About a year ago, Congress passed the CARES Act, a massive $2 Trillion stimulus package designed to help boost the economy as it struggled from the impact of COVID-19. The bill was generally considered a success – but we still saw very important parts of the economy suffer.
Not only has the human toll been overwhelming with a remarkable loss of lives, over 500,000 and counting – but the 22 million jobs that were lost, as well the number of workers who saw their hours and, consequently, their paychecks reduced has also had a significant impact.
Fortunately, the CARES Act and another round of stimulus passed in December helped. We saw retail sales improve and a good number of Americans found employment . . . but, there is still quite a way to go. As of early March, there are still 10 million people out of work, making it difficult to pay mortgages, rent, pay off debts or even purchase groceries. Our Federal Reserve chief, Jerome Powell, has publicly stated that “the recovery is far from complete.”
With this in mind, Congress recently passed a third round of stimulus called the American Rescue Plan Act of 2021. What follows here is a breakdown of how this law works and how it might impact you and your family.
This legislation is designed to stimulate the economy by reducing unemployment and ensuring that consumers have the money they need to cover basic expenses. Based on your 2019 or 2020 tax return (depending on whether you have already filed or not), the following payments are on their way:
Individuals making $75,000 or less will receive $1,400.
Heads of Households making less than $112,500 will receive the same $1,400.
Married Couples filing a joint return who make up to $150,000 will each receive a check for $1,400 – for a total of $2,800.
In addition to these numbers, each taxpayer will receive an additional $1,400 check for each dependent they have . . . including adult dependents. This is a much bigger benefit to parents of college students, because the other two stimulus packages limited eligibility to only those children under the age of 17.
So, it is entirely possible that Americans who qualify to receive a stimulus payment could, indeed, receive more this time around than they did in the first two rounds.
In many ways, this new legislation is really a new way to build tax-credits into the equation. And that’s because, unlike earnings from wages or distributions from retirement accounts, these payments are completely tax-free!
And, perhaps one of the more compelling features of this law is the child tax credit, which has been expanded. Now, households with children can claim a tax credit of $3,600 per child under the age of six, and $3,000 per child between the ages of six and seventeen. The previous credit was capped at $2,000 per child. Now, these amounts will be reduced for individual tax-payers earning more than $75,000 per year, or married couples making more than $150,000 per year.
This new law also extends COVID-related unemployment benefits, with workers continuing to receive $300 weekly through September 6th of this year. Also, the first $10,200 of these unemployment benefits will not be taxable if household income is less than $150,000.
Finally, in order to help jump-start the economy, there is another $7 billion set aside for the Paycheck Protection Program, which helps small businesses retain their employees. It also makes $28 billion in grants available for restaurants and bars, and $15 billion for Emergency Disaster Loans. And, it further extends tax breaks to businesses that voluntarily provide paid sick and family leave to workers affected by the pandemic.
As you can tell, the American Rescue Plan Act of 2021 is a massive and comprehensive bill. And, time will tell whether additional relief and stimulus may be needed later this year, but, for the time being, these changes ought to go a long way toward helping to prop up the economy.
But, should you or any of your family members have questions, please know that we are here to help. Please give us a call or shoot us an email if you have concerns or need answers.