 page at IRS.gov/childtaxcredit2021 or their FAQ page.

American Rescue Plan FAQs: Stimulus Payments and Tax Updates

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*Please note: this article was written in 2021 and may no longer be up to date. Click here for updates on filing your 2021 Federal Income Tax Return, including stimulus payments.

Since the American Rescue Plan was signed into law in March 2021, the IRS has been working to implement provisions of the law and provide guidance to make sure taxpayers can receive Economic Impact Payments (EIP or stimulus checks) and take advantage of new tax credits during this current tax season. 

Below are frequently asked questions about the American Rescue Plan will impact this tax season and when people can expect to receive their stimulus checks: 

Stimulus Payments 

How much is the third Economic Impact Payment (EIP3) and am I eligible? 

In this version, the maximum payment is $1,400 per qualified individual or $2,800 for a couple.  

In addition, $1,400 payments are now available for all dependents, including children in college and elderly relatives.  

As with previous rounds of payments, economic stimulus payments are phased out, based on adjusted gross income. However, the upper threshold is reduced from $100,000 of adjusted gross income to $80,000 for single filers and from $200,000 down to $160,000 for joint filers. Payments for dependents are also phased out under these thresholds. 

Mixed-Status Families: 

Children of mixed-immigration status families with valid social security numbers are also eligible for the stimulus payments. 

For married couples who file jointly and only one individual has a valid social security number (SSN), the spouse with a valid SSN will receive up to a $1,400 payment for themselves and up to $1,400 for each qualifying dependent claimed on their 2020 or 2019 tax return.  

For taxpayers who do not have a valid SSN, but have a qualifying dependent who has an SSN, they will receive up to $1,400 per qualifying dependent claimed on their return if they meet all other eligibility and income requirements.  

Do I qualify for the March 2021 Stimulus Check (N.C. Justice Center, English and Español)

Military Families: 

If either spouse was an active member of the U.S. Armed Forces at any time during the taxable year, only one spouse needs to have a valid SSN for the couple to receive up to $2,800 for themselves, plus up to $1,400 for each qualifying dependent. 

When can I expect to receive my Economic Impact Payment (EIP3)? 

Most eligible U.S. residents received EIP3 in mid-March through direct deposit or will soon receive it by paper check or pre-paid debit card in the coming weeks.

Social Security and other federal beneficiary recipients who did not receive EIP3 through direct deposit can expect the payment in early April the same way as their regular benefits, though some may receive it as a paper check or pre-paid debit card.  

The IRS continues to review data received for Veterans Affairs (VA) benefit recipients and expects to determine a payment date and provide more details soon. 

Check your mail

The IRS urges all expecting an economic impact payment through paper check or pre-paid debit card to check their mail frequently and look out for the payment.  

The IRS hopes to have all payments issued by the end of May, but you can check the status of your economic impact payment with the Get My Payment tool. 

How is my eligibility for the Economic Impact Payment (EIP3) determined? 

The amount of the third payment is based on the taxpayer’s latest processed tax return from either 2020 or 2019, information from Social Security or other federal beneficiary organization, or information entered previously through the IRS’s Non-tax Filer Tool.  

If the taxpayer’s 2020 return has not been processed, the IRS used 2019 tax return information to calculate the third payment. If the third payment is based on the 2019 return, and is less than the full amount a taxpayer is eligible for, the taxpayer may qualify for a supplemental payment.  

After their 2020 return is processed, the IRS will automatically re-evaluate their eligibility using their 2020 information. If they are entitled to a larger payment, the IRS will issue a supplemental payment for the additional amount. 

Do I need to take any actions to receive my Economic Impact Payment (EIP3)? 

No action is required for most who are eligible for EIP3. 

However, some may need to file a simple 2020 tax return to claim the Recover Rebate Credit to receive some or all of any of the three economic impact payments issued from the federal government.  

Who may need claim the Recovery Rebate Credit? 

The following groups may be among those who should claim the Recovery Rebate Credit and file a 2020 tax return to receive EIP3: 

  • Recent college graduates,  
  • Those who were claimed as dependents in 2019,  
  • Incarcerated or recently incarcerated people,  
  • Mixed-immigration-status families, and  
  • Social Security recipients who did not receive a stimulus payment for their dependents.  

