March 2021

TaxBrief Keeping you informed March 2021
American Rescue Plan Act
The recently passed American Rescue Plan Act (ARP) of 2021 provides additional relief to taxpayers
impacted by the COVID-19 pandemic. The 2020 individual filing and tax payment deadline has been moved
from April 15 to May 17, 2021. This relief does not apply to estimated tax payments that are due on April 15,
2021. Victims of February winter storms in Texas, Oklahoma and Louisiana have until June 15, 2021, to file
and make payments. Following is a brief overview of some of the key provisions of ARP.
Stimulus payment rebate (EIP3)
The ARP provides for a 2021 advance recovery
rebate credit based on either your 2020 or 2019
Form 1040, U.S. Individual Income Tax Return.
The economic stimulus payment for individuals
is $1,400.
Spouses filing a joint tax return together are entitled
to a $2,800 stimulus payment and treated as if each
received half ($1,400) of the recovery rebate credit.
Additionally, all qualifying dependents on your tax
return, including college kids, now qualify for a
$1,400 economic stimulus payment.
Unfortunately, those who passed away before 2021
will not be eligible for the third stimulus payment
because they no longer have a valid Social Security
number in 2021. The EIP3 is projected to be issued
by the end of March 2021.
If your third economic stimulus payment is based
on your 2019 tax return and you were subject to the
phaseout during 2019, and if you are no longer subject
to the income phaseout requirements in 2020,
you may be receiving an additional EIP3 payment
once your 2020 return is filed. This payment is
scheduled to be paid the earlier of 90 days after the
2020 calendar year filing deadline or Sept. 1, 2021.
Rita Bhayani CPA, CMA
Phone: (925) 523-6662
3983 Fairlands Dr
Pleasanton, CA-94588
The legislation included an extended period of
time to elect COBRA coverage. The federal
government will fully subsidize the cost of health
insurance premiums through Sept. 30, 2021, for
employees who have lost their jobs—and the cost
of coverage for their relatives—so they can stay on
their company’s sponsored health insurance plan.
Notices are required to be sent to these individuals
making them aware of the premium assistance
availability, the enrollment coverage options and
notice of expiration.
Tax credits
Take note of the following updates on these
popular credits:
Child tax credit: For 2021, there is an expansion
of the credit, which increased from $2,000 to
$3,000 per eligible child for children ages 6-17,
and $3,600 for children under age 6. This credit
is fully refundable, and periodic payments are
scheduled to start in July 2021. The IRS will be
setting up a portal so taxpayers can update their
tax return information including filing status,
dependents and income. By Jan. 31, 2022, the
IRS will send out a notice of payments issued
during 2021, which should be used to reconcile
these advance payments on the 2021 tax return.
Taxpayers who received too much of the advanced
credit in error will be required to pay back any
Earned income credit (EIC): Taxpayers age 19 (if
eligible student, age 24) or older with no children
may qualify for the fully refundable earned income
credit. With decreases in phaseout restrictions and
an increase in the investment income limitation,
taxpayers may be entitled to a maximum credit
of $1,502. Those who are married, but separated,
can be treated as unmarried if they do not file a
tax return together with their spouse; live with a
qualifying child for more than half of the year; and
during the last six months of the year, do not reside
in the same house and are not a member of the
spouse’s household at the end of the year.
For tax year 2021 only, if a taxpayer’s earned
income in 2021 was less than their earned income
in 2019, they can use their 2019 earned income to
receive a higher EIC in 2021.
Child and dependent care credit: For tax years
beginning after Dec. 31, 2020, and before Jan. 1,
2022, this nonrefundable credit is temporarily
refundable. The qualifying expenses for one
child increased from $3,000 to $8,000, and for
two or more children, from $6,000 to $16,000.
The maximum amount of the tax credit also
increased from 35% to 50% along with an
increase in the beginning of the phaseout from
$15,000 to $125,000.
Also, the employer-provided dependent care
assistance increased from $5,000 to $10,500.
For those filing as married filing separately, the
dependent care assistance is $5,250.
Paid sick and family leave credit: The paid
leave credits have been extended through Sept. 30,
2021. After March 31, 2021, paid leave credits can
be used to obtain a COVID-19 vaccine. Also, the
clock restarts with respect to the 10-day limit for
qualified sick leave wages. The qualified family
leave wages limit increases from $10,000 to
$12,000 in total, and the number of days a selfemployed
individual can use to claim the family
leave credit also increases from 50 to 60.
Employee retention credit (ERC): The ARP
extended the ERC through Dec. 31, 2021, for wages
paid after June 30, 2021, and before Jan. 1, 2022.
After June 30, 2021, the ERC offsets the employer’s
share of Medicare tax. Eligible employers can
continue to keep employees on payroll longer while
dealing with the COVID-19 pandemic.
Exclusions from income
The following items are excluded from income:
Unemployment: Unemployment benefits have
been extended from March 14, 2021, through
Sept. 6, 2021. The new weekly amount is $300.
The first $10,200 per taxpayer—$20,400 if filing
married filing jointly with a spouse who also
received $10,200 in unemployment—is not taxable
on the 2020 Form 1040 as long as your adjusted
gross income is below $150,000. If your adjusted
gross income is $150,000 or greater, the entire
amount of unemployment benefits becomes 100%
taxable income.
Advance premium tax credit (APTC): The
repayment of the APTC has been temporarily
suspended, meaning if you received too much
in 2020, you do not have to pay it back.
Modification of treatment of student loan
forgiveness: A special rule applies in 2021
through 2025 in which certain discharges of
student loans as cancellation of debt are not
included in gross income.
Important note
As always, I’m here for you during these trying
and often confusing times. COVID-19 is affecting
each of us in a unique way, and I’m proud to be a
reliable, knowledgeable and sympathetic resource
for you as we continue to move forward. Please
stay safe and healthy!
Suchit Bhayani,
Jun 19, 2021, 5:24 PM