The American Recovery Plan Act of 2021

Or ARPA 21 for short.  My abbreviation – maybe it’ll catch on…?

If you live in America, and you have a pulse…

…you know the new stimulus package has just been approved.

On Thursday, March 11th, 2021 to be exact.

Checks for everyone that made under $75,000, or under $150,000 MFJ.

(…that’s tax geek for Married Filing Joint…)

That’s the same as the first two rounds, but the phase-out was condensed dramatically.

From $100,000/$200,000 MFJ down to $80,000/$160,000 MFJ.

And you HOH’s (Heads of Household) are good under $112,500, phased out at $120,000.

The amount?  This time it’s $1,400 for EVERY family member, including the kids. 

ALL the kids, even the ones on your return as Other Dependents over 16.

That’s different from EIP1 and EIP2 (the first two rounds).

So if you’re married and claim four kids, including the one you’re supporting in college…

…and you made under $150,000 in AGI (adjusted gross income) on your last tax return?

You may be seeing a direct deposit as soon as tomorrow.  For $8,400.

This money is a tax credit for 2021, which means it, like its earlier cousins, is tax-free.

So…what else?

There are a number of other major provisions in the new law such as the extension of unemployment benefits through September at $300 a week, funding for vaccinations and testing, plus the other stuff that gets dangled onto these things as a matter of congressional hilarity.

I want to focus on the two big ones that affect the people I know and serve, the most.

The Child Tax Credit Increase, and the Unemployment Compensation Exclusion.

The CTC is going to be available for children that are 17 at the end of the year now, not 16 as before.

And it’s now $3,000, not $2,000.  Effective tax year 2021.

But wait! …as the TV salesman says…there’s more!

If the kids are 6 or under at the end of the year it’s $3,600! 

So, we’ve all got that to look forward to next tax filing season.

Honestly, whatever the macroeconomic impact, it will be fun to provide this for my clients.

It will also be a good idea for my entrepreneurs with kids to tax plan accordingly. 

A little more money to invest in your business?

If you’ve been on the fence about hiring help maybe this will influence things.

Who knows?

I saved the best for last (my personal/professional opinion)…

The Unemployment Taxation Waiver. 

Actually, the Fed’s calling it the ???????????????????????? ???????????????????????? ??????????????????.  

It goes like this: the first $10,200 of UE bennies you got, LAST YEAR, 2020…

Are tax free. 

Only, of course, if you’re under the income threshold.  But it’s $150,000. 

Period. 

If you and your spouse each received UE it applies to both of you, also. 

Now, it’s important to note that the IRS bulletin on this info doesn’t say ANYTHING about doubling the AGI ceiling for the exclusion. 

It looks like $150K for everybody, that’s it. 

I went to Sec. 9042 of the Bill itself, and there it is.  No $300,000 for marrieds.

Note on this: no phase-out. 

If you made $150,001, no exclusion for you.

(Did you hear the “soup nazi” from Seinfeld in your head?)

The IRS has a good example in their bulletin, which I’ll paraphrase here:

If you were paid $20K, and your spouse $5K, you enter $25K as your benefits as normal.

On the next line, as a negative amount you’d enter ($15,200), a negative number.

That will sum out to $9,800 you’d actually pay tax on. 

If you’re in the 22% tax bracket?  You just got back $3,344.

And yup, it is tax year 2020.

So…here’s the big question bubbling up…

…I know it’s coming…

“What if I already filed my 2020 taxes, and paid tax on ALL of my UE bennies?”

The answer is that you ARE entitled to the difference.  You’ll have to file an amendment to get it.

Now, if you’re reading this, and you’re one of MY clients that I’ve already filed for…

This is all very new and sudden, and hitting us in the busiest tax season of our lives.

I’m not sure what these amendments are going to look like.

Or how we’re going to bill for filing them.

I’m confident I am not alone – there are thousands if not millions of preparers, and we’re all going to have to deal with this sooner or later. 

This is why, last week, I talked a few clients into holding their returns with UE income. 

Much easier to not amend – that’s extra work.

Word of advice here: the IRS is advising holding off on amendments until the forms are updated.

This is one of those rare times that I absolutely agree with them.

I would allow 3 weeks from the day I e-filed for you anyway, to allow time for your return to get into their database.

Further, I’m sure I’m not alone when I say we’re going to get a little buried in these requests. 

Clients of Owings Tax & Accounting are going to be asked to allow us until at least April 16th to request that I file Unemployment Exclusion Amendments. 

Additionally, we’d like at least two weeks from this writing to determine our fees for this. 

A lot will depend on the simplicity, or complexity, of the process.

I can guess, but don’t know for sure yet.

I will say that we’ll do whatever we can to ensure your exclusion refund isn’t eaten up by said fees.

That would be kind of unfriendly, considering the intent behind the exclusion. 

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If you’re reading this on Sunday morning the 14th before 11 MDT (10 a.m. LA, 1 p.m. NY), I’m going live to talk about it on Facebook for 30 minutes then…

…and I’ll be answering questions typed into the comments to the best of my ability.

With all 3 of my monitors up, searching away like mad!

Come join us if you can, and if you already missed it the replay will be on my Eric Owings EA FB page for your viewing pleasure.

Oh, and don’t forget – business filing deadline is tomorrow, March 15th, and regular 1040 filing is April 15th like always.

Happy Tax Season, everybody!

Stay safe.  Namastè.