The American Rescue Plan Act has passed, so now what?
As you may have heard by now, the "American Rescue Plan Act" has been passed and awaits the President to sign. So what does that mean for you as the taxpayer.
For starters, in the Act gives those that claimed unemployment during 2020 a tax break. It states that the first $10,200 of 2020 unemployment benefits will be tax-free. Yes, I know we are in the midst of tax season and many of you have already filed your 2020 returns that included your unemployment income. So where does that leave us? Honestly, I do not know where the IRS will go with this and what the plan will be for those 2020 returns already filed. We will just have to wait and see.
Second, the biggest part of this Act (in my opinion) is related to the Recovery Rebates. These are basically advance credits being sent out to Americans. For individuals that amount will be $1,400 recovery rebate credit ($2,800 for married filing jointly taxpayers). In addition, there will be another $1,400 for each dependent for 2021 that includes college students. But there are phase out limits. For single taxpayers the phase out will begin with an Adjusted Gross Income (AGI) of $75,000 or more up to $80,000. This means that for single taxpayers with AGI over $80,000, they will not get any of the rebates. For married taxpayers who file jointly, the phaseout of AGI begins at $150,000 and goes up to $160,000. Again, this means that any married filing taxpayers whose AGI is over $160,000, there will be no rebates. Please note that this is based on your 2019 tax return if your 2020 has not been filed yet. If you have already filed your 2020 return, it will be based on that return. The IRS will be handling the payments again. How they distribute them is not certain but I am sure we will know soon.
The Act provides some other tax incentives or breaks that you can find here: https://www.journalofaccountancy.com/news/2021/mar/house-approves-coronavirus-pandemic-stimulus-bill.html.
Hopefully the IRS will do the right thing and extend tax season to July 15th so that those of us who are busy working with our clients (like me) have more time to prepare and file the returns. For now, I must head back to preparing returns, April 15th is looming in the shadows.