Individuals will see many benefits with the passing of the $1.9 trillion bill last month, know as the American Rescue Plan Act of 2021.
- Economic Impact Payment (EIP) of $1,400 per individual with an Adjusted Gross Income (AGI) up to $75,000 based on their most recent tax return filing
- EIPs for qualifying dependents over 16 years of age based on parents’ income
- Up to $10,200 of unemployment compensation exempted from 2020 federal income taxes for those earning less than $150,000 AGI
- The IRS has relayed that automatic refunds will be issued to those who have already filed their 2020 taxes and pad on unemployment wages last year
- Child Tax Credit of $3,000 per qualifying child under 18 years of age, subject to phaseout thresholds starting at $75,000 AGI for singles and $150,000 for married couples
- Recovery Rebate Credit available to taxpayers that didn’t receive a stimulus payment even though they were eligible; eligibility for the tax credit is the same as that for the stimulus payments
- Credits for Paid Sick & Family Leave provides eligible self-employed individuals with a credit equal to 100% of the qualified family leave equivalent amount
Many economists believe that the third stimulus aid package may be excessive and inflationary, simultaneously being issued as economic activity is reigniting in parts of the country. Thus far, the total amount of the three stimulus bills combined since the pandemic began is over $5 trillion.
While the three stimulus programs were mostly funded by government debt, the recently introduced $2.25 trillion infrastructure plan will be primarily funded by tax increases. Rising fiscal deficits along with increasing levels of federal debt are prompting the administration to explore the most significant tax hikes since 1993. Tax increases are being considered for corporations, businesses structured as pass through-entities, estate taxes and capital gains.
Biden’s plan will continue to evolve over the next few months as there are obstacles lawmakers will have to overcome before enacting business tax increases. It is unlikely that corporate tax increases will apply for 2021 or that they will be retroactive for individuals. For now, we look forward to additional ideas to be released in the next month or so.
Sources: IRS, IRS Coronavirus Tax Relief, Treasury.gov, Taxpolicycenter.org, The Kiplinger Tax Letter, OneBlueWindow, LLC©