Rescue Legislation: 2021 American Rescue Plan Act Provides Tax Relief.

• Author: Josephs, Stuart R.
• Position: FedTax

The 2021 American Rescue Plan Act (ARPA) was enacted into law on March 11 as P. L. 11 7-2. The ARPA contains tax relief for individuals and employers. Highlights of selected provisions for individuals follow.

Child Tax Credit

Under the old law, this credit was $2,000 per qualifying child, but only $1,400 of that credit was refundable.

For 202 7 only, the ARPA increases this credit to $3,000 per qualifying child or to $3,600 for a qualifying child under 6 years old. This new law also makes the child tax credit completely refundable.

Under the old law, a qualifying child generally was the taxpayer's qualifying child [defined in IRC Sec. 152(c)] who had not attained age 17 [Sec. 24(c)]. The ARPA increases the maximum age of qualifying children to age 17 for 2021.

Phaseout of Credit

The excess of the new credit over the old law's $2,000 credit is phased out by $50 for each $1,000 (or fraction thereof) of modified adjusted gross income (MAGI) exceeding these thresholds:

* $ 150,000 for joint returns

* $1 12,500 for head of household returns

* $75,000 for single returns

When this excess credit is eliminated, the credit remains at $2,000 until the following existing law's thresholds under [Sec. 24(h)(3)] are reached:

* $400,000 for joint returns

* $200,000 for other returns

Advance Payments

The Treasury Department and the IRS will disburse monthly advance payments for 50 percent of this credit, beginningjuly 1 through Dec. 31. The remaining unpaid 50 percent will be received when 2021 returns are filed as the full amount of this credit is claimed on those returns but after reduction for amounts received in advance.

If a taxpayer received erroneous payments (for example a 2019 or 2020 return indicated a dependent child who is not a dependent in 2021), the ARPA contains a safe harbor, protecting taxpayers from repaying overpayments of up to $2,000 per child.

This safe harbor is available for:

* Joint return filers with MAGI of $120,000 or less.

* Head of household filers with MAGI of $100,000 or less.

* Single taxpayers with MAGI of $80,000, or less.

The Treasury Department and the IRS are directed to create a website for taxpayers to opt out of receiving advance payments or to provide information on status changes that would affect the amount of the credit.

For additional information, see Rev. Proc. 2021-23 and irs.gov/childtaxcredit2021.

Earned Income Tax Credit

For 2021 only, the ARPA makes these changes for taxpayers without children:

* The...