Learn about the Recovery Rebate Credit here.  

What does the third Economic Impact Payment look like (EIP3)? 

For those receiving payments in the mail, the IRS urges these taxpayers to continue to watch their mail for these payments, which could include a paper Treasury check, or a special prepaid debit card called an EIP Card. 

Paper checks will arrive by mail in a white envelope from the U.S. Department of the Treasury.  

The EIP Card will also come in a white envelope prominently displaying the seal of the U.S. Department of the Treasury. The card has the Visa name on the front and the issuing bank, MetaBank, N.A. on the back. Information included with the card will explain that this is an Economic Impact Payment. Each mailing will include instructions on how to securely activate and use the card. 

EIP cards issued for any of the three rounds of payments are not reloadable. Recipients will receive a separate card and will not be able to reload funds onto an existing card. 

The form of payment for EIP3, including for some Social Security and other federal beneficiaries, may be different than earlier stimulus payments. More people are receiving direct deposits, while those receiving payments in the mail may receive either a paper check or an EIP Card. 

 
Tax Refunds and Updates 

When is the tax filing deadline? 

The federal deadline for filing taxes has been extended to May 17. 

In North Carolina, the deadline for filing state taxes is May 17. 

What new tax credits and rebates are available through the American Rescue Plan? 

Earned Income Tax Credit:  

The American Rescue Plan expands the Earned Income Tax Credit for 2021, raising the maximum credit for childless adults from roughly $530 to close to $1,500, while also increasing the income limit for the credit from about $16,000 to about $21,000, and expanding the eligible age range by eliminating the age cap for older workers. 

Child Tax Credit:  

The American Rescue Plan includes changes to the Child Tax Credit (CTC) for the 2021 tax year: 

  • An increase to $3,600 per qualified child under age 6 and $3,000 for a child up to age 17. 
  • An additional $500 credit is available for dependent children in college who are under age 24. 
  • The phaseout begins at lower levels of $75,000 of adjusted gross income for single filers and $150,000 for joint filers. But many higher-income families can still claim the $2,000 credit subject to the prior phaseout rules. 

The IRS will make advance payments of the credit, beginning in July. The exact logistics of that process are still being worked out. 

Read more about changes to the Child Tax Credit here.

Dependent Care Credit

The new law increases the Dependent Care Credit for the 2021 tax year to a maximum of $4,000 for one child and $8,000 for two or more children for households with an adjusted gross income of up to $125,000. But the credit will be reduced below 20% for those with an adjusted gross income of more than $400,000.  

Read more about the Dependent Care Credit here

Student Loan Forgiveness Credit

The American Rescue Plan creates a tax exemption beginning in the 2021 tax year for student loans made, insured or guaranteed by the federal or state governments, as well as loans from private lenders and educational institutions. This does not apply, however, to loans that are discharged in exchange for services rendered.

Read more about the Student Loan Forgiveness Credit here

Do I need to pay taxes on unemployment benefits I received in 2020?   

The American Rescue Plan exempts from federal income tax up to $10,200 of unemployment benefits received in 2020 by a family with an adjusted gross income under $150,000.  

Normally, those benefits would be fully taxable. This tax break is intended to help taxpayers who might be blindsided by an unexpected tax bill on their 2020 returns.  

Please note that unemployment benefits are still taxable at the state level and need to be reported as income on North Carolina taxes. 

I am eligible for the expanded Earned Income Tax Credit made available by the American Rescue Plan and/or received unemployment benefits in 2020, but I already filed my tax return. What should I do to receive my full refund? 

If you claimed the expanded credit on your tax return and/or included your unemployment benefits on your tax return, the IRS will automatically review your tax return again and issue the correct refund beginning in May and continue through the summer. You do not need to file an amended return. 

The IRS will do these recalculations in two phases, starting with taxpayers eligible for the up to $10,200 exclusion. The IRS will then adjust returns for those married filing jointly taxpayers who are eligible for the up to $20,400 exclusion and others with more complex returns. 

