Unemployment Benefits - The act makes the first $10,200 in unemployment benefits tax-free on the 2020 tax return. This applies to taxpayers with AGI of less than $150,000.
Recovery Rebate Payments - The act includes a third round of economic impact payments to be sent to qualifying individuals. The payments are considered advance payments of a recovery rebate credit to be taken on the 2021 tax return. The recovery rebate amount is $1,400 ($2,800 for married taxpayers who file a joint return), plus $1,400 for each qualified dependent.
The credit and advance payment begin to phase out when a taxpayer's AGI is over $150,000 ($160,000 maximum) for MFJ, $112,000 ($120,000 maximum) for HOH and $75,000 ($80,000 maximum) for other filing statuses.
Eligibility for the third payment remains the same as the second economic impact payment:
- Nonresident aliens and dependents claimed on another tax return are not eligible
- A valid Social Security Number is required to be eligible
Advance payments will be based on information contained in the 2020 tax return (or 2019 if no 2020 return has been filed).
Expanded Child Tax Credit for 2021 - The act expands the child tax credit to include 17 year old children as qualifying children for the credit and the credit is fully refundable for 2021.
The amount of the credit is increased to $3,000 per qualifying child ages 6 and older and to $3,600 per qualifying child under age 6.
Advance payments of the credit will be sent to taxpayers on a monthly basis starting in July. The advance payments will be calculated by the IRS based on a taxpayer's estimated child tax credit for 2021. Taxpayers will receive one-twelfth of the estimated amount each month between July and December 2021.
The IRS will establish an online portal for taxpayers to opt-out of the advance payments and/or provide information to be used in determining the amount of the credit.
Advance payments of the child tax credit will be reconciled on the taxpayer's 2021 tax return.
Expanded Earned Income Credit - The act changes the minimum age to be eligible to take earned income credit from 25 to 19 for taxpayers who do not have children and are not a full-time student.
The act raises the investment income threshold from $3,250 to $10,000.
The act allows the taxpayer's 2019 earned income amount to be used in the calculation of the credit on the 2021 tax return if it is greater than the taxpayer's 2021 earned income amount.
Child and Dependent Care Credit - The act makes the child and dependent credit a refundable credit in 2021 and increases the amount of eligible expenses from $3,000 to $8,000 for one child and from $6,000 to $16,000 for more than one child.
The act increases the percentage of expenses eligible for the credit from 35% to 50% and the phaseout income amounts are raised from $15,000 to $125,000 capping at 20% when AGI reaches $400,000.
Credit for Family and Sick Leave for the Self-employed - The act extends the sick leave benefits for the self-employed due to COVID-19 through September 30, 2021. The days re-set as of April 1, 2021.
The number of days a self-employed individual can take into account in calculating the qualified family leave equivalent amount for self-employed individuals increases from 50 to 60.
The act increases the limit on the credit for paid family leave to $12,000.
Premium Tax Credit - The act suspends the repayment requirement for taxpayers receiving excess advance PTC in 2020 and reduces health care premiums with an increased PTC for 2021.
Taxpayers receiving unemployment can use the increased rates if their household income tier is 133% of the federal poverty line.
In addition, taxpayers with income above 400% of the federal poverty level will be eligible for PTC if the premium exceeds 8.5% of their Household Income.