Timely Update: 3rd Stimulus Recap
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 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.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. 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
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. Feel free to reach out if you want to talk taxes or if you'd like a referral to a good CPA.
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 reopening, and consumer spending.
That was a lot of information to absorb. Have questions?
I’m here for them. Just hit “reply” to this email or give me a call at (805)250-4552.
Until next time,
Eric Maldonado, CFP®, MBA
Aquila Wealth Advisors | (805)250-4552 | eric@aquilawealth.com
872 Higuera Street, San Luis Obispo, CA 93401
www.aquilawealth.com
Aquila Wealth Advisors, LLC is an Investment Adviser registered with the State of CA, LA. All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold, or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy or the completeness of any description of securities, markets, or developments mentioned. We may, from time to time, have a position in the securities mentioned and may execute transactions that may not be consistent with this communication's conclusions. Please contact us at (805)250-4552 if there is any change in your financial situation, needs, goals, or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions. Additionally, we recommend you compare any account reports from AWA with the account statements from your Custodian. Please notify us if you do not receive statements from your Custodian on at least a quarterly basis. Our current disclosure brochure, Form ADV Part 2, is available for your review upon request. This disclosure brochure, or a summary of material changes made, is also provided to our clients on an annual basis.
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
4https://www.kiplinger.com/taxes/602378/congress-passes-3000-child-tax-credit-for-2021
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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