How Can the American Rescue Plan Act Help Your Family?

Dear Readers: With most eligible individuals having already received their $1,400 stimulus payment, it’s easy to overlook some of the other benefits of the recent American Rescue Plan. Of course, the extra money upfront will make a significant difference to many struggling families. And even if you’re caught up on your bills, these economic impact payments could be a welcome boost to your emergency fund or your investments.

The American Rescue Plan Act (ARPA) has a number of additional benefits for families that I want to highlight. Even if some don’t apply to you, you might be able to pass the information on to family and friends who could take advantage of them. Here are some I think are worth noting.

More Money for the Child Tax Credit in 2021—and a New Way to Get It

Parents with minor children get a big increase in the Child Tax Credit, from $2,000 per child up to age 16 to $3,000 for kids ages 6 to 17 and $3,600 for kids under 6. Plus, this credit is now fully refundable, meaning it reduces your tax bill dollar for dollar, and any amount over your tax bill will be refunded to you in cash. From July through December 2021, parents are scheduled to receive the credit in monthly payments (which would amount to half the yearly credit) and apply the remainder to their 2021 taxes.

Of course, there are income limitations for the expanded credit (they phase out beginning at $75,000 for single filers and $150,000 for married people filing jointly), but for those who qualify, it offers a welcome boost. For example, a family with married parents filing jointly, three kids ages 5, 9, and 12, and adjusted gross income (AGI) of $125,000 would get a fully refundable tax credit of $9,600—with monthly payments of $800 for the second half of 2021. In other words, individuals eligible for a 2021 Child Tax Credit will receive advance payments of the credit through monthly payments from July 1 to Dec. 31. This change will allow families to receive the benefit sooner rather than waiting until the 2022 tax filing season to receive it.

Higher earners (topping out at $200,000 for single filers and $400,000 for those married filing jointly) are still eligible for the regular child tax credit of $2,000 per child. Unless extended, the child tax credit rules for 2022 will revert back to those in place for 2020.

Child and Dependent Care Tax Credit Maximums and Income Limits Increased for This Year

In another welcome increase for parents, the maximum expenses used to calculate child and dependent care tax credit for kids under 13 goes up to $8,000 for one child and to $16,000 for multiple children. Plus, the maximum percentage you can receive will increase from 35 percent to 50 percent of expenses—and the credit is fully refundable. On top of that, the AGI limit for eligible families to receive the full credit increases to $125,000, with the credit phasing out between $125,000 and $400,000.

So, adding on to the example above, if that same family with three kids were paying $24,000 annually for child care, the parents could claim the $16,000 maximum for expenses and get an $8,000 (50 percent times $16,000) Child and Dependent Care Tax Credit in addition to the $9,600 Child Tax Credit.

This tax credit also applies to other qualified dependents.

Temporary Assistance With Health Insurance Premiums

Paying for quality health care is another big concern for families, especially if you’ve lost coverage through a job due to the pandemic. Here are two ways the ARPA can help:

COBRA subsidies for laid-off workers: From April 1 through Sept. 30, the government will provide 100 percent premium assistance for eligible unemployed individuals to help them keep their previous employer-sponsored health insurance.

Premium caps for ACA health insurance: Individuals who buy health insurance through the federal exchange or state marketplaces will have premiums capped at 8.5 percent of income, replacing prior income caps through 2022. This will allow more people to qualify for health care subsidies called premium tax credits.

Get the Details and Talk to a Tax Adviser

The ARPA offers more benefits for families—including the expansion of the Retirement Savers and Earned Income Tax Credits, emergency housing/rental assistance, and more—but the details go beyond the scope of this column. You can get more information from the U.S Department of the Treasury.

Also, be aware that while you don’t have to file a tax return to get the economic stimulus payment, you do need to file to get a tax refund or qualify for any refundable tax credits. I’d suggest talking to a tax adviser who can help you understand and take full advantage of the benefits that apply to you.

This past year, the pandemic has threatened people’s financial health as well as their physical health. The good news is that there is a wide range of assistance available. Get the information you need and pass it on to those you care about. It could go a long way in providing help and hope as we look toward a brighter future.

Carrie Schwab-Pomerantz, a certified financial planner, is president of the Charles Schwab Foundation and author of “The Charles Schwab Guide to Finances After Fifty.”

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