President Joe Biden signed the $1.9 trillion American Rescue Plan Act of 2021 on March 11, 2021. The bill will bring about a new wave of pandemic relief funding, including hundreds of billions of dollars for state and local governments. You may benefit indirectly from many of the provisions, such as funds being used to reopen schools and expand vaccine distribution, or directly—by receiving a one-time stimulus payment, continued unemployment benefits, increased tax breaks and more.
Below, we'll focus on the direct aid that will be available in the coming weeks and months.
A Third Round of Stimulus Payments
The new law brings about a third round of stimulus payments, this time up to $1,400 per person depending on your eligibility. Payment amounts will depend on your household's adjusted gross income (AGI) from your 2019 tax return, or your 2020 return if you've filed it.
The payment amount quickly phases out from the full $1,400 to $0, depending on your tax filing status and AGI. The AGI limits to receive $1,400 per eligible person are:
- Single and married filing separately: Get $1,400 for yourself if your AGI is under $75,000 —no payment if your AGI is over $79,999.
- Head of household: Get $1,400 for yourself and eligible dependents if your AGI is under $112,500—no payment if your AGI is over $119,999.
- Married filing jointly and qualifying widow(er): Get $1,400 for each eligible spouse and dependent if your AGI is under $150,000—no payment if your AGI is over $159,999.
If your household meets the income requirements, you could get $1,400 per qualifying dependent, which can include children and adult dependents. Unlike in previous rounds, there's no age requirement for dependents.
You won't receive a payment for yourself if you have an Individual Taxpayer Identification Number (ITIN). However, you could still receive a payment for your eligible dependents who have SSNs, and your spouse may qualify if they have an SSN.
There's also an exemption for married couples who file joint returns when one spouse has an ITIN. Both people can qualify for the full $1,400 if one spouse was a member of the U.S. Armed Forces during the tax year and one spouse has an SSN.
Expanded and Extended Unemployment Benefits
Unemployment benefits are expanding and changing under the new law. The new provisions will stay in effect until September 6, 2021:
- An extra $300 in weekly federal benefits.
- An extra $100 in weekly benefits for people who have a mix of employment and self-employment income; for example, if you had a part-time job and gig work.
- Extended Pandemic Unemployment Assistance, which includes people who might not otherwise qualify for unemployment, such as gig workers and small business owners.
- Extended Pandemic Emergency Unemployment Compensation program, which lengthens the collection period for people who have used up their unemployment benefits.
Additionally, the first $10,200 in unemployment benefits you received in 2020 aren't taxable if your household's AGI was below $150,000. A $20,400 limit applies if you use the married filing jointly status and both spouses collected unemployment.
If you already filed your 2020 tax return, you may have to file an amended return, as calculations were made assuming you had to pay federal income taxes on your 2020 unemployment benefits. However, you may want to wait until the federal government clarifies whether that's required, or if the IRS will make adjustments on their end.
You can keep an eye on the IRS' announcement page for updates, along with updates from your tax preparer or tax preparation software provider.
Learn more about unemployment benefits changes in 2021.
Tax Breaks for Parents and Caretakers
The bill provides significant new direct financial assistance to people who have qualifying dependents with several changes to tax credits.
Child and Dependent Care Tax Credit
The law stipulates an increase to the Child and Dependent Care Tax Credit for the 2021 tax year. You may qualify for the credit if you pay for care for children under 13 and older dependents while you work, or actively look for work.
The tax credit increases from $3,000 to $4,000 for one qualifying person—and $6,000 to $8,000 for two or more. It will also be refundable for 2021, meaning it can increase your tax refund in addition to lowering your tax bill for the 2021 tax year.
Eligibility requirements on income limits have also been temporarily increased: The credit's value begins phasing out for households with an AGI over $125,000 (regardless of filing status) rather than $15,000.
Child Tax Credit
There are several changes to the Child Tax Credit for the 2021 tax year—which you qualify for if you have children.
- Increases from $2,000 to $3,000 per child who is 6 to 17 years old, and $3,600 per child under 6 years old.
- Available to more low- and no-income families.
- Phases out for couples who file jointly and have an AGI over $150,000, or head of household filers with an AGI over $112,500.
