American Rescue Plan Act of 2021: New 3rd Stimulus Chart, Child-Related Tax Credits, COBRA, Dependent Care FSA Limits
The American Rescue Plan Act of 2021 became effective March 11th, 2021 and there is a lot to unpack in the $1.9 trillion economic stimulus bill. Besides the headline $1,400 stimulus checks, there are many other items that could be worth over a thousand dollars each – expanded child and childcare tax credits, subsidized ACA/COBRA health insurance premiums, and increased pre-tax contributions to Dependent Care FSAs. After reading the NY Times, Tax Foundation, Wikipedia, and Kitces round-ups, here again are my minimalist highlights so that you can research further if it applies to your situation.
3rd Stimulus checks / Recovery rebates.
$1,400 for each eligible recipient. This includes $1,400 for each child and adult dependent, including college students claimed as dependents.
Income phase-out starts at AGI of $75,000 Single, $112,500 Head of Household, and $150,000 Married Filing Joint. Fully phased out at $80k/120k/160k. Applies to 2019 or 2020 income (if filed), or possibly even 2021.
Previous changes extended (including expanded eligibility) for additional 25 weeks, until 9/6. $300 weekly supplement also extended until 9/6.
For 2020, the first $10,200 of UI benefits are now tax-free if your income is under $150,000.
Expanded Child Tax Credit.
For 2021, it increases to up to $3,000 per child ($3,600 for ages 5 and under). The age limit for qualifying children also rises to 17, from 16. Previously, the max credit was $2,000 per child (and was only $1,000 as recently as 2017).
Now fully refundable.
Income phase-outs start at MAGI of $150,000 for married filing joint ($75,000 single).
Expanded Child and Dependent Care Tax Credit.
For 2021, now worth up to $4,000 for one qualifying individual or $8,000 for two or more. More expenses are eligible, at a higher percentage. The net increase in value could be worth up to $5,900 (see chart below).
Now fully refundable.
Qualifying children are under the age of 13 for the entire year.
Dependent Care Flexible Spending Accounts.
For 2021, you can now contribute $10,500 into a Dependent Care FSA instead of the normal $5,000.
Employers must choose to allow this option. Bug your HR department and hopefully they’ll make the change before it’s too late.
For student loan debt forgiven between 1/1/2021 and 12/31/2025, the forgiven amount will no longer be considered as taxable income.
No actual student loan debt is being forgiven as part of this bill, but it may be wise to prepare for the possibility in the near future. (I might not consider paying down any student loan amounts under $10,000, especially while they are in deferral.)
COBRA Health Insurance.
If you lost your job involuntarily (or had job hours cut and thus lost coverage), the government will pay for your entire COBRA health insurance premium from 4/1 through 9/30. This could add up to several thousand dollars.
There will always be debate about details of this bill, but that is theoretical while my goal is to be actionable. The goal here is to help taxpayers be proactive and make sure they get any benefits and aid for which they qualify.
“The editorial content here is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are the author’s alone. This email may contain links through which we are compensated when you click on or are approved for offers.”