The “American Rescue Plan” has now been finalized by Congress and signed by President Biden. 

And there are things you should know, that may affect your taxes, for 2020 and 2021 and future years.

There is a lot to discuss, and we will have more to say early next week, but this is important for you to know about NOW.  

So let’s dive into the immediately relevant updates…

$1,400 Stimulus Payments 
(and how they might impact your tax paperwork)

These are different from previous stimulus programs: $1,400 dollars per taxpayer and per dependent (with significant income limitations).

1) Previously, if you had a child over 16, or an adult dependent, they would not qualify. In this round, you’ll receive a payment for yourself and each dependent — depending on your income.

2) The “phase out” for this is significant and steep. What this means is that in previous rounds, the phase out was much more gradual. The phase out began at the same numbers ($75,000 for individual, $150,000 for joint-filed return, and $112,500 for HOH), but they were so gradual that it didn’t significantly impact filing decisions.

Now — you will NOT receive these payments if your adjusted gross income is anything over 80K for individuals or 160K for joint.

How This Might Impact You NOW (Tax Planning)
We want to maximize your stimulus. And once the IRS issues you a stimulus payment, it’s yours. TIMING matters, and so might how you file (in certain unusual cases).

TIMING:
If your 2020 income increased versus 2019 …

• If it didn’t take you over the phase out thresholds, there is nothing needed for you to think about.
• If it brought your AGI above the phaseout thresholds (especially if over the 75K or 160K joint), and you have not filed your return: we will be waiting to file it until after you receive your stimulus. 
  If for some strange reason you are reading this and you are NOT our client, I urge you NOT to file until you receive this $1,400 payment.
• If your increase brought your AGI above these thresholds, and you have already filed … I am sorry 🙁 The IRS goes by the most recently-filed information for these decisions.

If your 2020 income decreased versus 2019 …

• If your income was already under the phaseout thresholds, you will not be affected — you will receive the stimulus no matter what.
• If your income decreased below the thresholds (i.e. your income in 2019 was above 75K or 150K filing joint and now it is below), you do NOT have to rush to get your 2020 return done. 

The way this bill works is that there are two phases of how these stimulus payments will be distributed. 

In phase 1, the IRS will take the data it already has and pay out of that. If you didn’t file a return in 2019 or 2020, you will not get a stimulus. 

But fret not … in phase 2, there will be a second date on which the IRS will calculate stimulus payments. This will be for those who had an income decrease in 2020 versus 2019. 

That date will be the earlier of 90 days after the tax deadline day (whatever it might be — more on that later), or September 1.

So as long as we get your taxes filed on time, you WILL get it. You do not have to FILE YOUR TAXES RIGHT NOW. Don’t let any scammers tell you differently.

HOW YOU FILE:
In certain odd cases, it might actually make sense to file “married filing separately” for your 2020 taxes even though you will (as a result) pay slightly more in taxes — because by doing so, you will be able to receive a greater stimulus payment. It would then outweigh the greater tax you might pay.

This will not be the case for most clients, and it mostly will concern those whose income hovers around the phaseout thresholds. 

“When Will I Get My Stimulus?”

Unclear, but likely these will begin by the end of this month (March) for those who already are under the thresholds and qualify.

For the rest, it will be after the second phase that we already mentioned.

Unemployment Now (Partially) Non-Taxable (for most)
 

We already mentioned in a recent email, and it has been confirmed in the bill– the first $10,200 of unemployment benefits are untaxable — but only for those whose household income is below 150K.

This is a very real benefit for many, probably meaning at least $1,500 in savings. 

But the timing on this will take some time because the IRS will have to issue guidance, we have to wait for the tax software programs to update, etc.

If you know anyone who has unemployment who has already filed their return, it is likely that they might have to amend … but not necessarily. 

We are here to help if you want to make sure:
www.Pronto4Tax.com 

There are (obviously) many more elements to this bill, and we will unpack them in the following weeks.

There are changes to child tax credits, earned income credits, and more. 

In the meantime … just know that we are in your corner.

And also, please extend us grace and patience as we are handling these matters for a variety of clients, many of whom have very difficult circumstances. We are here to serve, and have prepared for these kinds of legislative curveballs … but they are curveballs nonetheless.

Our team is on the grind to get you every dollar you’re entitled to and hopefully provide a PERSONAL TOUCH SERVICE along the way!  🙂