What’s New With The Child Tax Credit
This is one of the most exciting and innovative parts of the bill. In fact, the American Rescue Plan could help cut child poverty in half according to Columbia University. Here’s how it works:
If you earns less than $75,000 , you’ll receive $3,600 for each child six years old and under and $3,000 for children between the ages of seven and seventeen. If your income exceeds the earnings threshold, the credit will be reduced by $50 for every additional $1,000 of income. Individuals earning $95,000 or joint filers earning $170,000 are not eligible for the tax credit.
The tax credit applies to your 2021 tax year, but the IRS will advance part of the credit in the forms of checks that will be delivered or direct deposited as early as July. These checks will continue through December. The remaining amount will be credited against your taxes when you file next year.
The child tax credit is available to those living in U.S. territories. It is also entirely fully refundable and doesn’t require an individual to be employed to qualify.
Will The Cost Of Health Insurance I Buy Through An Exchange Be Affected
The legislation lowers the cost of health insurance in many instances for people who bought their own coverage via a government exchange. And the premiums for those plans will cost no more than 8.5 percent of your modified adjusted gross income.
These changes will last through the end of 2022 and do not require people to re-enroll to access the lower prices.
No Clawback Of 2021 Recovery Rebate Credit Paid At Any Checkpoint
One critically important planning consideration is that the Checkpoints described above represent a one-way opportunity to increase the amount of a taxpayers 2021 Recovery Rebate Credit.
Any amounts correctly paid based on the taxpayers income on file with the IRS at the time of payment can be kept by the taxpayer. There is no clawback on a taxpayers 2021 tax return of previously paid 2021 Recovery Rebate amounts, even if the taxpayers 2021 income is high enough to completely phase them out of receiving such credit. Which makes it especially important for those with income that was lower in 2020 to ensure they file in time to satisfy Checkpoint 2 .
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Up To $10200 Of 2020 Unemployment Compensation Per Worker May Be Tax
Section 9042 of the American Rescue Plan includes another potential benefit for individuals who received unemployment compensation for some or all of 2020. More specifically, provided a taxpayers AGI is less than $150,000, up to $10,200 of unemployment compensation received in 2020 will be tax free.
There are, however, a number of important nuances to consider with respect to this provision, including the following:
- It appears that the $150,000 AGI limit applies uniformly to all filing statuses.
- It appears that the $150,000 AGI limit is a true cliff threshold – A plain reading of the American Rescue Plan indicates that a taxpayer with $149,999 of AGI can have up to $10,200 of unemployment compensation excluded from their gross income. If, however, the same taxpayer earns just a single dollar more, the full amount of the unemployment compensation received in 2020 will be taxable.
- It appears that, in the case of joint filers, each spouse can receive up to $10,200 of unemployment compensation tax-free, permitting up to $20,400 for the household .
- The $150,000 AGI cliff phaseout now EXCLUDES unemployment compensation received when calculating total MAGI. The IRS recently revised its stance and issued new guidance after originally including unemployment compensation when calculating total MAGI.
Third Payments Differed From Previous Economic Impact Payments
The third payments differed from the earlier payments in several respects:
- Income phaseout amounts changed. Payments were reduced for individuals with adjusted gross income of more than $75,000 . The reduced payments ended at $80,000 for individuals and $160,000 for married filing jointly. People above these levels did not receive any payment.
- Payment amounts are different. Most families received $1,400 per person, including all dependents claimed on their tax return. Typically, this means a single person with no dependents received $1,400, while married filers with two dependents received $5,600.
- Qualifying dependents expanded. Unlike the first two payments, the third payment was not restricted to children under 17. Eligible individuals received a payment based on all of their qualifying dependents claimed on their return, including older relatives like college students, adults with disabilities, parents and grandparents.
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How Do I Get It
- The stimulus payments will be processed by the IRS.
- If you have already filed a 2019 tax return, you will get the stimulus payment automatically. You will receive it in the same form as your tax refund. If you requested direct deposit, then the stimulus will be direct deposited. If you requested a paper check, then the stimulus will be mailed to the same address on your 2019 tax return.
- If you entered your information into the IRS non-filer portal earlier in 2020, you will get the stimulus payment automatically. You do not have to do anything.
- If you receive one of the following benefits, you will get the stimulus payment automatically. You do not have to do anything.
- Social Security
How Much Is The Third Economic Impact Payment
Those eligible will automatically receive an Economic Impact Payment of up to $1,400 for individuals or $2,800 for married couples, plus $1,400 for each dependent. Unlike EIP1 and EIP2, families will get a payment for all their dependents claimed on a tax return, not just their qualifying children under 17. Normally, a taxpayer will qualify for the full amount if they have an adjusted gross income of up to $75,000 for singles and married persons filing a separate return, up to $112,500 for heads of household and up to $150,000 for married couples filing joint returns and surviving spouses. Payment amounts are reduced for filers with incomes above those levels.