What if I already filed my tax return and did not claim a credit because I was previously ineligible for it? 

There is no need for taxpayers to file an amended return unless the calculations make the taxpayer newly eligible for additional federal credits and deductions not already included on the original tax return. For example: 

  • The IRS can adjust returns for those taxpayers who claimed the Earned Income Tax Credit (EITC) and, because the exclusion changed the income level, may now be eligible for an increase in the EITC amount which may result in a larger refund.  
  • However, taxpayers would have to file an amended return if they did not originally claim the EITC or other credits but now are eligible because the exclusion changed their income. 
  • These taxpayers may want to review their state tax returns as well. 

The IRS has worked with the tax return preparation software industry to reflect these updates so people who choose to file electronically simply need to respond to the related questions when electronically preparing their tax returns. See New Exclusion of up to $10,200 of Unemployment Compensation for information and examples.   

I am eligible for new or expanded rebates/credits made available by the ARP but have not filed my 2020 tax return. What should I do to receive my full refund? 

Complete your 2020 tax return as you normally would. The IRS has supplied a new worksheet to reflect the changes and online tax preparer software agencies have been instructed to adapt their programs to reflect the changes.  

I have health insurance through the Health Insurance Marketplace (ACA/Obamacare). What should I do about reconciling my financial assistance for coverage premiums this tax season?

The American Rescue Plan Act suspends the requirement that taxpayers pay back all or a portion of their excess advance payments of the Premium Tax Credit for tax year 2020.

What is a Premium Tax Credit

From healthcare.gov: A Premium Tax Credit is a tax credit you can take in advance to lower your monthly health insurance payment (or “premium”).

When you apply for coverage in the Health Insurance Marketplace, you estimate your expected income for the year. If you qualify for a premium tax credit based on your estimate, you can use any amount of the credit in advance to lower your monthly premium (APTC).

In a typical tax year, taxpayers use Form 8962, Premium Tax Credit to figure the amount of their PTC (based on actual annual income) and reconcile it with their APTC (based on the annual income estimated).

If at the end of the year you’ve taken more premium tax credit in advance than you’re due based on your final income, you’ll have to pay back the excess when you file your federal tax return.

If you’ve taken less than you qualify for, you’ll get the difference back through claiming a net Premium Tax Credit.

The Internal Revenue Service has announced that taxpayers with excess Advance Premium Tax Credits (financial assistance) for 2020 are not required to file Form 8962, Premium Tax Credit, or report an excess advance Premium Tax Credit repayment on their 2020 Form 1040 or Form 1040-SR, Schedule 2, Line 2, when they file.

Taxpayers can check with their tax professional or use tax software to figure the amount of allowable PTC and reconcile it with APTC received using the information from Form 1095-A, Health Insurance Marketplace Statement.

For taxpayers claiming a net PTC for 2020: 
The process remains unchanged. They must file Form 8962 when they file their 2020 tax return. See the Instructions for Form 8962 for more information. Taxpayers claiming a net PTC should respond to an IRS notice asking for more information to finish processing their tax return.

For taxpayers who have already filed:
Taxpayers who have already filed their 2020 tax return and who have excess APTC for 2020 do not need to file an amended tax return or contact the IRS. The IRS will reduce the excess APTC repayment amount to zero with no further action needed by the taxpayer.

The IRS will reimburse people who have already repaid any excess advance Premium Tax Credit on their 2020 tax return. Taxpayers who received a letter about a missing Form 8962 should disregard the letter if they have excess APTC for 2020. The IRS will process tax returns without Form 8962 for tax year 2020 by reducing the excess advance premium tax credit repayment amount to zero.

Again, IRS is taking steps to reimburse people who filed Form 8962, reported, and paid an excess advance Premium Tax Credit repayment amount with their 2020 tax return before the recent legislative changes were made. Taxpayers in this situation should not file an amended return solely to get a refund of this amount. The IRS will provide more details on IRS.gov. There is no need to file an amended tax return or contact the IRS. 

For taxpayers reconciling benefits received prior to the 2020 tax year:
As a reminder, this change applies only to reconciling tax year 2020 APTC. Taxpayers who received the benefit of APTC prior to 2020 still must file Form 8962 to reconcile their APTC and PTC for the pre-2020 year when they file their federal income tax return even if they otherwise are not required to file a tax return for that year. 

