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How Is The American Rescue Plan Act Going To Affect Your Taxes?

How-Is-The-American-Rescue-Plan-Act-Going-To-Affect-Your-Taxes

The American Rescue Plan Act also commonly referred to as the COVID-19 Stimulus Package is a US$1.9 trillion economic stimulus bill that came into effect in March 2021. This is great direct relief for many Americans. However, it’s going to affect your 2021 taxes and that is why you need to know the details. Stay on this page as we break down the distinct sections for you.

Child and Dependent Care Credit Raised

As an eligible taxpayer, you will be able to claim employment-related expenses up to $8,000 for one qualifying individual, or $16,000 for two or more qualifying individuals. A dependent under the age of 13, or a dependent regardless of any age or spouse who is unable of self-care and resides with the taxpayer for more than six months, is considered an eligible person.

More people will be qualified for the new maximum 50% credit for employment-related expenses under the new regulation. Additionally, for perhaps the first time, the credit will be completely refundable for people who have stayed at least half a year in the United States.

More Can Benefit From the Childless EITC

Now, more employees without qualifying children will be eligible for the earned income tax credit (EITC), a completely refundable tax relief that supports many low- and moderate-income individuals and families.

This is because the maximum credit for these taxpayers has roughly tripled and is now available to younger employees, with no age limits. However, filers will need to have an annual salary below $21,430 or $27,380 for spouses registering a joint return. One can receive a peak amount of up to $1,502 if they meet the requirements.

Increased Child Tax Credit for 2021

If you have qualifying kids below 18 at the end of 2021, you can claim the full credit even if you’re semi- or unemployed, don’t own a business, or lack any other source of income. This applies to taxpayers who have their primary residence in the United States for more than half of the tax year or are bona fide residents of Puerto Rico.

For others, the credit will be increased to $3,000 per child aged 6 to 17, and $3,600 per child aged 5 and under by the end of 2021 under the proposed policy. With that said, only taxpayers having these revised gross incomes are eligible for the maximum credit:

  • For heads of households, $112,500 or less is required.
  • For husbands and wives filing a combined return and eligible widows and widowers, $150,000 or less is the limit.
  • Single filers and married couples filing separate returns must have a combined income of $75,000 or under.

It seems like the American Rescue Plan Act has significant benefits on your taxes. Whether it’s increased employment-related expenses claim or being fully eligible for refundable tax relief, many lower- to average-income individuals and families will come to gain. But there are certain requisites to meet so be familiar with the numbers before you file for official claims.

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