- \ Gerard Gruber
- April 23, 2021
President Biden’s latest stimulus initiative, the American Rescue Plan Act (ARP), was signed into law on March 11, 2021. The plan aims to stimulate the economy...
President Biden’s latest stimulus initiative, the American Rescue Plan Act (ARP), was signed into law on March 11, 2021. The plan aims to stimulate the economy and help Americans recover from the struggles they continue to endure amid the COVID-19 crisis—a much-needed injection of funds that will hopefully help some of the most impacted sectors of our working population get back on their feet.
The American Rescue Plan Details
What does this act mean for high net worth taxpayers? Probably not a lot. If you are single and make $80,000, the head of the household making $120,000 or more, or a married couple that files jointly making $160,000 or more, you are not eligible for many of the ARP’s benefits.
However, if your income clocks below those thresholds or if you collected unemployment in 2020, here’s what you need to know:
Any single individual making $75,000 or less will receive the full $1,400 payout. A phaseout begins at this level and clocks out by the time income reaches $80,000.
Married couples that file jointly will receive $2,800, plus an additional $1,400 for each dependent. The difference between this third round of stimulus and the previous two is that the dependent benefit now extends to non-child dependents over 17. These amounts apply to couples with a combined income of $150,000 or less, phasing out at $160,000.
These amounts are based on your 2020 income, but amounts from 2019 will be used for people who have not yet filed for 2020. If you do not receive your stimulus checks even though you’re entitled to them (such as might be the case if you didn’t file in 2020 and your 2019 income was too high but found you were eligible once you did file your 2020 return), the amount will be credited on your 2021 return.
Other Tax Credits and Benefits Under the Plan
If you’re a high net worth individual, there are still some perks you may be eligible for under the American Rescue Plan. The act raises the income threshold for claiming the full child and dependent care tax credit from $15,000 to $125,000, and any individual or couple earning between $125,000 and $400,000 is eligible to claim a partial credit. Plus, the credit is fully refundable, meaning if you pay $20,000 a year for childcare, you will receive a credit of $10,000. Note that this is a credit, not a deduction, which is actually more beneficial as credits directly lower one’s overall tax bill.
The bill also raises the Child Tax Credit to from $2,000 per child under 17 to $3,000 for children between the ages of six to 17 (including age 17) and to $3,600 for children under six. Under this provision, the Tax Policy Center estimates that every three out of four families will receive a larger tax credit as a result.
You’ll also see an increase in the Child and Dependent Care Tax Credit from 35% of eligible expenses to 50%, amounting to a maximum of $4,000 for a single child and $8,000 for two or more children.
Extended Payment Relief on Mortgages and Evictions
Federally guaranteed mortgages are also protected with extended payment relief, while foreclosures and evictions are suspended until September. However, despite the current ban on evictions, landlords can access funds to cover back rent through the emergency renter’s assistance program. Landlords can apply through local county or city rental assistance programs to recoup up to 12 months of overdue rent.
Small Business and the Paycheck Protection Program
The Paycheck Protection Program (PPP), which has been a lifesaver for many small businesses over the past year, will receive an additional $7.25 billion to be used up until the March 21, 2021 deadline. Additionally, the Employee Retention Credit (ERC) will be extended through the end of 2021. This refundable tax credit allows business owners to claim up to $7,000 per employee per quarter as an incentive to keep employees on the books.
Increased Limits on Dependent Care Flexible Spending Account (DCFSAs)
You will also see an increase in contribution limits on Dependent Care Flexible Spending Accounts (DCFSAs) in 2021 under this new legislation. For married couples filing joint tax returns, the cap is $10,500, up from $5,000. For single filers, the limit is $5,250, up from $2,500. The limit for health FSAs, though, remains the same as 2020 at $2,750. [i]
While other provisions have also been passed by the ARP—such as the expansion of the earned income tax credit—these are changes that will only impact low-income households.
What If You Received A Stimulus Check but Were Not Eligible?
In the rush to push out funds quickly, some ineligible taxpayers might have received a check they’re not entitled to—and if that’s the case, you might have to send it back!
Here are a few of the reasons you might have to return the money you received:
- You are over the income threshold
- You do not have legal resident status
- You are a dependent on someone else’s return
- You have no social security number
- The check was issued to someone who died
If you received a paper check you’re not eligible for and have not yet cashed it, you can simply return it to the US Treasury. If you have already deposited the funds, you will need to send a check or money order indicating your taxpayer ID or SSN along with “2020EIP” and the name of the person to whom the stimulus check was issued.
Looking Forward
If all of this stimulus makes you uncomfortable, you are not alone. The nation’s negative balance sheet is certainly making some Americans uneasy, especially as stocks continue to soar and interest rates remain near zero. The thought is that the economy can only run so hot for so long. What will happen when fiscal stimulus is no longer being pumped into the economy? Will the economy be able to continue running this way on its own? How will the federal deficit impact tax rates ten, twenty, or thirty years from now?
Of course, at this point in time, any predictions are purely speculative and should be taken with a grain of salt. We continue to monitor the ever-changing environment and will make changes to your portfolios on an as-needed basis. But, should you have questions or concerns in the meantime, feel free to reach out to your Harbor West advisor. We are always here as your most trusted financial resource.
Citations
Unless otherwise noted, the American Rescue Plan data cited in this article was directly sourced from the following page published by Congress: https://www.congress.gov/bill/117th-congress/house-bill/1319.