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Tax Highlights of the American Rescue Plan Act

These are the top tax related items in the American Rescue Plan Act. Additional detail can be found in this article from the Journal of Accountancy or by calling your Whitlock advisor.

Unemployment Benefits

For 2020 taxpayers making less than $150,000 per year, the first $10,200 of unemployment benefits received will be tax-free.

Recovery Rebate Credits

Working the same as last year’s two rounds of stimulus payments, the recovery rebate credit is a $1,400 direct payment to single filers with adjusted gross incomes of less than $75,000 per year, $1,400 direct payment to heads of households with an adjusted gross income of less than $112,000, and $2,800 direct payments to married taxpayers filing jointly with adjusted gross incomes of less than $150,000. An additional $1,400 direct will be applied for each dependent in 2021.

The recovery rebates will begin to phase out at an adjusted gross income of $75,000 and completely phase out at $80,000 for single taxpayers. For heads of household, the phaseout will begin at an adjusted gross income of $112,000 and completely phase out at $120,000. The phaseout will begin at adjusted gross income of $150,000 for married taxpayers filing jointly and completely phase out at $160,000.

Child Tax Credit

Increases the child tax credit amount for 2021 only, to $3,600 for children under 6, and to $3,000 for children ages 6 to 17, expands qualifying child to include 17-year olds. IRS will make periodic advance payments of the child tax credit based on 2019 or 2020 tax return information, from July 2021 through December 2021. These payments comprise half of the child tax credit for which the taxpayer is entitled to for 2021, with the remainder paid out on their 2021 return. Phase out starts at $75,000 for single taxpayers and $150,000 for married taxpayers filing jointly.

Dependent Care Assistance

The household and dependent care tax credit is made refundable for 2021, and the maximum credit amount is increased to $8,000 if there is 1 qualifying individual or $16,000 if there are 2 or more qualifying individuals with respect to the taxpayer for the taxable year.


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