(KTLA) – With the May 17 deadline approaching for most Americans, the IRS on Tuesday sought to highlight some of the main provisions of the American Rescue Plan Act that will affect taxpayers.
The $ 1.9 trillion coronavirus aid package – which also included $ 1,400 stimulus checks – was approved by Congress and sanctioned by President Joe Biden earlier this year.
Some of the changes will benefit taxpayers who will file their 2020 declarations, while others will not take effect until fiscal 2021. They affect everything from unemployment benefits to child tax credits.
Changes for fiscal 2020 filings
Some unemployment benefits are not taxable
One of the major retroactive changes to 2020 that was part of the COVID-19 relief package is that most families will not have to pay taxes on the first $ 10,200 of unemployment insurance. This is in effect for fiscal year 2020 only, and is only for architects whose modified adjusted gross income was less than $ 150,000.
On their return from 2020, qualified taxpayers can subtract the first $ 10,200 in unemployment benefits from their total compensation. Only the difference in your taxable profit should be included, according to the IRS.
In the case of a couple who received unemployment insurance, each spouse can subtract $ 10,200, the tax agency said.
For qualified taxpayers who have already filed the claim and reported their unemployment benefits, the IRS will automatically make the adjustment and issue a refund.
More details about the exclusion can be found on here.
Overpayment of suspended advance premium credit reimbursement
Taxpayers who purchased their health insurance through a federal or state market will not have to report an early repayment in excess of the premium tax credit (surplus APTC) for 2020, due to the suspension requirement by the American Rescue Plan Act.
The IRS announced last month that taxpayers with an excess of APTC for 2020 will also not have to complete Form 8962 or report an excess of APTC, and that the refund amount will automatically be reduced to zero.
Anyone who has already filed their taxes and paid the premium tax credit in advance will be reimbursed, the agency said.
More details on the suspension can be found on here.
The IRS is asking people who have already submitted their taxes for 2020 not to submit corrected returns or to contact the IRS because retroactive benefits will automatically be provided to qualified filers.
Changes for fiscal year 2021
Expanded child tax credit and advance payments
According to the American Rescue Plan Act, the child tax credit was expanded in 2021 to up to $ 3,600 per child aged 5 and under and up to $ 3,000 per child aged 6 to 17 years. The original credit was $ 2,000 per eligible child.
The maximum amount is available for taxpayers with modified adjusted gross income of $ 75,000 or less for a single filer, $ 112,500 or less for breadwinners and $ 150,000 or less for married couples and qualified widowers and widowers.
“Above these income limits, the extra amount above the original $ 2,000 credit – either $ 1,000 or $ 1,600 per child – is reduced by $ 50 for every $ 1,000 in modified AGI,” says the IRS website.
Families, however, are eligible even if they have little or no income from their job, business or other source, according to the tax agency.
The new law also makes the tax credit fully refundable and allows families to receive up to half in advance from July to December 2021.
Advance payments will be determined until the 2020 or 2019 returns, depending on which one is available. Because of this, the IRS is asking families to file their 2020 taxes as soon as possible, including those who do not normally file a tax return.
For faster delivery of any refunds and tax credit payments, taxpayers are encouraged to file the claim electronically and choose the direct deposit option.
More information about child tax credit prepayments this year can be found on here.
Credit increases for child and dependent care
The amount of eligible expenses for the child and dependent care credit will also increase and be reimbursed under the new law – but only for 2021.
This year, those who qualify can claim certain expenses of up to $ 8,000 for an eligible child or $ 16,000 for two or more eligible dependents. Both values are more than double the previous limits.
This year, the highest percentage of credit for eligible expenses also rises to 50%. This means that the maximum credit that anyone can claim is $ 4,000 for one dependent or $ 8,000 for two or more dependents.
As before, the percentage of credit decreases the higher the taxpayer ‘s income. However, more people will qualify for the new maximum because the adjusted gross income at which the rate decreases is growing from $ 15,000 to $ 125,000.
The credit rate reaches a level of 20% for those earning between $ 183,000 and $ 400,000, at which point it is phased out.
Another big change for 2021: credit – forever – is 100% refundable.
“This means that a qualified family can receive it, even if it does not owe federal income tax,” explained the IRS.
Income tax credit earned for the childless expands
More workers and childless couples will be eligible for income tax credit, a benefit designed to help many people with low and moderate income, including families, according to the IRS. In addition to the triplication of the maximum credit for this group of taxpayers, it will be made available to younger and older workers – a first time.
The earned income tax credit can be claimed by qualified workers who are at least 19 years of age and have an adjusted gross income below $ 27,380.
Before, only those who did not have dependents aged between 25 and 64 years old could claim the income tax credit for work.
For those who qualify, the maximum credit for 2021 has risen to $ 1,502, an increase of almost $ 1,000 over the previous year.
More changes in earned income tax credit
Other changes are coming to the income tax credit earned for 2021 and beyond.
To begin with, credit can be claimed by singles and couples with a Social Security number, even in cases where their children do not have them. In such cases, the filer would obtain the smallest credit available to childless workers.
In addition, separated spouses can decide whether they are treated as married for the purposes of the tax credit. But several conditions must be met to qualify. This includes primary residences separated from each other for at least half of the year and must have a qualified dependent living with them for more than six months in the year.
Finally, more workers and families with investment income will be able to obtain credit. The current limit of $ 3,650 should be expanded to $ 10,000. And from this year on, the maximum limit will be indexed by inflation.
More information on the main changes in the 2020 and 2021 tax provisions can be found on here.