Changes resulting from the recently passed American Rescue Plan

Dear Clients and Friends:

This month we will update you on several of the changes resulting from the recently passed American Rescue Plan.

The IRS recently extended the personal income tax filing deadline until May 17, 2021, and the state of Minnesota has conformed with this extension. This extension only applies to personal income tax returns, corporate tax returns with an April 15th filing deadline are still due on April 15th. In addition, any first quarter 2021 estimated tax payments are still due on April 15th. This applies to both the IRS and the state of Minnesota 2021 estimated tax payments.

Congress recently passed and the President recently signed the American Rescue Plan. This bill contains many income tax provisions.

• Economic Impact Payments – Eligible individuals will receive a $1,400 stimulus payment. Married couples receive $2,800. Families receive an additional $1,400 per dependent under the age of 17. Payments phase out starting with income at $75,000 for individuals and $150,000 for married couples filing jointly.
• Child Tax Credit – The Child Tax Credit increased from $2,000 to $3,600 for children under the age of six and to $3,000 for children under age 18. Under the new law, children age 17 and younger are eligible for the credit. Previously, children age 16 and younger were eligible. Eligible individuals will receive an advance payment of the tax credit beginning July 1, 2021 and running through December 31, 2021. The credit is now fully refundable. The IRS is now required to establish an online portal allowing individuals to update relevant data for mid-year payment adjustments.
• Unemployment Compensation – The first $10,200 of unemployment benefits received in 2020 is not subject to federal income tax. This exemption phases out when adjusted gross income exceeds $150,000. Many taxpayers have already filed their 2020 income tax returns. The IRS has advised these taxpayers not to file an amended return. The IRS will provide guidance on when and how these taxpayers can get their tax refunded. The state of Minnesota has not complied with this rule change. Unemployment benefits are taxable to Minnesota residents.
• Dependent Care Benefits – For calendar year 2021, the maximum amount that a taxpayer can flex under a cafeteria plan for dependent care benefits increased to $10,500.

If you have any questions on this information, or any other income tax questions, please contact any of our offices.