The Biden Administration has passed and signed into law a third round of economic relief called the American Rescue plan. Most of these changes will not affect your clients’ taxes for tax year 2020. You should encourage your clients to send you their documents or schedule an appointment as soon as they have all their forms and records, which they should have received by now. We’ve gathered everything you need to know in this article.
This article was last updated on Wednesday, March 31st, 2021.
The tax filing deadline will be extended to May 17
The IRS officially announced that they will extend the federal tax filing deadline to May 17, 2021. This gives you an extra month to file client returns if you need it. However, the IRS is still encouraging taxpayers to file as soon as possible. Reach out to your past clients who have not contacted you this season to set up an appointment in person, over the phone, or on video chat.
Stimulus payments will begin going out as early as March 13th
The third stimulus payment will be worth $1,400 per qualifying individual, including all dependents. If your client is a single filer and makes $80,000 or more, they will not receive the payment. Likewise, if your client is filing married filing jointly and makes $160,000 or more, they will not receive the payment. The payments will be based on your clients 2020 tax returns. If your clients have not filed their 2020 taxes, encourage them to do so soon. But if they haven’t, the IRS will look at their 2019 return.
If your client is eligible for this new payment and did not receive the first two payments, they will be eligible for the Recovery Rebate Credit for the first two payments. They should go ahead and meet with you to file their 2020 return so they can claim the credit.
Read this article for more information about the third stimulus check.
The new 2021 Child Tax Credit
The American Rescue Plan will change the Child Tax Credit significantly. It will increase the credit for 2021 from $2,000 to $3,000 for kids ages 6-17. It will also increase the amount from $2,000 to $3,600 for kids under 6 years old. It is fully refundable, so your clients will get the full amount back in their refund. The age limit on the credit will also be raised to include 17-year-olds.
The new credit amount will begin to phase out for single filers earning $75,000 or more, couples who earn $150,000 or more, and heads of household earning $112,500 or more. If your client makes more than this amount but under $200,000 as a single filer or $400,000 as a joint filer, they will still be eligible for the existing $2,000 credit.
If your client is eligible for the new Child Tax Credit, they do not need to file their 2021 tax return to claim it. The amount will be based on their 2020 tax return (how many dependents they claimed and their AGI). The IRS does not know when the payments will be delivered at this time. They plan to create an online portal so your clients can update their dependent information.
Some unemployment benefits will not be taxed
Your clients who received unemployment during 2020 will not be taxed on the first $10,200 of their benefits. Their AGI must be less than $150,000 for both single and joint filers.
If your clients have not filed for 2020, TaxSlayer Pro software is up to date and will help you calculate if they are eligible to take the exclusion. This is located on Schedule 1, Line 7 of Form 1040.
If your clients have already filed for 2020, there is most likely no need to file an amendment. The IRS will automatically refigure your client’s taxes and adjust their return. Any additional refund will be sent directly to your clients.
For more information, read this IRS press release.
The Earned Income Tax Credit will increase
The American Rescue Plan will raise the maximum Earned Income Tax Credit (EIC) for your clients without dependents from about $540 to about $1,500. It will also raise the income threshold from about $16,000 to at least $21,000. And it will expand the age range of those eligible to include younger adults ages 19-24 who aren’t full-time students as well as those 65 and over. The investment income threshold will also be raised to $10,000.
If your client’s income in 2019 was greater than in 2020, you can use their 2019 income to calculate their 2021 credit.
The Child and Dependent Care Credit will increase
The Child and Dependent Care Credit will increase from 35% to 50% of expenses. Your clients who are eligible can claim up to $8,000 for one child or $16,000 if they have multiple children. Next year the credit will also be refundable (taxes filed in 2022).
Sick leave credit will be extended
The tax credit for sick leave will be extended to October 1, 2021 for self-employed taxpayers who are ill or taking care of a family member. If they can’t work due to this responsibility, they will receive a tax credit to cover lost wages.