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Determining Eligibility For The Third Economic Impact Payment
Most eligible people will get the third Economic Impact Payment automatically and won’t need to take additional action. The IRS will use available information to determine eligibility and issue the third payment to eligible people who:
- Filed a 2020 tax return.
- Filed a 2019 tax return if the 2020 return has not been submitted or processed yet.
- Did not file a 2020 or 2019 tax return but registered for the first Economic Impact Payment using the special Non-Filers portal last year.
- Are federal benefit recipients as of December 31, 2020, who do not usually file a tax return and received Social Security and Railroad Retirement Board benefits, Supplemental Security Income and Veteran benefit recipients in 2020. The IRS is working with these agencies to get updated information for 2021 to assist with stimulus payments at a date to be determined. IRS.gov will have more details.
The 2021 Stimulus Payment
On March 11, 2021, the American Rescue Plan was signed into law. It called for sending a third round of stimulus checks to Americans. The American Rescue Plan authorized a $1,400 stimulus payment to eligible people. Learn more about it on the IRS website. Most people already received their payments, which were based on income reported on their 2019 or 2020 tax return.
If you believe you did not get all or part of the $1,400 stimulus from the American Rescue Plan of 2021, you should claim this as a recovery rebate credit on your 2021 tax returnLearn where to get help filing your taxes.
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First Round Of Cares Act Stimulus Checks: What Expats Should Know
Q. What did the CARES Act 2020 Coronavirus stimulus check mean for U.S. expats?
A. The CARES Act stimulus check expats got in 2020 was technically a 2020 tax credit in advance.
It was part of the CARES Act Coronavirus stimulus package, which was designed to help get the economy back on its feet while we navigate the COVID-19 pandemic. In it are a variety of benefits for both individuals and corporations to ease the financial burden of the shutdowns and shelter-in-place orders. For the average American, the main benefits are cash payments and a variety of other debt relief options. The amount each taxpayer got depends on a variety of factors.
Q. Did I qualify for a CARES Act stimulus check if I live overseas?
A. Yes, expats qualified for the CARES Act stimulus checks. You qualified if you fell within the income threshold, had a social security number, and filed taxes even if you lived overseas. If you didnt get it, you can still apply for it retroactively as a tax credit on your 2020 tax return.
Q. What is the Recovery Rebate Credit?
A. If you didnt get the full amount you were owed, you may be able to apply for the Recovery Rebate Credit. Any eligible individual who did not receive the full amount of the recovery rebate as an advance payment, also known as an Economic Impact Payment, can claim the Recovery Rebate Credit on a 2020 Form 1040 or Form 1040-SR.
Q. How much was the CARES Act stimulus check for?
Q. Did I have to pay back the amount I got?
A. No
What Is The Recovery Rebate Credit
Through the Recovery Rebate Credit, those who missed out on all of some of their Economic Impact Payments can ensure they receive the money they are entitled to. There is a full section on the IRS website that details how this process works.
“If you didn’t qualify for a third Economic Impact Payment or got less than the full amount, you may be eligible to claim the 2021 Recovery Rebate Credit when you file your 2021 tax return,” the IRS explains.
“You must file a return to claim the credit, even if you don’t usually file a tax return. The credit is based on your 2021 tax year information, so any third Economic Impact Payments you received will reduce the amount of the credit you’re eligible for. Your 2021 Recovery Rebate Credit will reduce any tax you owe for 2021 or be included in your tax refund. You will need the total amount of your third Economic Impact payment and any plus-up payments to claim the 2021 Recovery Rebate Credit.”
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Moratoriums Remain Financial Assistance Increased
The current eviction and foreclosure moratoriums, which end on March 31, 2021, will not be extended under the plan. However, additional funding will provide relief to those behind on mortgages, rent, and utility bills. The legislation provides:
- $21.55 billion for emergency rental assistance through September 30, 2027
- $5 billion in emergency housing vouchers through September 30, 2030
- $100 million for tribal housing improvements
- $100 million for rural housing through September 30, 2022
- $5 billion to assist people experiencing homelessness
Schools And Child Care Block Grants
The plan sets aside $122 billion for K12 education through September 30, 2023. This money will be used to reduce class sizes, improve ventilation, purchase personal protective equipment, and fund other steps to help schools reopen safely.
Almost $40 billion would go to colleges and universities to provide emergency financial aid grants for students through September 30, 2023. An additional $15 billion will go to child care providers through the Child Care and Development Block Grant program through September 30, 2021. The act also includes $1 billion for the Head Start program through September 30, 2022.
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What If I Am Newly Eligible For A Stimulus Payment Based On My 2020 Income But I Havent Filed My 2020 Return
You could try to file it quickly, in hopes of receiving your payment faster. But theres no guarantee your return will be processed quickly enough, and haste can lead to errors.
