Both the Senate and the House passed President Joe Biden’s $1.9 trillion stimulus plan, which could be signed into law as early as Friday. But that’s not the only good news for many Americans. The legislation, deemed the American Rescue Plan, also comes with four key tax benefits most people won’t want to miss.
Increased Child Tax Credit
The child tax credit will increase from $2,000 to $3,000 for 2021, according to Kiplinger. Taxpayers with children under 6 will receive a $3,600 tax credit for those children.
Plus, the entire amount of the credit will be fully refundable in 2021, the Journal of Accountancy noted. That means the tax credit won’t just reduce your tax bill but can put money in your pocket if it reduces your tax liability to less than $0. Additionally, it raises the eligible age to receive the child tax credit from 16 to 17 in 2021. Finally, it is available even for families making less than the current minimum of $2,500 per year.
The full credit is only available to single filers earning $75,000 — down from $200,000 under the current law — or less in adjusted gross income, heads of households who make $112,500 or less and married people filing jointly earning $150,000 or less, according to CNBC.
Families may consider having half of their 2021 credit advanced over six months beginning in July, Kiplinger reported.
Child Care Tax Credit
In addition to the expanded child credit, families can receive a tax credit for up to 50% of their childcare expenses — up from 20% to 35% under the current law. The fully refundable credit would max out at $4,000 for one child or $8,000 for more than one. Families who earn more than $125,000 and less than $400,000 would receive partial credit, Yahoo! Finance reported.
Expanded Earned Income Tax Credit
The legislation loosens some of the requirements on the earned income tax credit for 2021, according to Yahoo! Finance. The EITC is a fully refundable credit designed to assist low- to middle-income taxpayers. Taxpayers without children who are working can claim the credit at age 19 rather than waiting until age 25. Working adults over the age of 65 would also be allowed to claim the credit.
Tax Exemptions for Unemployment Benefits
The first $10,200 of unemployment benefits will not be taxable for those who earned $150,000 or less in 2020. This amendment to the legislation could save taxpayers thousands of dollars each, especially for those who did not have withholding taxes taken out of their unemployment benefits.
What to Do if You Already Filed Your Taxes
If you already filed your taxes for 2020 in advance of the April 15, 2021 deadline and might be affected by a tax change that goes into effect for tax year 2020, you can file an amended return once the legislation passes and the tax laws are set in stone.
Fortunately, you can file Form 1040-X, an amended tax return, easily online, CNBC reports. You will need your original 2020 tax return and details on the information you need to amend. Enter the original amount, net change and corrected amount, and the form will calculate how much you owe or the amount of your new tax refund. The form is also available for download on the IRS website.
You have up to three years to file an amended return, so it makes sense to wait until the legislation has passed, tax experts told CNBC. This is especially true if you opt to pay a tax accountant or tax service to do your taxes or file amended returns.
“There is going to be an unnecessary cost to the taxpayers here if they can’t figure out how to do it on their own,” Adam Markowitz, enrolled agent with Howard L Markowitz PA CPA in Leesburg, Florida, told CNBC. “It’s far more important to get this done right than get this done fast.”
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