American Rescue Plan Act of 2021

In an effort to address the economic impacts of the Coronavirus pandemic, Congress has approved and President Biden has signed the American Rescue Plan Act of 2021.

Among the many provisions of this act, there are some that are particularly relevant for divorce mediation clients who are negotiating taxes.

What You Should Know

1. A new round of stimulus payments (full amount) will be sent out to taxpayers who have Adjusted Gross Income of less than: a) $150,000 per year (if filing jointly). b) $112,500 per year (if filing as head of household). c)  $75,000 per year (if filing as single). Lesser amounts are paid for joint incomes between $150,000 and $160,000, heads of household incomes between $112,500 and $120,000, and single taxpayers with incomes between $75,000 and $80,000. The full amount of the stimulus payment will be $2,800 for those filing joint returns, $1,400 for those filing as single or head of household, plus $1,400 per dependent child. Unlike previous stimulus payments, dependent children can include college age children who are still supported by parents.
2. The child tax credit for 2021 will be substantially increased from $2,000 per child to $3,000 per child. (And for children 5 and under, the credit is $3,600.) The child tax credit will also be available in 2021 for children up to age 17. (This used to end at age 16.) The increased child tax credit phases out at income of $75,000 ($150,000 for joint returns).
3. The child tax credit will be fully refundable. This means that, for single parents who have a low tax liability, they can receive the full amount of the child tax credit. This is a big change, since previously, in negotiating which parent claimed children, the parent with a lower income may have decided to let the other parent claim the child(ren) since the other parent would get the full tax benefit.
4. Health insurance costs under the government health insurance exchange will be capped at 8.5 percent of income through 2022.
5. The maximum credit for dependent care (i.e., child care) will be increased for taxpayers with incomes up to $125,000.  

Timing
Some of these changes will only be in effect for 2021, unless extended by Congress.

Overall, for many divorcing couples with children who are facing the economic challenges of transitioning from one household to two, the American Rescue Plan Act of 2021 should provide significant short-term economic relief.

Overall, for many divorcing couples with children who are facing the economic challenges of transitioning from one household to two, the American Rescue Plan Act of 2021 should provide significant short-term economic relief.
​
As with all decisions involving taxes, consulting a tax professional is encouraged.