President Biden signed the $1.9 trillion COVID-19 relief package called the “American Rescue Plan” on March 11th which was one day after it was passed by Congress, and a few days earlier than anticipated. While this new stimulus plan does not affect everyone, it does provide $1,400 payment benefits for single taxpayers with incomes under $75,000 or married and filing jointly couples below the $150,000 threshold. This is then phased out at an Adjusted Gross Income (AGI) of $80,000 and $160,000 respectively, which is slightly lower than previous stimulus payments. Also, the plan extends to eligible dependents age 17 and up, meaning payments for college kids claimed as dependents as well as parents under care. Those eligible should have received payments by Wednesday, March 17th just in time to celebrate St. Patrick’s Day. The checks are based on your 2020 federal return if you’ve already filed, or your 2019 return if not. It also included an additional $300 per week of unemployment benefits and expanded child tax credits. President Biden stated that, “this historic legislation is about rebuilding the backbone of this country.”
In the new stimulus plan, the additional child tax credit for 2021 increased the amount families can claim. This has increased the amount to $3,600 per eligible child up to age 5 and $3,000 if the child is age 6-17. While this tax credit is for 2021, and next year’s filing, what is different and unprecedented is the fact that half of this will actually be paid out in advance and sent as monthly payments from July 1st to December 31st.
Besides the previously mentioned Child Tax Credit, another often-overlooked credit is what is called the Child and Dependent Care Tax Credit. This credit is for certain school programs and childcare expenses throughout the year. In the past, there was a 35% limit of $3,000 in expenses for one child ($1,050 max) and 35% of $6,000 for two or more children ($2,100 max). However, in 2021 there is now a max of 50% of $8,000 ($4,000) in expenses per one child and 50% of $16,000 for two or more children ($8,000 each). These are significant numbers and the phaseouts have significantly increased as well to apply to more families from $15,000 to now as high as $125,000.
The pandemic has affected millions whether it be physically or financially. These new benefits are intended not only to stimulate the economy, but also to help assist the lower and middle income families in the United States get through this time and be able to move forward with their lives. If you are some of the fortunate Americans to still have a job and still be healthy, use this time evaluating ways to your increase financial peace of mind. Look at your personal balance sheet and create a plan for paying off student loans, credit cards and other debts, as well as building up that emergency reserve and investing into your Roth or other investment accounts to help plan for a successful retirement.
Matthews Barnett, CFP®, ChFC®, CLU®
Financial Planning Specialist