The IRS continues to process prior year tax returns and reach out to taxpayers for missing information. If the IRS sends a letter about a 2019 Form 8962, the IRS need more information from the taxpayer to finish processing their tax return. Taxpayers should respond to the letter so that the IRS can finish processing the tax return and, if applicable, issue any refund the taxpayer may be due.

See the  Form 8962, Premium Tax Credit, and IRS Fact Sheet for more details about the changes related to the PTC for tax year 2020.

Healthcare.gov Premium Tax Credits and Filing Your 2020 Taxes

Learn more about how the American Rescue Plan impacts the Affordable Care Act and your ability to get health coverage here.

How can I check my status of my tax return? 

Track the status of your tax refund with the Where’s My Refund? tool at IRS.gov or through the IRS2Go App. 

While most tax refunds are issued within 21 days, some may take longer if the return requires additional review. 

Taxpayers can start checking on the status of their return within 24 hours after the IRS acknowledges receipt of an electronically filed return or four weeks after the taxpayer mails a paper return. The tool’s tracker displays progress in three phases: 

  1. Return received 
  1. Refund approved 
  1. Refund sent 

To use Where’s My Refund, taxpayers must enter their Social Security number or Individual Taxpayer Identification Number (ITIN), their filing status and the exact whole dollar amount of their refund. The IRS updates the tool once a day, usually overnight, so there’s no need to check more often. 

Additional Resources 

Learn more about the American Rescue Plan 
IRS Interactive Tax Assistant (ITA) 
File Your Federal Taxes for Free 
Ready to File Your 2021 Tax Return? 
VITA Offers Free Help Filing 2021 Taxes  

American Rescue Plan Offers Relief

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Third COVID-19 Relief Package Passes as Pandemic Marks One Year  

On March 11, 2021, President Biden signed the American Rescue Plan into law as the largest and most recent COVID-19 relief package extending $1.9 trillion dollars in aid to families, businesses, nonprofits, and states. This third round of aid comes as Charlotte Center for Legal Advocacy marks a full year fighting to support families under the pandemic.  

And our work is far from done. 

As we learn more about how the plan’s programs and funding will be implemented, we will update our website and social media accordingly. Please contact us at the appropriate numbers below if you or your family are struggling and need assistance.   

This list is not exhaustive, and the bill contains programs and funding not listed here.   

Here is what we know so far:  

ECONOMIC IMPACT PAYMENTS (STIMULUS CHECKS) AND TAX CREDITS 

The American Rescue Plan includes a third round of tax-free economic stimulus payments. 

In this version, the maximum payment is $1,400 per qualified individual or $2,800 for a couple. In addition, payments are now available for all dependents, including children in college and elderly relatives. Children of mixed-immigration status families with valid social security numbers are also eligible for the stimulus payments

The additional amount for dependents is significantly higher – $1,400 per eligible dependent. 

As before, economic stimulus payments are phased out, based on adjusted gross income. However, the upper threshold is reduced from $100,000 of adjusted gross income to $80,000 for single filers and from $200,000 down to $160,000 for joint filers. Payments for dependents are also phased out under these thresholds. 

The IRS expects to begin sending out payments in March. 

Third Economic Stimulus Payments Will Be Based on 2019 or 2020 Tax Returns: 

The American Rescue Plan provides that if your 2020 tax return is not filed and processed by the time the IRS starts processing your third stimulus payment, the tax agency will use information from your 2019 tax return. If your 2020 return is already filed and processed when the IRS is ready to send your payment, then your stimulus check eligibility and amount will be based on information from your 2020 return.  

If your 2020 return is filed and/or processed after the IRS sends you a stimulus check, but before July 15, 2021 (or September 1 if the April 15 filing deadline is pushed back), the IRS will send you a second payment for the difference between what your payment should have been if based on your 2020 return and the payment sent based on your 2019 return. 

If you have questions about the economic impact payments, contact a tax advocate at 980-202-7329   

Child Support Won’t Be Taken Out of Stimulus Checks: 

As with second-round checks, third stimulus checks will not be reduced to pay child support arrears. 

