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The American Rescue Plan - Tax Provisions

President Biden signed the American Rescue Plan Act into law on March 11, 2021. The law includes several tax provisions:

Stimulus Payments - Direct payments of $1,400 for each taxpayer & dependent.  Payments are phased out for taxpayers with adjusted gross income from $75,000 - $80,000 (individuals) and $150,000 - $160,000 (married filing joint).  IRS will use the most recent AGI in its system (2020 or 2019) to determine eligibility for the direct payments.  If a taxpayer qualifies for a larger payment using 2021 AGI, the difference can be claimed as a credit on the 2021 tax return.

The Child Tax Credit - The credit is increased to $3,600 for children under 6 and $3,000 for children ages 6 to 17 for the 2021 tax year only. The tax credit increase is phased out for individuals with modified AGI above $75,000 and joint filers above $150,000. The IRS plans to make periodic advance payments comprising half of the child tax credit from July-December 2021.

Student Loan Debt - For eligible student loans discharged in tax years 2021-2025, the amount of debt discharged is excluded from income.

The Child & Dependent Care Credit - The credit is expanded for the 2021 tax year only. The credit is 50% of eligible expenses with a potential credit up to $4,000 for one eligible child and $8,000 for two or more. The credit is reduced for households with income over $125,000.

Unemployment - Unemployment benefits received up to $10,200 in 2020 are tax-exempt for households with gross income below $150,000.

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