COVID-19: Taxpayer Information

Here an interview with ILS staff on the new child tax credit provision. Click Here!

Important note! For domestic violence survivors who filed a joint 2020 tax return with your abusive spouse and have not received your share of the Stimululs Payment, you must act by May 17, 2021. Learn more here.

The following information is a simplified summary of some of the tax provisions in the American Rescue Plan Act of 2021 (ARPA) that affect most individual taxpayers, by tax year. This list can be found on the Taxpayer Advocate Service's Tax Tips and is intended as a preliminary reference. Section references are to the applicable sections of ARPA. 

Tax Year 2020

• Unemployment compensation – Sec. 9042 allows an exclusion from gross income of up to $10,200 in unemployment compensation, if the adjusted gross income of the taxpayer is less than $150,000. See IRS Statement – American Rescue Plan Act of 2021 and watch for further guidance.
  
  • For those who received unemployment compensation last year and have already filed their 2020 tax return, IRS anticipates that they will be able to assist unemployment recipient taxpayers to take advantage of the exclusion without additional action on the part of taxpayers, with some exceptions. See IRS to recalculate taxes on unemployment benefits; refunds to start in May. There is no need for taxpayers to file an amended return unless the calculations make the taxpayer newly eligible for additional federal credits and deductions not already included on the original tax return. See the example in the News Release.
  • For those who received unemployment compensation last year, follow the IRS instructions on the New Exclusion of up to $10,200 of Unemployment Compensation page. For additional information, go to About Form 1040 to get the latest information about Form 1040, Instructions for Form 1040, and Schedule.

• Premium Tax Credit – Sec. 9662 removes the requirement that excess advance payments are treated as an additional tax liability on the individual’s income tax return for the taxable year. The provision applies to taxpayers who file a 2020 income tax return and reconcile any advance payment of the credit.

Tax Year 2021

• 2021 Recovery Rebate Credit – Sec. 9601 provides a recovery rebate of $1,400 ($2,800 in the case of a joint return) for the 2021 taxable year, plus an additional $1,400 per each dependent of the taxpayer, for all U.S. residents with adjusted gross income up to a phase-out threshold of $75,000 ($150,000 in the case of a joint return or a surviving spouse, and $112,500 in the case of a head of household), who are not a dependent of another taxpayer and have a work eligible Social Security number (SSN). Married taxpayers filing jointly where one spouse has a work eligible SSN and one spouse does not are eligible for a payment of $1,400, in addition to $1,400 per child with an SSN. The rebate amount is phased out above certain income levels.
  
  • Advanced Economic Impact Payments (EIP3) – these payments are advanced payments of the above 2021 Recovery Rebate Credit. Where possible, the IRS began issuing EIP3s in March of 2021. See IRS began delivering third round of Economic Impact Payments to Americans, Fact Sheet (More details about the third round of Economic Impact Payments), and the IRS.gov Economic Impact Payments page for more information.
    Note: EIP3 payments are separate from EIP1 and EIP2 payments, advances of Recovery Rebate Credits for the 2020 taxable year.

• Child Tax Credit – Sec. 9611 increases the child tax credit from $2,000 to $3,000 for the 2021 taxable year only. In the case of a qualifying child who has not attained the age of 6 as of the close of the calendar year, the credit is increased to $3,600. In addition, the term “qualifying child” is broadened to include a qualifying child who has not attained the age of 18. For the 2021 taxable year only, the child tax credit is made fully refundable for taxpayers with a principal place of abode in the United States for more than one half of the taxable year. The Secretary of the Treasury is directed to establish a program to make periodic advance payments of the child tax credit to eligible taxpayers between July 1, 2021 and December 31, 2021. Note: Watch for IRS guidance and information sharing how taxpayers will be able to claim these advanced payments over the upcoming months.

• Earned Income Tax Credit (EITC) – Sec. 9621 temporarily expands EITC eligibility and increases the amount of the credit for taxpayers with no qualifying children. For the 2021 taxable year only, in the case of the credit for a taxpayer with no qualifying children, the minimum age is reduced from 25 to 19. However, if the individual is a student, the minimum age is reduced from 25 to 24. The provision further reduces the minimum age to 18 for any qualified former foster youth or qualified homeless youth. The upper age limit on the credit for taxpayers with no qualifying children is temporarily removed for the 2021 taxable year only.

Other provisions of Sec. 9621 include:

• • Sec. 9623 provides that an otherwise married individual separated from the individual’s spouse is treated as not married for purposes of the EITC if a joint return is not filed. The provision applies only if the taxpayer lives with a qualifying child of the taxpayer for more than one-half of the taxable year and either:(1) Does not have the same principal place of abode as the individual’s spouse during the last six months of the taxable year, or (2) Both
    
    • Has a decree, instrument, or agreement (other than a decree of divorce) described in Code section 121(d)(3)(C)145 with respect to the individual’s spouse, and
    • Is not a member of the same household with the individual’s spouse by the end of the taxable year.
  • Sec. 9626 permits a taxpayer to elect to calculate the taxpayer’s EITC for taxable years beginning in 2021 using 2019 rather than 2020 earned income, if the taxpayer’s earned income in 2021 is less than in 2019.
• Dependent Care Assistance – Sec. 9631 expands the child and dependent care tax credit for the 2021 taxable year only. The credit is refundable for a taxpayer who has a principal place of abode in the United States for more than one half of the taxable year. The maximum credit rate is increased to 50% and the amount at which the maximum credit rate begins to phase out is increased to $125,000. The limitation on employment-related child and dependent care expenses is increased to $8,000 in the case of one qualifying individual and to $16,000 if there are two or more qualifying individuals. A two-part phaseout is applied to the 50% credit rate. Sec. 9632 temporarily increases, for the 2021 taxable year only, the amount of the exclusion for employer-provided dependent care assistance (from $5,000 to $10,500).
• Credits for Paid Sick and Family Leave – Sec. 9642 provides eligible self-employed individuals with a credit equal to the qualified sick leave equivalent amount with respect to the individual, for up to 10 days occurring during the period beginning on April 1, 2021 and ending on September 30, 2021. Sec. 9643 provides eligible self-employed individuals with a credit equal to 100% of the qualified family leave equivalent amount (up to $200 per day, for up to 60 days) with respect to the individual. Only days occurring during the period beginning on April 1, 2021 and ending on September 30, 2021, may be taken into account.
• Premium Tax Credit – Sec. 9661 reduces or eliminates an individual’s or family’s share of premiums used in determining the amount of the premium assistance credit, for the 2021 and 2022 taxable years only. The provision also makes the premium assistance credit available to taxpayers with incomes above 400% of Federal Poverty Level (FPL) for the applicable family size.
  
  • Sec. 9663 provides a special rule for the premium assistance credit in the case of a taxpayer who has received, or has been approved to receive, unemployment compensation for any week during calendar year 2021. Under the rule, for the 2021 taxable year only, (i) such a taxpayer is treated as an applicable taxpayer, and (ii) the taxpayer’s household income is not taken into account to the extent it exceeds 133% of FPL for a family of the size involved.
• Student Loans – Sec. 9675 excludes from gross income in taxable years 2021 through 2025 amounts related to the discharge of certain student loan debt, applicable to discharges of loans after December 31, 2020.

Please continue to monitor the IRS Coronavirus Tax Relief page, IRS Guidance page and applicable tax topic pages (e.g., Child Tax Credit, Earned Income Credit, etc.) for new and updated information related to ARPA.

Questions?  Feel free to contact Indiana Legal Services’ Low Income Taxpayer Clinic at taxclinic@ilsi.net or (812) 961-0017.