• Nate Baim, MBA, CFP®

How the $1.9 Trillion Stimulus may Impact You


Enjoy this week's edition of the Planner's Beta


Beta (n) - climber's jargon that designates information about a climb This digest's purpose is to share observations, ideas, and treasures found this week which you may also find insightful. Sharing does not mean it's an endorsement. I am endorsing the pursuit of knowledge and exploration.





Understanding the American Rescue Plan Act


Last week, President Biden signed into the $1.9 trillion stimulus package, titled the American Rescue Plan Act (ARPA). The law provides resources for:

Stimulus Checks

Direct payment to taxpayers in the form of stimulus checks totals $410 billion. Taxpayers who earn less than $75,000 per year (or $150,000 per year for those who file their taxes married filing jointly) will receive $1,400. Taxpayers will receive checks for each dependent they claim. This benefit reduces $5 per $100 beyond the threshold. The ARPA phaseout is more aggressive than previous rebate check schemes.

Expanded Child Tax Credit

ARPA will provide temporary enhancement of the Child Tax Credit. Before ARPA, most taxpayers would receive a maximum of $2,000 credit per child dependent (which was not fully refundable). However, the new law now provides an enhancement to the existing credit. Thus, if taxpayers qualify for the enhanced credit, they may receive a fully refundable credit up to $3,000 per child ($3,600 for children under six), subject to income tests. Single filers whose adjusted gross income greater than $75,000 are still entitled to the $2,000 credit, but the enhanced credit will reduce $50 per $1,000 their income is beyond the $75,000 threshold. Those who submit their taxes as married filing jointly and their adjusted gross income are greater than $150,000 are still entitled to the $2,000 credit, but the enhanced credit will reduce $50 per $1,000 their income is beyond the $150,000 threshold.

The $2,000 base credit is also still subject to adjusted gross income limits, which have not changed due to this new law. This means a single filer making greater than $200,000 ($400,000 married filing jointly) will see reduced benefits below the standard $2,000 credit.


Currently, the expanded Child Tax Credit will only apply to the taxpayer's 2021 tax return. But there is a growing expectation that a permanent increase to the Child Tax Credit will come.

Expanded Child and Dependent Care Tax Credit

Not to be confused with the Child Tax Credit, the Child and Dependent Care Tax Credit can help households offset care costs due to working or seeking work. First, ARPA more than doubles the maximum eligible expenses applied to claim this credit. And the American Rescue Plan Act allows for a 50% maximum applicable percentage to cover childcare costs. The 50% applicable percentage begins to phase out when the taxpayer's AGI exceeds $125,000 (regardless of filing status). Because ARPA more than doubles the eligible expenses and increases the coverage ratio, this tax benefit can more than double the tax credit previously earned.


Changes to the Child and Dependent Care Tax Credits are currently only applicable to 2021 tax returns. Like the Child Tax Credit, there are expectations that an expanded Child and Dependent Care Tax Credit will someday become permanent.

Enhanced Unemployment Benefits

Enhanced unemployment benefits comprise $246 billion of the $1.9 trillion law. The law provides funding for increased unemployment checks of a $300 supplement per week. This program will remain in effect until September 6th, 2021. Up to $10,000 of unemployment assistance received by a taxpayer may not be subject to income tax (dependent on an adjusted gross income threshold). Additionally, ARPA extends unemployment assistance to self-employed individuals who typically would not qualify until September 6th.

Student Loans

In the past, when student loans were forgiven, the amount forgiven was viewed as taxable income by the IRS. However, ARPA states student loan balances forgiven between 2021 and 2025 will not be subject to income tax. This provision applies to both federal and private student loans. This provision does not impact Public Service Loan Forgiveness, which has and will remain tax-free forgiveness. The benefit has many wondering if this is the first step for paving the way to widespread student loan forgiveness.


This Month's Financial Planning Item - Reviewing How to Maximize Your Savings

The K Shape Recovery led some household's savings rates to skyrocket. The personal savings rate is the highest it has been since the 1970s. Now, families may be struggling to optimize their savings strategies because of the assets they accrued.


You may have extra cash on hand, and you want to save for the future. But you may need help identifying all of the different account types to consider for your savings. This 17 point checklist provides a structured outline to guide your thoughts regarding available and appropriate saving strategies. It covers accounts across the following categories:

  • Foundational Savings

  • Healthcare Savings

  • Retirement Savings

  • Employer-provided Benefits

  • Business Owner Savings

  • Accounts To Help Future Generations

  • Tax-Deferred Insurance Options

  • Other Account Considerations



If you need independent advice on managing income and savings, please review the services I offer and place an introductory appointment on my calendar.


If you are a current Pursuit Planning and Investments client, securely upload any documents needing review to PreciseFP. I am happy to help proofread any resumes, conduct mock interviews, or support you with any career decisions you face. We can discuss this in our next scheduled check-in meeting, or feel free to place an appointment on my calendar.



Quote of the Week

"No written law has ever been more binding than unwritten custom supported by popular opinion." - Carrie Chapman Catt

 

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