So, the next (final?) round of stimulus was signed into law by President Biden.

Let’s dive in.

The $1.9 trillion bill called the American Rescue Plan Act of 2021 includes stimulus checks, child tax credits, jobless help, vaccine-distribution money, healthcare subsidies, and aid for struggling restaurants. What’s not inside? A higher minimum wage. 

Here's a quick visual of how it compares to prior rounds of stimulus.

Here are some immediate takeaways: 

More stimulus checks are coming: $1,400 checks could be hitting bank accounts and mailboxes this month, going out to adults, children, and adult dependents such as college students and elders. These adult dependents did not qualify for previous payments, so that’s good news for many.1

Who gets paid? Individual filers who earn as much as $75,000 (or joint filers making $150,000), plus their household members, qualify for the full $1,400 per person.1

Folks filing as a head of household can earn up to $112,500 and still qualify for the full payment. Phaseouts kick in quickly this round, and an individual with an income of $80,000 or a couple earning $160,000 get nothing.1

Not sure if you qualify? The Washington Post put out a handy calculator to help you figure it out. (Accuracy not assured, etc., etc.)

If you’ve filed your 2020 taxes, your check would be based on that income. If not, it would be based on your 2019 tax filing. If you’re waiting for a missed payment, individual tax returns have an extra line called “recovery rebate credit” to claim your stimulus payment. 

Enhanced unemployment benefits are extended through Sept. 6: Folks claiming jobless benefits will receive $300/week on top of what they already get from their state through the fall.2

Some unemployment income is now tax-free: Individuals who earned less than $150,000 in 2020 can shield up to $10,200 in unemployment benefits from taxes. For married couples filing jointly who both received unemployment, the tax-free amount goes up to $20,400, but the $150,000 income cap still applies. Unfortunately, if you earn over $150,000, it currently appears that all of the unemployment benefits become taxable with no phaseout.3

If this applies to you or someone you love, my advice is to wait to file or update your tax return until the IRS issues guidance on what to do.

The child tax credit is larger: The bill increases the child tax credit for one year to $3,600 for kids under 6, and $3,000 for kids between 6 and 17 (the current credit is a flat $2,000 per child under 17). 50% of the credit would be available as advance monthly payments that the IRS will start sending to families in July 2021.4

Unfortunately, not all families will qualify. Phaseouts begin at $75,000 for single filers, $112,500 for heads of households, and $150,000 for joint filers. However, families who earn less than $200,000 ($400,000 for joint filers) could still claim the regular $2,000 credit.4

Health insurance costs could drop on health exchanges/marketplaces: The bill removes the income cap on insurance premium tax credits for folks who purchase insurance on the federal health exchange or state marketplace (for two years). That means the amount you would pay for health insurance would be limited to 8.5% of your income as calculated by the exchange.5

Final thoughts

A lot of rules have changed in the last year, throwing an already complex tax season into a bit of confusion.

If your AGI is over the thresholds above, there are still ways you can lower your AGI retroactively for 2020 and potentially qualify for the stimulus. Consult with your financial planner to see what options are available to you.

Could there be more stimulus passed this year? It seems unlikely if the U.S. economy continues to expand.

According to a fresh estimate, our economy will expand nearly twice as fast as originally expected, growing at an estimated 6.5% in 2021 versus the 3.2% projected in December.6

Obviously, these projections rest on a lot of assumptions about vaccination rates, reopening, and consumer spending.

Let’s hope we stay on track.

P.S. Markets have hit new highs as fears of out-of-control inflation faded and hopes about the recovery surged. The usual caveats apply: we're in a roaring bull market and any time stocks reach new highs, pullbacks and corrections are possible. Keep calm, cool, and focused. I'm here for questions.7

1https://www.washingtonpost.com/business/how-can-i-qualify-for-that-1400-stimulus-check/2021/03/10/419fa7bc-81e2-11eb-be22-32d331d87530_story.html

2https://www.cnet.com/personal-finance/weekly-300-unemployment-benefits-what-happens-now-with-new-stimulus-bill/

3https://www.cnbc.com/2021/03/09/covid-bill-waives-taxes-on-20400-of-unemployment-pay-for-couples.html

4https://www.kiplinger.com/taxes/602378/congress-passes-3000-child-tax-credit-for-2021

5https://www.cnbc.com/2021/03/10/health-insurance-costs-to-drop-for-millions-under-covid-relief-bill.html

6https://www.nytimes.com/2021/03/09/business/oecd-doubles-us-growth-forecast.html

7https://www.cnbc.com/2021/03/10/stock-market-open-to-close-news.html

Chart source: https://www.wsj.com/articles/whats-new-in-the-third-covid-19-stimulus-bill-11615285802

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