The plan provides larger child tax credits, expands unemployment benefits and offers wider access to health care.
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President Biden last week signed the American Rescue Plan, a $1.9 trillion coronavirus aid package. The plan not only offers $1,400 stimulus payments — it provides larger child tax credits, expands unemployment benefits and offers wider access to health care.
If you earned up to $75,000 individually or $150,000 as a couple you’ll be eligible to receive the third round of stimulus payments. If you have children, you could also earn an additional $1,400 for each dependent claimed on your tax returns.
The plan doesn’t stop there.
“While the American Rescue Plan is slightly smaller than the original CARES Act, I would argue that it is much bigger for individuals,” said Jen Grant, a certified financial planner at Perryman Financial Advisory. “The money is going to public health, education and providing a safety net for Americans that may be struggling to recover economically from the pandemic.”
Here are three additional ways the plan will affect your wallet.
The plan increases the child tax credit to $3,000 for kids ages 6 to 17 and $3,600 for children under 6. The increased credit is applicable for the 2021 tax year, but if you are eligible, you may get an advance on the credit in the form of a $300 payment per child every month starting in July through the end of the year. The rest will come come as a tax credit on your 2021 return.
This is a refundable tax credit, which means the lowest earners might get a tax refund even if they didn’t make enough to pay income taxes, said Grant.
The IRS will provide advance payments to families who qualify in the second half of the year, she added.
“For many families, this is going to have a huge impact. There are two cautions, however,” she said. “One is that the tax credit starts phasing out for individuals making more than $75,000 and couples making more than $150,000. The second is that this is a temporary credit increase that is only scheduled to be in effect for 2021.”
If you’re expecting to receive an advance payment, it’s important to have a plan on how you’re going to spend it, like reinvesting the money for your child’s education.
“This will help get Americans, especially parents, get on their feet — especially the ones that need it most. So, it will be important that the money is well used since it is temporary,” said Grant.
Millions of Americans lost their jobs due to the pandemic. As of February, 10.1 million Americans were still unemployed. To help, the American Rescue Plan is extending the $300 weekly bonus federal unemployment insurance benefits through Sept. 6. The plan is also waiving taxes on the first $10,200 of unemployment compensation you collect.
“Normally, unemployment benefits are taxed as income. This is a burden when you are unemployed and trying to take care of your family while looking for another job,” said Grant.
This change covers 2020 unemployment payments.
“If you have unemployment income in 2020 and have not filed your taxes yet, it would be worth it to wait and make sure this change is updated in the tax software,” she said. “If you have already filed your taxes in 2020, the IRS is recommending that you wait while they figure out the best way to make this change — do not rush out to file an amended return.”
This plan also expands the Affordable Care Act by increasing income limits to qualify for health insurance subsidies for plans offered on the individual market. This will make these plans more affordable for upper-middle-income families.
“This dramatically expands health coverage affordability for millions of people,” she said. “People in a higher middle-income bracket a lot of the time don’t qualify for any assistance, so this is a really big deal for them.”
The American Rescue Plan also expands premium tax credits for unemployed people. These credits lower the cost of your monthly premiums. If you collect weekly unemployment compensation, you’ll qualify for the maximum subsidy on plans through the ACA, potentially reducing your premium to zero, Donovan said.
The government will also cover 100% of COBRA premiums through Sept. 30, 2021 if you lost your job due to the pandemic. This allows you to stay on your employer's insurance plan without worrying about the costs. Subsidies will begin April 1 and last for two years. If you enrolled in January you can still sign up, but you’ll still be on the hook for premiums before April 1, said Donovan. Here’s our full guide to COBRA insurance.
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