Wage Garnishment:

The COVID-Related Tax Relief Act prevented garnishment of second-round stimulus checks by creditors or debt collectors. They could not be lost in bankruptcy proceedings, either. The IRS also had to encode direct deposit second-round payments so that banks knew they could not be garnished. This is in contrast with the CARES Act, which did not provide similar protections for first-round payments. These protections are included for the third stimulus payment as well.

Under the American Rescue Plan, payments will be protected from reduction or offset to pay federal taxes, state income taxes, debts owed to federal agencies, and unemployment compensation debts. (As well as child support, as was discussed above.) However, as with first-round checks under the CARES Act, there will be no additional protections against garnishment by private creditors or debt collectors for third-round payments.

Earned Income Credit 

The American Rescue Plan expands the Earned Income Tax Credit for 2021, raising the maximum credit for childless adults from roughly $530 to close to $1,500, while also increasing the income limit for the credit from about $16,000 to about $21,000, and expanding the age range that is eligible by eliminating the age cap for older workers. 

Child Tax Credit

The American Rescue Plan includes changes to the Child Tax Credit (CTC). Under current law, the CTC is equal to $2,000 for each qualified child under age 17 who resides with you for at least six months of the year. Up to $1,400 of this amount is refundable, but the credit begins to phase out at $200,000 of adjusted gross income for single filers and $400,000 for joint filers. 

This credit will not go into effect until the 2021 tax year, which will be filed in Spring 2022.

The new law provides the following revisions for the 2021 tax year: 

  • An increase in the CTC to $3,600 per qualified child under age six and $3,000 for a child up to age 17. 
  • An additional $500 credit is available for dependent children in college who are under age 24. 
  • The credit is fully refundable. 
  • The phaseout begins at lower levels of $75,000 of adjusted gross income for single filers and $150,000 for joint filers. But many higher-income families can still claim the $2,000 credit subject to the prior phaseout rules. 

Finally, the IRS will make advance payments of the credit, beginning in July. The exact logistics of that process are still being worked out. 

Dependent Care Credits 

The American Rescue Plan substantially increases the Dependent Care Credit for many moderate-to-high income taxpayers. 

Presently, the Dependent Care Credit is available for qualified expenses of caring for children under age 13 to allow you (and your spouse, if married) to be gainfully employed. The credit is generally equal to 20 percent of the first $3,000 of qualified expenses for one child and $6,000 for two or more children. Thus, the maximum credits are $600 and $1,200, respectively. 

The new law enhances the Dependent Care Credit for the 2021 tax year.

It increases the maximum credit to $4,000 for one child and $8,000 for two or more children for households with an adjusted gross income of up to $125,000. But the credit will be reduced below 20% for those with an adjusted gross income of more than $400,000. Finally, the credit for 2021 is refundable. 

This credit will not go into effect until the 2021 tax year, which will be filed in Spring 2022.

Student Loan Forgiveness Credit 

If a debt is forgiven or cancelled, it generally results in taxable income to the debtor. However, in limited cases, debts of student loans that are forgiven may be exempt from tax. 

The American Rescue Plan effectively creates a tax exemption for student loans made, insured or guaranteed by the federal or state governments, as well as loans from private lenders and educational institutions. This does not apply, however, to loans that are discharged in exchange for services rendered.

This provision is effective beginning with the 2021 tax year and lasts through the 2025 tax year but could be extended or made permanent. 

Taxes on Unemployment Benefits  

The American Rescue Plan exempts from federal income tax up to $10,200 of unemployment benefits received in 2020 by a family with an adjusted gross income under $150,000. Normally, those benefits would be fully taxable. This tax break is intended to help taxpayers who might be blindsided by an unexpected tax bill on their 2020 returns. 

Please note that states can still tax unemployment benefits as income.

Check out our American Rescue Plan FAQs: Stimulus and Tax Updates

UNEMPLOYMENT INSURANCE 

The American Rescue Plan extends the CARES Act’s unemployment insurance expansion through Sept. 6, 2021. Specifically, this act:   

Provides an additional $300 per week to on top of what beneficiaries are getting through their state unemployment insurance program. 

