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The American Rescue Plan Act was officially passed in the House and Senate on March 10th. The coronavirus relief bill brings with it some important tax changes you need to know when it comes to filing your 2020 taxes. In particular, how your unemployment benefits, economic impact payments, and student loan debt forgiveness affect your taxes. Let’s take a look!
Unemployment Benefits
If you made less than $150,000 a year and received unemployment benefits in 2020, the first $10,200 qualifies as tax-free.
Recovery Rebates
-Additional economic impact payments are being sent to those who qualify for them. These will be sent via a recovery rebate credit as advanced payments.
-Single individuals can look forward to a $1,400 recovery rebate credit.
-For those who are married and filing their taxes jointly, this amount is bumped up to $2,800. $1,400 is added for every dependent in 2021 (college students or relatives in your household, which you can claim as your dependents).
Adjusted Gross Income (AGI) Phaseouts
-Use your 2019 AGI for eligibility (unless you filed a 2020 return already).
-For single taxpayers, your credit and payment will be phased out, starting with an AGI totaling $75,000 and ending at $80,000.
-For married taxpayers filing jointly, your credit and payment will be phased out (starting at an AGI of $150,000 and ending at $160,000).
-For taxpayers filing as head of household, your credit and payment will begin phasing out at $112,500 and end at $120,000.
COBRA Continuation Coverage – (Sec. 6432)
-Sec. 6432 was created to allow COBRA continuation coverage premium assistance credit for taxpayers who qualify.
-You qualify for COBRA continuation coverage premium assistance if you are eligible for COBRA continuation coverage from the date of the American Rescue Plan Act up to September 30, 2021.
-This credit is allowed against the Sec. 3111(b) Medicare tax.
-This credit is refundable, and the IRS can make advance payments to you for the credit amount.
-This credit applies to premiums and wages paid after April 1, 2021, up to September 30, 2021.
-Sec. 6720C was also created, potentially penalizing you if you don’t let your health plan provider know of cessation of eligibility for this assistance.
-If you get COBRA continuation coverage premium assistance credit, you are not eligible for the Sec. 35 health coverage tax credit, too.
-Sec. 139I was created so that continuation coverage premium assistance will not include your gross income.
Earned Income Tax Credit Changes (Sec. 32)
-For taxpayers without children, new special rules apply. In 2021, the minimum age is lowered to 19, but not for students (24), previous foster youth, or homeless youth that qualify (18) while getting rid of the maximum age.
-The earned income tax credit phaseout is increased to 15.3%. The phaseout amounts are increased as well.
-The credit is allowed for certain spouses who are separated.
-Disqualifying investment income has raised from $2,200 to $10,000.
-You can use your 2019 income instead of 2021 income to calculate your credit amount temporarily.
Premium Tax Credit for 2021 and 2022 (Sec. 36B)
-For Sec. 36B, the premium tax credit has been affected by changing the percentage amounts in Sec. 36B(b)(3)(A).
-If you got too much from the advance premium tax credits in 2020, you will not need to pay back that excess amount.
-There is also a new special rule treating taxpayers as an applicable taxpayer if you received (or are approved to get unemployment compensation) for any week starting in 2021.
Student Loans – Sec. 108(f)
Through Sec. 108(f), an amendment was made so that gross income will not include any amount that would otherwise be included in income from discharging a student loan after December 31, 2020, and before January 1, 2026.
These are just some of the provisions that have been made due to the American Rescue Plan Act. It is more important than ever to consult with a tax professional, accountant or CPA before filing your 2020 business or personal tax return.
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Read the full article reviewing the latest impacts on your 2020 taxes:
https://www.thetaxadviser.com/news/2021/mar/tax-components-coronavirus-relief-bill.html