National Insurance and Tax Service

American Rescue Plan-2021

2021 American Rescue Plan Act

American Rescue Plan

There were quite a few new laws put into affect with the American Rescue Plan Act of 2021. The following is a brief summary of some key tax provisions. So let’s discuss a few!

Employee Retention Credit

The new law extends the Employee Retention Credit to wages paid after June 30, 2021 and before January 1, 2022 and generally follows the same rules that are in effect for the first half of 2021.

Payroll Tax Credits

The new law reinstates the $511/$200 per day 100% refundable payroll tax credit for employ­ees who receive paid sick leave or paid family leave for reasons related to COVID-19. The new law modifies the reasons for these payments.

Paid Sick Leave Credit. This credit is available for the period beginning on April 1, 2021 and ending on September 30, 2021.

Paid Family Leave Credit. The new law ex­ tends the period for this credit for the period beginning on April 1, 2021 and ending on September 30, 2021. This credit is limited to $12,000 in the aggregate for all calendar quarters, in­cluding the quarters prior to April1, 2021.

Self-employed individuals. The self-employed qualified sick leave equivalent amounts and qual­ified family leave equivalent amounts are also ex­ tended for the same time periods. A self-employed person who qualified for the credit in 2020 may also qualify in 2021 based on the days during the period April 1, 2021 through September 30, 2021.

Student Loan Forgiveness Program

Student loan debt forgiveness may be exclud­ed from taxable income if you work in a cer­tain profession for a certain period of time in some type of public service. It also may be ex­cludable in the case of death or disability of the borrower.
For tax years 2021 through 2025, any discharge of student loan debt for any reason, including private student loans, may be excluded from taxable income, as long as there is no provi­sion for the student to provide services to the discharging lender.

Kids Jumping

Earned Income Credit (EIC)

• For 2021, individuals without a qualifying child may qualify for the EIC at:

Recovery Rebate and Round 3 Stimulus Payment

Eligible individuals may qualify for a 2021 re­ bate amount of up to $1,400 per taxpayer ($2,800 MFJ), plus $1,400 per dependent. This is treated as a Recovery Rebate Credit on your 2021 tax re­ turn. Any stimulus payment received now reduc­es the Recovery Rebate (but not below zero) that may be claimed on your 2021 tax return. This stim­ulus payment for dependents is not limited to de­pendents who are under age17.This stimulus pay­ment may not be paid, per individual, more than once. The payment starts to phase out when AGI exceeds $75,000 (Single, MFS), $150,000 (MFJ, QW), and $112,500 (HOH) and is fully phased out at$80,000 (Single, MFS), $160,000 (MFJ, QW), and$120,000 (HOH).

Child Tax Credit

Effective for 2021 only, the Child Tax Credit (CTC):
• Is increased to $3,000 per qualifying child,
• Is $3,600 in the case of a qualifying child age five or younger as of December 31, 2021,
• Age limitation is increased from age 16 to age 17,
• Is fully refundable.
Phase-out. The increased CTC (over the $2,000 prior amount) phases out when modified AGI ex­ceeds $75,000 (Single, MFS), $150,000 (MFJ, QW), and $112,500 (HOH).
Once the increased CTC is phased-out, the $2,000 per qualifying child still applies until modified AGI reaches the previous thresholds.

Dependent Care Expenses Credit

Effective for 2021 only, the Child and Depen­dent Care Expense Credit is refundable. The dollar limitation on expenses paid for a quali­fying person is increased from $3,000 to $8,000 for one qualifying person and from $6,000 to $16,000 for two or more qualifying persons. The maximum percentage of 35% is increased to 50% for AGI up to $125,000 with the credit per­centage phasing out and reduced to zero when AGI reaches $438,000.

Advance Payment of the Child Tax Credit

The IRS is instructed to establish a program for making periodic payments to taxpayers for the ad­vance payment of the CTC. The advance amount will be estimated by the IRS as being equal to 50% of the CTC which would be treated as refundable for 2021. Prior year tax information will be used to determine the advance payment amount.
The IRS will establish an on-line portal which al­ lows taxpayers to elect not to receive advance pay­ments, or to update relevant information to calcu­late the advance payment. Advance payments
will be made during the period July 1, 2021 through December 31, 2021.
The CTC claimed on the 2021 return will be re­duced by any advance payments received.
If the advance payments received exceed the credit al­ lowed, the excess will be added to your 2021 tax li­ ability and repaid.

Also read: Advance Child Tax Credit

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