On Tuesday, the IRS was looking to highlight some of the major provisions in the American Rescue Plan Act. It will impact most American taxpayers with the 17th May deadline. The $1.9 trillion coronavirus aid package also included $1,400 stimulus checks. It was passed earlier this year by US Congress and signed into law by President Joe Biden. Some of the key changes will provide benefit to taxpayers filing their 2020 returns. They impact everything from unemployment compensation to child tax credits. One of the major retroactive changes for 2020 is that most households won’t have to pay taxes on the first $10,200 of unemployment compensation and it was part of the COVID-19 relief package. It will be in effect for the 2020 tax year, and it’s only for filers whose modified adjusted gross income was below $150,000.
Moreover, the IRS said that eligible taxpayers can subtract the first $10,200 in unemployment benefits from their total compensation in their 2020 tax return. So, the difference in their taxable income should be included. Each spouse can subtract $10,200, in the case of a married couple who both received unemployment compensation. The IRS will automatically make the adjustment and issue a refund for qualified taxpayers who already filed and reported their unemployment benefits. However, taxpayers who bought their health insurance through a federal or state marketplace won’t have to report an excess advance repayment of the premium tax credit for 2020, due to the requirement being suspended by the American Rescue Plan Act. Anyone who already filed their taxes and repaid the advance premium tax credit will be reimbursed.
The IRS is urging people who already sent in their taxes for 2020 not to file amended returns because the retroactive benefits will automatically be provided to eligible filers. It is noteworthy that the child tax credit has been expanded for 2021 under the American Rescue Plan Act, to as much as $3,600 per child ages 5 and under and up to $3,000 per child between 6 and 17 years old, but the original credit was $2,000 per eligible child. The maximum amount is available to taxpayers with a modified adjusted gross income of $75,000 or less for a single filer, $112,500 or less for heads of household, and $150,000 or less for married couples filing a joint return and qualified widows and widowers. The agency said, “Above these income thresholds, the extra amount above the original $2,000 credit, either $1,000 or $1,600 per child is reduced by $50 for every $1,000 in modified AGI”.