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Home Financial Advisors

How much you could get

by admin
March 10, 2021
in Financial Advisors
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Between stimulus checks and expanded tax credits in the latest Covid-relief package, most U.S. households are poised to get some extra cash.

The amount? An average of $3,450 for the bottom 60% of earners ($65,000 or less), according to research from the Institute on Taxation and Economic Policy. The number reflects direct stimulus payments and expansions of both the child tax credit and the earned income tax credit.

“The people you’d think need the help are going to get it,” said Steve Wamhoff, director of federal tax policy for the institute.

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Congress on Wednesday gave final approval to the so-called American Rescue Plan. It now will head to President Joe Biden for his expected signature.

In addition to direct $1,400 payments going to most adults (and their dependents) and the expansion of certain tax credits, the $1.9 trillion package includes an extra $300 per week for unemployment insurance, rental assistance and bigger subsidies for health insurance, among other provisions.

The chart below shows the average expected benefit across income groups from the direct payments and the expanded tax credits for children and earned income. The biggest benefit, as a share of income, would go to the bottom 20% of taxpayers.

It’s worth noting that the income ranges shown in the chart reflect amounts before reductions are applied (i.e., certain tax deductions, investment losses, etc.), Wamhoff said. So a higher-earning household could end up with adjusted gross income that’s low enough to qualify for either a stimulus check or tax credits.

For stimulus payments, the $1,400 per person phases out at incomes from $75,000 to $80,000 for single tax filers, $112,500 to $120,000 for heads of household and $150,000 to $160,000 for married couples who file joint returns.

The child tax credit also will be enhanced for 2021 in several ways, including by raising the per-child payment to $3,000 from $2,000 for families with income below certain thresholds (phase-outs begin at $75,000 for singles, $112,500 for heads of household and $150,000 for married couples), with an extra $600 for children under age 6. Children age 17 also qualify for the first time.

The idea is that a portion of these tax credits will be advanced throughout the year — beginning in July — to qualifying households instead of forcing them to wait until April 2022 to claim the amount on their tax return.

Additionally, the bill makes the credit fully refundable at tax time if the amount they are entitled to is more than a person’s tax liability. Typically, the maximum that can be refunded is $1,400.

For taxpayers whose income is too high to qualify for the expansion, the regular credit of $2,000 per child can still be taken as long as your adjusted gross income is below $200,000 (single filers) or $400,000 (joint filers).

The earned income tax credit for childless workers also will be expanded by boosting the maximum credit in 2021 for that cohort to $1,502 from $543, research from the Tax Foundation shows. The benefit would be realized when taxpayers file their 2021 returns in spring 2022.

The bill also raises the income level (to $9,820 from $4,220) at which the earned income tax credit reaches its maximum, as well as changes the phaseout to begin at $11,610 instead of $5,280 for individual tax filers. The ages for qualifying for the credit also is changed for this year: The minimum age is 19 instead of 24 and the maximum age of 65 would be eliminated.

Tags: business newsFamily financesGovernment taxation and revenueIncome disparityJoe BidenPersonal financePersonal incomeTaxes
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