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  • Writer's pictureJeran Van Alfen, CFP®

The American Rescue Plan: What's Inside

The American Rescue Plan was signed into law this week and President Biden addressed the nation last night to communicate an updated timeline for our economy to fully re-open. How does the new bill affect you? Let's dive in.

The $1.9 trillion bill called the American Rescue Plan Act of 2021 includes stimulus checks, child tax credits, jobless help, vaccine-distribution money, healthcare subsidies, and aid for struggling restaurants. What’s not inside? A higher minimum wage.

Here's a quick visual of how it compares to prior rounds of stimulus:

Here are some immediate takeaways to know about the plan:

More stimulus checks are coming: $1,400 checks could be hitting bank accounts and mailboxes this month, going out to adults, children, and adult dependents such as college students and elders. These adult dependents did not qualify for previous payments, so that’s good news for many.1

Who gets paid? Individual filers who earn as much as $75,000 (or joint filers making $150,000), plus their household members, qualify for the full $1,400 per person.1

Folks filing as a head of household can earn up to $112,500 and still qualify for the full payment. Phaseouts kick in quickly this round, and an individual with an income of $80,000 or a couple earning $160,000 get nothing.1

Not sure if you qualify? The Washington Post put out a handy calculator to help you figure it out. (Accuracy not assured, etc., etc.)

If you’ve filed your 2020 taxes, your check would be based on that income. If not, it would be based on your 2019 tax filing. If you’re waiting for a missed payment, individual tax returns have an extra line called “recovery rebate credit” to claim your stimulus payment.

Enhanced unemployment benefits are extended through Sept. 6: Folks claiming jobless benefits will receive $300/week on top of what they already get from their state through the fall.2

Some unemployment income is now tax-free: Individuals who earned less than $150,000 in 2020 can shield up to $10,200 in unemployment benefits from taxes. For married couples filing jointly who both received unemployment, the tax-free amount goes up to $20,400, but the $150,000 income cap still applies. Unfortunately, if you earn over $150,000, it currently appears that all of the unemployment benefits become taxable with no phaseout.3

If this applies to you or someone you love, my advice is to wait to file or update your tax return until the IRS issues guidance on what to do.

The child tax credit is larger: The bill increases the child tax credit for one year to $3,600 for kids under 6, and $3,000 for kids between 6 and 17 (the current credit is a flat $2,000 per child under 17). 50% of the credit would be available as advance monthly payments that the IRS will start sending to families in July 2021.4

Unfortunately, not all families will qualify. Phaseouts begin at $75,000 for single filers, $112,500 for heads of households, and $150,000 for joint filers. However, families who earn less than $200,000 ($400,000 for joint filers) could still claim the regular $2,000 credit.4

Health insurance costs could drop on health exchanges/marketplaces: The bill removes the income cap on insurance premium tax credits for folks who purchase insurance on the federal health exchange or state marketplace (for two years). That means the amount you would pay for health insurance would be limited to 8.5% of your income as calculated by the exchange.5

Quick fix or permanent changes? It is obvious that the government wanted to go all in on this stimulus package and took the approach that more is better. While the bill introduces temporary changes to our tax code, many are speculating that congress will move to make some of the changes permanent, especially the child tax credit.

We will have to wait and see what comes next, but most likely this is just the beginning of the agenda. An infrastructure bill to address roads, bridges, water systems, transit, broadband and energy is expected and also a bill targeted at combating the rise of China's influence on the world economy. Of course, a tax overhaul is expected as part of all of these plans.

Final thoughts: According to a fresh estimate, our economy will expand nearly twice as fast as originally expected, growing at an estimated 6.5% in 2021 versus the 3.2% projected in December.6

Obviously, these projections rest on a lot of assumptions about vaccination rates, reopening, and consumer spending. As we heard last night, we are not out of the woods yet, and progress will depend on all of us working together. Let’s hope we stay on track.

There is a lot of information to absorb. Have questions? A lot of rules have changed in the last year, throwing an already complex tax season into a bit of confusion. Make sure to ask questions whenever you feel like you need help.

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