The past few weeks have brought some big changes to individual taxes. On March 11th, the American Rescue Plan Act, HR 1319, was signed into law. In addition to providing economic impact payments to many Americans, the Act makes some significant changes to tax law. The Act provides economic stimulus payments, extends tax provisions from last year, and reduces taxes for many Americans through a variety of tax credits. The Act also provides relief and recovery assistance for small businesses. Separately, the IRS extended the individual Federal tax deadline.
Tax Filing Deadline Extended
The IRS has extended the individual Federal tax deadline to May 17th, 2021. The IRS is allowing tax payments for 2020 to be postponed until the new filing deadline without penalties or interest. If you need more time, an additional extension to October 15th is available by filing Form 4868. Taxes due must still be paid by May 17th to avoid interest and penalties. The extended due date only applies to individual Federal income taxes, not any other type of tax.
New Tax Exclusions and Credits
The first $10,200 of unemployment benefits received in 2020 are now tax-free for taxpayers who made less than $150,000 last year. For a married couple, the total benefit is up to $20,400 if they both received the full amount of unemployment benefits. If you received unemployment benefits last year and have already filed your tax return, you will need to file an amended return to take advantage of this change.
If you received unemployment benefits last year and have already filed your taxes, seek professional advice on amending your return!
The Act also increases the child tax credit and makes it refundable for 2021 if your tax liability is less than the amount of the credit. The amount of the credit is increased to $3,000 per child, and children up to 17 years old are eligible as qualifying children. From July through December of this year, the IRS will be estimating child tax credit amounts and sending out advances of 50% of the estimated annual amount. If the IRS over-estimates your child tax credit, you will have to repay the excess in 2021 while you file your tax return.
Assistance for Small Businesses
The Small Business Administration received an additional $15 billion of funding for Economic Injury Disaster Loans and EIDL advance grants for businesses in low-income communities. New funding of $7.25 billion for Paycheck Protection Program loans is now available. The deadline for PPP loans remains March 31st, 2021. The Act also includes $29 billion to create a new grant program providing relief for restaurants, and $15 billion for event venues, museums, and concert halls. Both of these programs will be run by the Small Business Administration.
The PPP loan window closes March 31st.
Small business owners need to act quickly!
In addition to these changes, the American Recovery Plan Act extends several provisions of last year’s CARES act and the Families First Coronavirus Response Act. Employee Retention credits and Family and Sick Leave credits for employers were among the items extended into 2021.
The American Recovery Plan Act makes significant changes to Federal taxes. It also significantly changes the kinds of relief available to small businesses. These changes are complex, and the cost of missed opportunities under the new tax law can be high. Individuals and business owners should seek professional advice from a tax and financial planning expert to maximize their benefits under the new law.
Matthew A Treskovich | CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC
Chief Investment Officer