Provisions affecting individuals Stimulus 3.0
A third round of recovery rebate credits will be advanced as economic impact payments.
EIPs will be issued in 2021 and reconciled on 2021 tax returns filed in tax season 2022.
The EIP will be $1,400 per individual ($2,800 for MFJ) plus an additional $1,400 for each
eligible dependent, including children 17 and older and adult dependents.
Advances will be made based on 2020 tax return information, or if not available, 2019
information. If the 2020 return is filed after EIP3 is released and would result in a larger
payment, the IRS is directed to issue a supplementary payment within 90 days of the
earlier of the filing deadline or September 1, 2021.
The payment phases out for AGI:
$75,000 – $80,000 S and MFS
$112,500 – $120,000 HOH
$150,000 – $160,000 MFJ and QW
Child Tax Credit
Taxpayers can receive the credit in advance of filing a return. The act makes the credit fully refundable for 2021 and makes 17-year-olds eligible as qualifying children.
The amount of the credit has increased to $3,000 per child ($3,600 for children under 6). The increased credit amount phases out for taxpayers with incomes over $150,000 for married taxpayers filing jointly, $112,500 for heads of household, and $75,000 for others, reducing the expanded portion of the credit by $50 for each $1,000 of income over those limits.
The IRS is directed to estimate taxpayers’ child tax credit amounts and pay monthly in advance one-twelfth of the annual estimated amount. Payments will run from July through December 2021.
The IRS must set up an online portal to allow taxpayers to opt out of advance payments or provide information that would be relevant to modifying the amount.
Taxpayers in general will have to reconcile the advance payment amount with the actual credit amount on next year’s return and their increase tax by the excess of the advance payment amount over the actual credit allowed.
Beware if you have filled out a 2020 or newer W4 claiming the $2,000 per dependent, you may end up with a tax bill
Child and dependent care credit
Child and dependent care credit changes: effective for 2021 only. The credit will be worth 50% of eligible expenses, up to a limit based on income, making the credit worth up to $4,000 for one qualifying individual and up to $8,000 for two or more. Credit reduction will start at household income levels over $125,000. For households with income over $400,000, the credit can be reduced below 20%. This will be a refundable credit.
Increases the exclusion for employer-provided dependent care assistance to $10,500 for 2021.
Premium tax credit
Taxpayers who received too much in advance premium tax credits in 2020 will not have to repay the excess amount
Discharge of any student loan after Dec. 31, 2020, and before Jan. 1, 2026 will not be considered income.
An additional $300 per week in federal unemployment benefits will be available through September 6, 2021.
The first $ 10,200 per individual of unemployment benefits received in 2020 are excluded from tax
The exclusion does not apply to households with AGI of $150,000 or more for all filing statuses.
For those that have already filed their 2020 tax returns, the IRS emphasizes NOT to file amended returns at this time
PPP – Paycheck Protection Program Update
Currently Minnesota law does not conform to the exclusion of the forgiveness from taxable income. On March 15, 2021 at the Capitol: PPP relief passes MN Senate View Video Now we wait for the MN House to take action on this bill.
Wisconsin has already followed federal and has gone a step further to exclude grants such as We are All in Grants
The federal changes were just signed into law on 03/12/21. The IRS needs time to implement and update all tax forms and instructions. MN needs to decide if they will conform to non-taxability of PPP and unemployment, then update all forms. Once the IRS and MN are done, the tax software companies need to update the software and then we can file. We are diligently preparing returns and then holding them until the software updates are ready.
We are staying on top of it, so you don’t have to. Just relax, we’ve got you covered!