President Biden has signed the American Rescue Plan Act (ARPA) of 2021. The following is a summary of provisions related to individuals.
Unemployment Compensation - Under ARPA, in the case of any tax year beginning in 2020, if the adjusted gross income (AGI) of the taxpayer for the tax year is less than $150,000, the gross income of the taxpayer will not include the first $ 10,200 of unemployment compensation received by the taxpayer (or, in the case of a joint return, received by each spouse). The act does not provide for a phase-out based on AGI. Therefore, if a taxpayer makes $150,000 or more, the exclusion does not apply, and all of the individual’s unemployment compensation received is taxable. The same $150,000 limit applies to returns filed jointly, as head of household, or with single status. However, in the case of a joint return, the $10,200 exclusion applies separately to each spouse.
If you have already filed your 2020 tax return an amended federal return will have to be filed. NY has not announced yet if they will follow the federal change. Unemployment is non-taxable in NJ.
Unemployment Benefits - Extends the FPUC unemployment payment of $300 per week through September 6, 2021.
Stimulus Payments – A stimulus payment of $ 1,400 per taxpayer and dependent will be issued. The payment is based on AGI. Phase out of the payment is based on AGI as follows:
| Phase Out Begins | Completely Phased Out | |
|---|---|---|
| Married Filing Jointly | $150,000 | $160,000 |
| Head of Household | $112,500 | $120,000 |
| Single | $75,000 | $80,000 |
Children who are (or can be) claimed as dependents by their parents are not eligible to receive a stimulus, even if they have enough income to have to file a return. It makes no difference if the parent chooses not to claim the child as a dependent, because the dependency deduction is still "allowable" to the parent.
An individual who wasn't an eligible individual for 2019 may become one for 2021, e.g., where the individual was a dependent for 2019 but not for 2021. IRS won't send an advance rebate to such an individual because advance rebates are generally based on information on the 2019 return. However, the individual will be able to claim the credit when filing their 2021 return.
If a taxpayer has filed his or her 2020 tax return when IRS determines the amount of the rebate, information on that 2020 return is used to determine the amount of the rebate
Child Tax Credit (CTC) - The definition of a qualifying child is broadened to include a child who hasn’t turned 18 by the end of 2021. The CTC is increased to $3,000 per child ($3,600 for children under age 6 as of the close of the year).The increased credit amounts are phased out at modified AGI of over $75,000 for singles, $112,500 for heads-of-households, and $150,000 for joint filers and surviving spouses. At a rate of $50 for each $1,000 of modified AGI over the applicable threshold.
The Earned Income Credit – The Earned Income Credit has been expanded for tax year 2021.
Child and Dependent Care Credit - For tax years beginning in 2021, the dollar limit on the amount taken into account is increased to $8,000 (from $3,000) if there is one qualifying individual with respect to the taxpayer, or $16,000 (from $6,000) if there are two or more qualifying individuals with respect to the taxpayer. The applicable percentage has also been increased.
Exchange Purchased Health Insurance – The refundable premium credit (PTC) has been increased for tax years 2021 and 2022. Taxpayers must reconcile the amount of the PTC, based on the taxpayer’s actual household income, family size, and premiums, with the amount of the advance payments. The reconciliation is made on the taxpayer's income tax return for the tax year (on Form 8962). A taxpayer who’s PTC for the tax year exceeds the taxpayer's advance payments may receive the excess as an income tax refund. A taxpayer whose advance payments for the tax year exceed the taxpayer's PTC owes the excess as additional income tax, subject to a repayment cap based on household income. Under ARPA, no additional income tax is imposed for tax years beginning in 2020 where the advance credit payments exceed the taxpayer’s PTC. This amendment applies to tax years beginning after December 31, 2019.
Student Loan Discharges - ARPA excludes from gross income certain discharges of student loans after December 31, 2020, and before January 1, 2026.Tthe discharge of a loan made by either an educational institution or a private education lender is not excluded under the above rules if the discharge is on account of services performed for either the organization or for the private education lender. The exclusion applies to a partial or a full discharge of a student loan.