Updated: May 6
The American Rescue Plan Act of 2021, also called the COVID-19 Stimulus Package, is a $1.9 trillion economic stimulus bill passed by Congress and signed into law by the President on March 11, 2021. The Act builds upon many of the measures in the CARES Act and the Consolidated Appropriations Act. The team at ATBS has read through the Act and has summarized some of the key pieces of information that will have the greatest impact on owner-operator truck drivers.
As you know, legislation surrounding the economic recovery of the Coronavirus pandemic has changed significantly over the past year and will likely continue to do so. We will continue to update this article with more information as it changes or becomes available.
If you are a current client and have questions about this legislation, please contact your ATBS Business Consultant. If you are not yet a client and are interested in learning more about how ATBS can help you file your taxes and manage your trucking business, please give our enrollment team a call at 866-920-2827.
Third Round of Stimulus Payments
The third round of stimulus checks will be $1,400 per adult and qualifying dependent. These payments are set to arrive in March of 2021 at the earliest. Eligible individuals must have a valid identification number, which can be a SSN, Adoption TIN. Additionally, members of the Armed Forces must have at least one taxpayer listed on the return with a qualifying identification number to qualify. To check on the status of your stimulus payment, visit https://www.irs.gov/coronavirus/get-my-payment.
Individuals who are ineligible to receive the payment include:
Individuals without Social Security Numbers
Individuals filing as Single with AGI above $80,000
Individuals filing as Head of Household with AGI above $120,000
Married Filing Jointly Couples with AGI above $160,000
Individuals who are claimed as a dependent of another individual
Individuals who were deceased prior to 1/1/2021
Estates and Trusts
One of the most significant changes in this round of stimulus payments is that dependents of any age qualify for the stimulus. That includes college-age dependents and disabled adult dependents. The 2020 tax return will be used to qualify for the stimulus payment. If a 2020 tax return has not yet been filed, then the 2019 return will be used.
Taxpayers that claim qualifying children or adult dependents on their tax return will receive the stimulus check for those dependent(s). If an individual files their own return and was not claimed as a dependent by anyone else, then they will receive the stimulus check.
The phase-out for single taxpayers begins at AGI levels of $75,000 - $80,000. At $80,000 the stimulus is fully phased out. Married filing jointly taxpayers phase-out begins with AGI of $150,000 - $160,000.
Child Tax Credit Changes
The American Rescue Plan Act includes an increase to the existing Child Tax Credit. For those unfamiliar with the Child Tax Credit, it provides dollar-for-dollar tax savings for taxpayers with children under the age of 17. The credit amount is $2,000 per child for 2020. During 2021, and for 2021 only at this time, the American Rescue Plan Act increases the Child Tax Credit in two ways:
For children ages 6-17, the credit increases by $1,000 for a total annual credit of $3,000 per dependent child.
For children under age 6, the credit increases by $1,600 for a total annual credit of $3,600 per dependent child.
Additionally, the Act provides that a portion of the credit be issued during the calendar year 2021. Ordinarily, taxpayers receive the Child Tax Credit benefit by filing their annual income tax returns. The Act states that the IRS would start providing periodic payments of the credit potentially as frequently as monthly during 2021. The advance credit payment could begin as early as July 2021.
For children ages 6-17, labeled as “School-aged children”, the taxpayer claiming the child as a dependent on their tax return would receive $250/mo per child ($3,000 / 12 = $250/mo). For children under age 6, labeled as “Young children”, the taxpayer claiming the child as a dependent on their tax return would receive $300/mo per child ($3,600 / 12 = $300/mo). If the taxpayer qualifies for the lower $2,000 tax credit due to high income, then the advance credit payment is $167/mo ($2,000 / 12 = $166.66).
For children born during 2021 the IRS is tasked with creating an online portal where taxpayers can update dependent information in order to qualify for the Child Tax Credit.
If the monthly advance of the Child Tax Credit begins in July 2021, that would mean that half of the credit would be advanced during 2021 and the other half would be claimed by filing a 2021 income tax return. A notable point with this enhancement of the Child Tax Credit is that the credit will be reconciled when filing the 2021 tax return. Taxpayers that file their 2021 tax return and qualify for less Child Tax Credit than they received may be required to repay the credit on their 2021 tax return. However there are safe harbor rules that protect lower income taxpayers. Taxpayers that are not required to repay any amount include those with AGI below $80,000 for single filers and $120,000 for those married filing jointly.
Additionally, there are new phase-out limitations for the enhanced amount of Child Tax Credit. Single filers earning more than $95,000 and married filing jointly filers earning more than $170,000 would be phased out of the enhanced portion of the Child Tax Credit. Taxpayers that are fully phased out of the enhanced Child Tax Credit are still eligible to claim the ordinary Child Tax Credit of $2,000 on their 2021 income tax return assuming they aren’t phased out of the ordinary Child Tax Credit. The phase-out range of the ordinary Child Tax Credit is $200,000 for single filers and $400,000 for married filing jointly filers.
Finally, another benefit to some taxpayers is the removal of any limitation on the refundable portion of the Child Tax Credit. The maximum refundable credit amount under 2020 law is $1,400 per child. The American Rescue Plan Act removes the limitation for 2021 tax returns and increases the refundable amount. If the right circumstances ca