The first $10,200 of jobless benefits accrued in 2020 would be non-taxable for households with incomes under $150,000. Please note that states can still tax unemployment benefits as income.

Extends the Pandemic Unemployment Assistance (PUA) program, which provides continued unemployment assistance to the self-employed, freelancers, gig workers, part-time workers and other individuals in non-traditional employment. It also increases the number of weeks of PUA benefits an individual may claim, from 50 to 79;  

Extends the Pandemic Emergency Unemployment Compensation (PEUC) program, providing additional weeks of federally-funded benefits to workers who have exhausted their regular state unemployment benefits. It also increases the weeks of PEUC benefits an individual may claim, from 24 to 53.  

Apply for unemployment at the Department of Employment Security website or call 1-888-737-0259.

Check out FAQs about Unemployment Insurance

EMERGENCY MORTGAGE, RENTAL AND UTILITY SERVICES 

The plan provides $25 billion for emergency rental assistance, including $5 billion for emergency housing vouchers for people experiencing homelessness, survivors of domestic violence and victims of human trafficking.  

The plan also sends roughly $20 billion to state and local governments to help low-income households cover back rent, rent assistance and utility bills. There is $4.5 billion for the Low-Income Home Energy Assistance Program (LIHEAP) to help families with home heating and cooling costs. 

You can apply for utility assistance through the Low-Income Home Energy Assistance Program or RAMP Charlotte. 

FOOD AND NUTRITIONAL ASSISTANCE 

Millions of families across the country are struggling to put food on the table. This act addresses food insecurity by:  

  • Extending the current 15 percent increase in food stamp benefits through September 2021, instead of letting it expire at the end of June. 
  • Providing $880 million for the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) to help increase participation and temporarily improve benefits 
  • Allowing states to continue the Pandemic-EBT (PEBT) program through summer for families with children who qualify for free and reduced meals in school. The program gives families financial assistance to replace the meals the kids would have received if schools had not been closed due to COVID-19. 

If you need assistance with applying for SNAP, PEBT, or other public benefits, contact our Family Support and Healthcare team at 704-376-1600.  

CHILD CARE 

The plan includes a number of provisions to increase access to child care, including an additional $15 billion through Sept. 30, 2021 for the Child Care and Development Block Grant. 

It does not reinstate mandatory paid family and sick leave approved in the CARES Act. But it will continue to provide tax credits to employers who voluntarily choose to offer the benefit through October 1, 2021. 

STUDENT LOANS 

Many federal student loans are continuing in forbearance, which is scheduled to end October 1. If student loan debt is forgiven after December 31, 2020, and before January 1, 2026, the cancelled debt won’t be taxed. 

FINANCIAL ASSISTANCE FOR HEALTH INSURANCE 

More Help to Pay for Health Coverage under the Affordable Care Act (ACA): 

The American Rescue Plan provides financial assistance to help consumers get health insurance through the Federal Health Insurance Marketplace under the Affordable Care Act (ACA or Obamacare).  

Under the plan, consumers can receive increased premium tax credits to pay for coverage in 2021 and 2022, eliminating or reducing premiums for millions of current Marketplace enrollees to ensure that no one on the exchange spends more than 8.5 percent of their income on coverage premiums, regardless of their income level.  

This reduces the current 9.83 percent limit for people with income of 300 to 400 percent of the poverty line and establishes a new premium cap for Marketplace enrollees with higher incomes.  

Under the bill, people with income below 150 percent of the poverty line (about $19,000 for a single person and $39,000 for a family of four) would pay no premiums for a benchmark plan, after accounting for premium tax credits. Families who make more will pay a fixed percentage of income toward Marketplace health coverage.  

This will significantly reduce premiums for people who are currently eligible for financial help by increasing their premium tax credits. For example: 

  • A single individual making $18,000 would pay zero net premium rather than $54 per month (3.6 percent of income) and would qualify for the most generous subsidies for deductibles and other cost-sharing amounts.
     
