The American Rescue Plan (ARP) is one of the longest-awaited Bills for COVID relief. On Thursday, March 11, President Biden signed The American Rescue Plan into law. This means another round of stimulus payments for each taxpayer, among many other provisions. The tax professionals at Boundless Tax have put together an overview of the new Bill.
Third Round of Stimulus Payments
The stimulus payments in the American Rescue Plan are structured differently from previous stimulus programs. This bill offers $1,400 per taxpayer and dependent (with significant income limitations).
The American Rescue Plan Differs From Previous Stimulus Payments
- Previously, if you had a child over 17, or an adult dependent, they would not qualify to be included in your payment. In this round, you’ll receive a payment for yourself and each dependent — depending on your income.
- The income phaseouts for this are significant and steep. In previous rounds, the phase-out was much more gradual. The phase-out began at the same numbers ($75,000 for individual, $150,000 for joint-filed returns, and $112,500 for Head of Household), but they were so gradual that it didn’t significantly impact filing decisions.
- Now, under the new American Rescue Plan, you will NOT receive these payments if your income is anything over $80,000 for individuals or $160,000 for joint filers.
How The American Rescue Plan Might Impact Your 2020 Tax Filings
At Boundless Tax, we want to help you maximize your stimulus funds. And once the IRS issues you a stimulus payment, it’s yours. Timing matters, and so might how and when you file your 2020 tax returns:
Your 2020 Income Increased Versus 2019
- If it didn’t take you over the phase-out thresholds, there’s nothing for you to worry about.
- If your adjusted gross income (AGI) above the phaseout thresholds ($75,000 for single and $150,000 for joint filers), and you have not filed your return, we urge you NOT to file until you receive payment. This is simply because you may push yourself out of eligibility for the latest round of payments.
- If your increase brought your adjusted gross income above these thresholds, and you have already filed, you will not receive a stimulus payment this time around. The IRS now goes by the most recently-filed information (2020 or 2019) for these decisions; there is nothing you can do.
Your 2020 Income Decreased Versus 2019
- If your income was already under the phaseout thresholds, you will not be affected. You will receive the stimulus no matter what.
- If your income decreased below the thresholds (i.e. your income in 2019 was above $75,000 for a single filer or $150,000 for joint filers and now your income is below those thresholds), you do NOT have to rush to get your return in.
The way the American Rescue Plan works is that there are two phases of how these stimulus payments will be distributed. In phase one, the IRS will take the data it already has and pay from that. If you didn’t file a return in 2019 or 2020, you will not get a stimulus. But fret not, in phase two, there will be a second date on which the IRS will calculate stimulus payments. This will be for those who had an income decrease. That date will be the earlier of 90 days after the tax deadline day, or September 1.
So as long as we get your taxes filed on time, you WILL get it. You do not have to FILE YOUR TAXES RIGHT NOW.
When Will I Get My Stimulus Payment?
Stimulus payments have already started being released this week for those included in the first issuance. For the rest, it will be after the second phase that we mentioned.
Unemployment Now Partially Non-Taxable
This is another significant change: the first $10,200 of unemployment benefits per taxpayer are now nontaxable, but only for those whose income is below $150,000.
This means the first $10,200 of unemployment compensation for each taxpayer is no longer subject to Federal income tax. This is a very real benefit for many, likely meaning about $1,500 in savings. This applies to each taxpayer, meaning spouses that both had unemployment compensation in 2020 could be eligible for up to $20,400 of tax forgiveness.
If You Were Unemployed & Have Not Filed Your 2020 Return Yet
If you have unemployment compensation to claim on your 2020 income tax returns, you should have received Form 1099-G from your state unemployment office. This form lists how much unemployment compensation you were issued in 2020, and how much tax (if any) you paid on that compensation.
At this point, if you have not yet filed your return, we are in a waiting game. The IRS has issued guidance for returns not yet filed, including a new worksheet that tax professionals and tax software must work with to exclude the first $10,200 of unemployment compensation from being taxed. However, this takes time for software providers to “write” into their software, so that is what we are currently waiting on.
Your returns will still be filed before the deadline, but if this describes you, we would recommend waiting until you can confirm your tax software or tax professional is ready to file your return.
If You Were Unemployed & You’ve Already Filed Your Return
If you have already filed your return with unemployment compensation included on it from a Form 1099-G, we are eagerly awaiting the IRS to issue guidance for this situation. The IRS has only stated that tax professionals and taxpayers are not to file amended returns, instead waiting to issue additional guidance.
We will update this article when additional guidance has been issued by the IRS.
Many More Elements to the American Rescue Plan
There are (obviously) many more elements to the American Rescue Plan Bill, and this article is not meant to be completely comprehensive.
There are changes to child tax credits, earned income credits, and more. All of these changes will be integrated into your future return preparations with Boundless Tax.