(Knowledge Alliance)-For most Americans, the tax deadline on May 17 is imminent, and the IRS on Tuesday tried to highlight some key provisions in the American Rescue Plan Act that will affect taxpayers.

The $1.9 trillion coronavirus aid package-which also includes $1,400 in stimulus checks-has been passed by Congress and signed into law by President Biden earlier this year.

Some of these changes will benefit taxpayers from filing their 2020 tax returns, while other changes will not take effect until the 2021 tax year. They affect everything from unemployment compensation to child tax credits.

Changes to the 2020 tax year declaration

Some unemployment benefits are not taxed

As part of the COVID-19 relief plan, one of the major retrospective changes in 2020 is that most families do not need to pay taxes on the first $10,200 of unemployment benefits. This is only valid for the 2020 tax year and only applies to filers whose adjusted gross income is less than $150,000.

In the 2020 tax return, eligible taxpayers can deduct the first $10,200 of unemployment benefits from their total compensation. According to the US Internal Revenue Service (IRS), only the difference in its taxable income should be included.

The tax bureau said that if both couples receive unemployment benefits, each spouse can deduct $10,200.

For eligible taxpayers who have submitted and reported unemployment benefits, the IRS will automatically make adjustments and refund refunds.

For more details on exclusions, see Here.

Suspend the tax credit for over-prepaid premiums

Taxpayers who purchase health insurance through the federal or state market will not have to report the premium tax credit for over-prepayment in 2020 (excess APTC) because this requirement has been suspended by the American Rescue Plan Act.

The IRS announced last month that taxpayers with too many APTCs in 2020 will not have to submit Form 8962 or report too much APTC, and the repayment amount will be automatically reduced to zero.

The agency said anyone who has already filed taxes and repaid the prepaid premium tax credit will be reimbursed.

For more detailed information about suspension, see Here.

The Internal Revenue Service (IRS) urges those who have already paid taxes for 2020 not to submit revised tax returns or contact the IRS, because retroactive benefits will be automatically provided to eligible filers.

Changes in the 2021 tax year

Expanding child tax credits And prepayment

According to the United States Rescue Plan Act, by 2021, the child tax credit has been expanded to US$3,600 per child aged 5 and under, with a maximum of US$3,000 per child between the ages of 6 and 17. The initial credit limit is $2,000 per eligible child.

The maximum tax amount is applicable to taxpayers. The adjusted gross income for single filers is $75,000 or less, the head of household is $112,500 or less, and the joint declaration for couples and eligible widows and widows are $150,000 or less.

The IRS website states: “Above these income thresholds, the amount beyond the original $2,000 credit limit (1,000 U.S. dollars per child or 1,600 U.S. dollars per child) will be reduced by 50 U.S. dollars per 1,000 U.S. dollars for every modified AGI. ”

However, according to the tax agency, even if the family receives little or no income from work, business or other sources, the family is eligible.

The new law also allows the tax credit to be fully refunded, and it is possible for families to receive half of the tax credit in advance between July 2021 and December 2021.

The advance payment will be determined by 2020 or 2019 returns, depending on the returns available. Therefore, the US Internal Revenue Service (IRS) urges families to file 2020 taxes as soon as possible, including those who do not usually file tax returns.

In order to deliver any refunds and tax credits more quickly, we encourage taxpayers to submit electronically and choose the direct deposit option.

For more information on this year’s pre-collected child tax credits, please see Here.

Increased credit for children and dependants

The amount of eligible expenses for credit for children and dependents will also increase and will be refundable under the new law-but only for 2021.

This year, eligible people can claim certain fees for one eligible child, up to $8,000, or $16,000 for two or more eligible dependants. Both amounts are more than twice the previous limit.

This year, the maximum credit percentage for eligible expenditures has also risen by 50%. This means that the maximum credit that someone can claim is $4,000 for one dependant, or $8,000 for two or more mineral dependants.

As before, the higher the taxpayer’s income, the lower the credit limit. However, more people will be eligible for the new ceiling, as adjusted total income after lower interest rates has surged from $15,000 to $125,000.

For those earning between US$183,000 and US$400,000, the credit rate will stabilize at 20% and will be phased out.

Another major change in 2021: The credit limit (for the first time in history) is 100% refundable.

The IRS explained: “This means that eligible families can get it even if they don’t have a federal income tax.”

Expansion of income tax credits for children without children

According to the IRS, more childless workers and couples will be eligible for income tax credits, a benefit designed to help many low- and middle-income earners, including families. In addition to the maximum triple credit for this group of taxpayers, this service will also be provided for young workers and the elderly-the first.

Eligible workers who are 19 years of age or older and whose adjusted gross income is less than $27,380 can apply for an income tax credit.

Previously, only those who had no dependants and were between the ages of 25 and 64 could apply for income tax credits.

For those who are eligible, the maximum credit limit in 2021 climbed to US$1,502, an increase of nearly US$1,000 from the previous year.

More changes to the income tax credit

Other changes will be reflected in the income tax credit for 2021 and beyond.

For starters, singles or couples can use a social security number to get credit, even when the child has no children. In this case, the declarant will receive a smaller line of credit for workers without children.

In addition, separated spouses can choose whether to treat them as married for tax credit purposes. However, several conditions must be met to qualify. These include main houses separated from each other for at least six months, and they must have qualified dependants to live with them for more than six months.

Finally, more workers and households with investment income will be able to obtain credit. The current maximum limit is US$3,650 and is expected to be expanded to US$10,000. After this year, a ceiling will be set for inflation.

You can find more information about major changes in tax regulations in 2020 and 2021 Here.