  • A single individual making $30,000 would pay $85 rather than $195 per month in premiums (3.4 instead of 7.8 percent of income) and would qualify for a plan with reduced deductibles and other cost-sharing amounts. Or, with the bigger subsidy, the same person could opt to buy a gold plan with lower cost-sharing charges for $115 per month.
     
  • A family of four making $50,000 would pay $67 rather than $252 per month in premiums for benchmark coverage (1.6 instead of 6.0 percent of their income) and would qualify for generous cost-sharing reductions.
  • A family of four making $75,000 would pay $340 rather than $588 per month in premiums for benchmark coverage (5.4 instead of 9.4 percent of their income). A typical family could purchase a gold plan with lower deductibles and other cost sharing for about $440 per month (roughly 7 percent of income). 

An open enrollment period will begin November 1 for anyone who wants to sign up for health insurance or change their current Marketplace plan. 

We can help you get covered! Learn more about the Special Open Enrollment Period

Streamlines process to qualify for ACA subsidies 

The package also enhances premium tax credits (financial assistance) for people who receive unemployment benefits in 2021 by setting their Marketplace eligibility at a projected income levels that guarantee they will get the most generous premium tax credits under an ACA Marketplace plan, regardless of what their actual year-end income ultimately is. This includes people who have previously found themselves in the Medicaid gap. 

The package also eliminates the need to repay ACA subsidies from 2020. Some people lost their jobs early last year but later got new ones and saw higher earnings than they had expected. Others worked additional hours or received bonus pay as essential workers. Under this plan, low- and moderate-income families are exempt from having to repay the premium tax credit (financial assistance) they received in 2020. 

COBRA premiums covered 

Under the relief plan, the government would pay the entire COBRA premium from April 1 through Sept. 30, 2021 for those who lost employer-based coverage due to lay-offs or working reduced hours.  

A person who qualifies for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost COBRA coverage. Someone who leaves a job voluntarily would not be eligible either. 

Incentivizes States to Expand Medicaid Eligibility  

The plan incentivizes states that still have not expanded their Medicaid programs (like North Carolina) to expand eligibility for adults by increasing matching federal funds (raising the state’s Federal Medical Assistance Percentage by 5 percentage points) over two years. 

In North Carolina, this means more than 500,000 residents in the Medicaid gap (those who currently make too little to receive financial help for Marketplace coverage and make too much to qualify for Medicaid) would finally have access to coverage and the health care at a time when they need it most. 

This incentive would pump $2.4 billion new federal dollars into the state in just two years if N.C. is willing to take advantage of it. 

States choosing to expand would be required to maintain Medicaid coverage levels to receive the increase, including the newly established requirement to cover COVID-19 vaccine and treatment (see below). 

Covers COVID Testing and Treatment 

The plan also requires Medicaid and Childrens Health Insurance Program (CHIP) coverage of COVID-19 vaccines and treatment without beneficiary cost sharing. Vaccines and vaccine administration costs would be matched at 100 percent until one year after the end of the Pandemic Health Emergency. States also would have the option to provide coverage to the uninsured for COVID-19 vaccines and treatment without cost sharing at 100 percent. Everyone should have access to COVID testing, treatment, and vaccinations regardless of income, insurance, or immigration status.  

Expands Access to Postpartum and Child Health Care 

The plan also gives states five years to extend their Medicaid and Children’s Health Insurance Program (CHIP) eligibility to include pregnant individuals for 12 months postpartum. States choosing this option must provide the full Medicaid benefit for pregnant and postpartum individuals during the 12-month postpartum period. 

Increased Funds for Home and Community-Based Services 

The plan provides temporary one-year FMAP increase to improve home-and-community-based-services as well as FMAP increases for services provided through the Urban Indian Organizations and Native Hawaiian Health Care Systems. The bill also would provide funding to states for the creation of nursing home strike teams to assist in managing COVID-19 outbreaks when they occur. 

Option to create new Medicaid Program for Crisis Intervention Services 

The plan gives states five years to creates a new optional Medicaid covered service for adults by offering mobile crisis intervention services for adults experiencing a mental health or substance use disorder crisis. 

Have questions about how this plan impacts your coverage options or access to health care? Contact our Family Support and Health Care team by calling 704-376-1600