And you dont have to rush: The law includes a provision for the Treasury Department to make supplemental payments by September. If you dont get one then, you can claim the $1,400 when you file your 2021 taxes.
It Provided A Homeowner Stimulus
Part of the money from the American Rescue Plan was set aside to be used for the Homeowners Assistance Fundaka a homeowner stimulus of sorts.10 The Homeowners Assistance Fund lends a hand to homeowners who are struggling to cover their mortgage month after month. It helps them pay for their mortgage and avoid late payments and foreclosures.
What does that mean for you? You can apply for this homeowner stimulus relief if youve gone through financial hardship of some kind since January 2020 . Youll also need to meet the income limits and have a remaining mortgage loan balance of $548,250 or less.11
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How Are Separated Spouses Be Affected
This applies only if the taxpayer lived with a qualifying child for more than half of the taxable year and didnt have the same principal home as the spouse at least six months of the year. A separation decree or agreement would also suffice, as long as the individual didnt live with the spouse by the end of the taxable year.
This change will be permanent.
What Happens To The Supplemental Payments
If you qualify for any benefits, you will also receive the full $300 supplemental payment for weeks ending after March 14 and through Sept. 6. Known as F.P.U.C., its called the federal pandemic unemployment compensation.
The stimulus package also extends an extra $100 weekly payment, called the mixed-earner supplement, through Sept. 6. This payment helps people who have a mix of income from both self-employment and wages paid by other employers, because they are often stuck with a lower state-issued benefit based on their wages.
The legislation also clarifies that the $300 federal supplement will not be counted when calculating eligibility for Medicaid and the Childrens Health Insurance Program. The mixed earner supplement, however, will be counted.
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Tax Relief For College Students
The American Rescue Plan provides relief to students with government and federal student loans by allowing students with forgiven loan debt to exclude the discharged debt from their taxable income for tax years 2021 through 2025.
This provision does not apply to loans made by private lenders.
The Biden Administration has also extended the suspension of federal student loan payments, interest, and collections through May 1, 2022.
The pause includes the following relief for eligible student loans:
- Suspension of loan payments
- 0% interest rate
- Stopped collections on defaulted loans
Note: You do not have to pay a fee to get 0% interest or suspended payments for federal student loans.
A Portion Of A Taxpayers 2021 Child Tax Credit Amount May Be Paid In Advance
Section 9611 of the American Rescue Plan creates new IRC Section 7527A, Advance Payment Of Child Tax Credit. In this section, the IRS is generally instructed to pay taxpayers 50% of their estimated Child Tax Credit amount for 2021 in equal installments from July 1st, 2021, through December 31st, 2021.
In general, IRC Section 7527A requires the IRS to use a taxpayers filing status, income, and the ages and number of children from 2020 to determine the advance payment amount. If a taxpayer has yet to file their 2020 tax return by the time they begin to receive their advance payments, though, the IRS will use the same information from the taxpayers 2019 return.
Once an individuals 2020 return is filed, however, the IRS may use the information on that return to update the remainder of the clients 2021 advance Child Tax Credit payment amounts.
In some ways, the advance payments of a taxpayers 2021 Child Tax Credit might feel a lot like additional stimulus checks. But there is one huge difference between the advance payment of a taxpayers 2021 Child Tax Credit and any stimulus check a client receives: if the advance of a taxpayers 2021 Child Tax Credit amount exceeds their actual 2021 Child Tax Credit amount, the excess is generally subject to a clawback on the clients tax return.
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What Is The American Rescue Plan
The American Rescue Plan Act of 2021 is a $1.9 trillion coronavirus rescue package designed to facilitate the United States recovery from the devastating economic and health effects of the COVID-19 pandemic. The nearly $2 trillion price tag makes this economic rescue legislation one of the most expensive in U.S. history. It one part of President Biden’s Build Back Better plan, which also includes the American Jobs Plan and the American Families Plan.
The package includes direct stimulus payments of $1,400, extending unemployment compensation, continuing eviction and foreclosure moratoriums, and increasing the Child Tax Credit while making it fully refundable. It provides funds for state and local governments to help compensate for lost tax revenues, money for schools from kindergarten through eighth grade to safely reopen amid the pandemic, and subsidizes COVID-19 testing and vaccination programs.
What About People With Itins
You still need a work-authorizing Social Security Number to be eligible for this stimulus. However, there are important changes since the first round of stimulus checks.
- In the first stimulus rollout, any non-SSN holder on a joint return made everyone on that return ineligible. Big change: The new rounds of stimulus has corrected this problem. If you filed a joint return with a non-SSN holder, you are still eligible for the stimulus. See the below hypotheticals.
- Situation: A single tax filer has an Individual Taxpayer Identification Number but no Social Security number .
- This person is ineligible for the stimulus.
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