- Refundable, meaning it can increase your refund in addition to offsetting taxes you may owe.
Starting in July 2021, families may begin receiving prorated payments for their Child Tax Credit. For example, a family with two eligible teenagers will get $6,000 total—which might mean they'll receive $500 a month from July to December, and the remainder when they file their tax return.
Higher Dependent Care Flexible Spending Account Limits
For 2021, if your employer allows the change, you may be able to put up to $10,500 into a dependent care flexible spending account—an increase from $5,000.
Expanded EITC for Those Without Qualifying Children
There is also a potential tax benefit for low- and moderate-income earners who don't have qualifying children. For 2021, the refundable Earned Income Tax Credit (EITC) could be worth up to about $1,500 rather than $543. Eligibility is also expanded to include younger people and workers who are over 64. If you're not sure whether you qualify, you can use the IRS' EITC Assistant tool to find out.
Housing, Utility and Food Assistance
Money is being set aside for renters and homeowners who are struggling with household bills. Much of the money is going to agencies and programs that offer support through established programs. Examples include:
- $21.55 billion for rental assistance through the Coronavirus Relief Fund.
- $9.96 billion for the Homeowners Assistance Fund to help homeowners avoid foreclosure.
- $5 billion for emergency housing vouchers for people without housing, those at risk of losing their home and people fleeing for their safety.
- $5 billion for support for renters and homeowners, and to develop affordable housing and emergency shelters.
- $4.5 billion for the Low Income Home Energy Assistance program, and $500 million for the Low-Income Household Drinking Water and Wastewater Emergency Assistance Program.
- Funding for food assistance programs, including Special Supplemental Nutrition Program for Women, Infants and Children (WIC) and Supplemental Nutrition Assistance Program (SNAP). Some of the money will go toward increased SNAP benefits through September 30, 2021, and investing in technology to make it easier to use SNAP benefits online.
Potential Savings on Health Insurance
The new law will increase the Affordable Care Act (ACA, or Obamacare) subsidy available to people who buy health insurance through Healthcare.gov or their state's Marketplace.
Your benefit will depend on your income and health insurance plan, and people collecting unemployment may get a special subsidy. The change is also retroactive, which means you might get money back if you've had coverage since the beginning of the year.
If you had health insurance through your employer, but lost your job or had your hours cut, you may qualify for continued coverage through the COBRA program. Generally, you have to pay for the coverage—which can be expensive. However, the government will temporarily pay the entire premium for six months (starting April 1) for people who involuntarily left their job.
Learn more about getting help paying for medical bills.
Additional PPP Funding for Business Owners and Freelancers
In addition to the expanded unemployment benefits for business owners, $7.25 billion will go to fund additional forgivable Payroll Protection Program (PPP) loans. The loans will also be available to more nonprofit organizations.
This builds on top of earlier PPP loan changes, such as the inclusion of business owners who have non-fraud felony convictions, delinquent federal student loans and lawful residents who have an ITIN.
Tax-Free Student Loan Forgiveness
Early this year, President Biden signed an executive order extending loan forbearance and 0% interest rates on federally held student loans through September 30, 2021. There's also been talk of student loan forgiveness through executive action.
While the new law doesn't offer direct forgiveness of student loans, it does offer a tax break to borrowers whose debts are forgiven or canceled before January 1, 2026. The benefit applies to federal and non-federal student loans.
The change could benefit borrowers who have their loans forgiven or canceled through existing federal student loan forgiveness programs. For example, if you're on an income-driven repayment plan, your unpaid loan balance may be forgiven after 20 or 25 years—but you may have to pay income taxes on the forgiven amount.
The average student loan balance was $38,792 in 2020, according to Experian data. The new exemption could lead to over $8,500 in savings if you had that amount forgiven and are in the 22% tax bracket.
Learn More About Building and Protecting Your Credit
The American Rescue Plan Act will help most households with direct and indirect financial assistance. However, you also want to be mindful of your credit and how you're working with creditors if you're struggling to make payments.
Learn more about:
- Protecting Your Credit During the COVID-19 (Coronavirus) Crisis
- How the CARES Act Affects Credit Reports and Scores
- COVID-19 (Coronavirus) Credit Card and Debt Relief
You can also check your credit score and monitor your credit for free with Experian.