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5 Ways the American Rescue Plan Puts Money in Your Pocket

The American Rescue Plan Act is a massive economic stimulus package that gives $850 billion in benefits to individuals. Here's the quick and dirty on who qualifies for relief and five ways it increases your income and cuts expenses.

By
Laura Adams, MBA
6-minute read
Episode #676
The Quick And Dirty

Thanks to the third round of stimulus, the majority of Americans will have extra income and lower taxes and expenses in 2021. The American Rescue Plan Act directs $850 billion to individuals as stimulus checks and various tax credits. Five significant benefits for individuals are:

  1. Receiving a stimulus payment
  2. Qualifying for more tax credit
  3. Getting extended unemployment benefits
  4. Having reduced health insurance premiums
  5. Getting COBRA subsidies

When President Biden was inaugurated, he pledged to make COVID-19 relief a top priority. You probably heard that the latest stimulus, the American Rescue Plan (ARP) Act was signed into law on March 11, 2021. It’s the third round of assistance designed to boost the U.S. economy as it continues to struggle from the pandemic.

The American Rescue Plan Act was signed into law on March 11, 2021.

ARP is a massive $1.9 trillion package that gives funding to state and local governments, schools, infrastructure projects, COVID testing and vaccination programs, and more. According to the Tax Foundation, about $850 billion will go to individuals and about $65 billion to businesses. Most of the provisions are temporary expansions to manage the pandemic. However, some benefits may likely become permanent. 

The relief for individuals comes in the form of stimulus checks and various tax credits, building on benefits from previous laws, such as the CARES Act. Today, we'll review five ways the recent stimulus helps individuals. We’ll cover who qualifies for payments and other significant benefits.

How the American Rescue Plan of 2021 Helps Individuals

Here’s the detail on several ways ARP may put money in your pocket.

1. Receiving a stimulus payment

For this round of Economic Impact Payments, which are also called recovery rebates or stimulus payments, the qualifying income levels are lower. That means some people who received previous payments won't be eligible for the third payment. However, those who qualify will get larger payments (the previous rounds were $1,200 and $600 per person). 

The third stimulus payment will be $1,400 per eligible person if you have adjusted gross income of up to $75,000 for single filers, $112,500 for head-of-household, or $150,000 for married couples filing a joint tax return.

The third stimulus payment will be $1,400 per eligible person if you have adjusted gross income of up to $75,000 for single filers, $112,500 for head-of-household, or $150,000 for married couples filing a joint tax return. 

Those earning up to $80,000 for a single, $120,000 for head-of-household, and $160,000 for joint filers, qualify for a partial payment. For example, a single person with no dependents and an adjusted gross income of $77,500 would get half the amount, or $700. But earning more than these limits makes you ineligible.

Additionally, you also receive payments of up to $1,400 for each of your dependents, no matter their age. That's an expansion from previous payments, which only paid for dependents under the age of 17. 

Now, most people will receive $1,400 for themselves and $1,400 for each qualifying dependent claimed on their tax return, such as a minor child, adult child, parent, or grandparent. For example, a married couple who files taxes jointly and has two dependents would receive $5,600 ($1,400 x 4 family members).

If you're unsure if you're eligible for a stimulus payment, visit the Get My Payment page at IRS.gov. If you're uncertain whether you can claim someone as a dependent for tax filing purposes, use the IRS Dependent Tool for more information.

If you earned less in 2020 than in 2019, it's in your best interest to file your 2020 taxes as quickly as possible.

You don't need to take any action to receive your payment. It's based on your latest processed tax return for either 2019 or 2020. If you earned less in 2020 than in 2019, it's in your best interest to file your 2020 taxes as quickly as possible. Also, note that the stimulus payments are not taxable income.

If you didn't file a return but receive federal payments, such as Social Security, Railroad Retirement, Supplemental Income, or Veterans benefits, the IRS will fund the same account. 

If you have a direct deposit already set up, you may see the stimulus payment pending in your account by March 17. However, the law technically gives the IRS until the end of 2021 to complete the payments.

If you don't have direct deposit, the IRS generally mails a paper check, or in some instances, a prepaid debit card. If you moved recently, be sure to update your information with the post office and use Form 8822, Change of Address.

If your income is slightly higher than the stimulus payment qualifying limit, or you're in the phase-out range, consider ways to reduce your taxable income. You might increase contributions to a traditional IRA, which reduces your adjustable gross income and may make you eligible to receive a payment.

2. Qualifying for more tax credit

In addition to stimulus payments, ARP significantly expands the child tax credit for qualifying taxpayers. You must earn less than $75,000 as a single taxpayer or $150,000 as a joint tax filer to receive it. 

Now, the credit increases from $2,000 to $3,000 for each child age 17 and younger that you claim as a dependent. Previously, only children younger than 17 were eligible. Plus, the credit now pays $3,600 for each child you have under age six.  

The expanded child tax credit will be paid in advance and monthly.

Interestingly, the expanded child tax credit will be paid in advance and monthly. The IRS has been directed to begin the payout by July; however, many believe that due to the administrative burden, getting the process established could take longer

3. Getting extended unemployment benefits

The new law extends unemployment benefits through early September 2021, which would have otherwise ended sooner. Now, recipients will get an additional $300 per week from the federal government on top of state benefits. Plus, you can get 53 weeks of federal benefits after your state benefits expire, up from 24 weeks. 

Another significant provision is that ARP exempts the first $10,200 of jobless benefits received in 2020 from tax. However, you must earn less than $150,000 as a single taxpayer to qualify for the exemption.

If you already filed taxes for 2020, the IRS says to wait for guidance instead of filing an amended tax return.

4. Having reduced health insurance premiums

The 2021 stimulus plan also expands the Affordable Care Act (ACA), making health insurance more affordable to those without coverage through an employer. It temporarily cuts the cost of health insurance premiums by expanding the tax credit subsidies for plans purchased on the federal or state marketplaces in 2021 and 2022.

Rates for ACA-qualified health plans depend on various factors, including where you live, your age, family size, and chosen policy. The premium subsidy is based on your projected income for the year at the time you apply for coverage. 

Then, at tax time, you must settle up based on your actual income for the year. When you earn more than expected, you may be required to repay some or all of the federal government's subsidy. If you earn less, you may be entitled to a higher tax refund.

The American Rescue Plan makes health premium subsidies available to those with higher incomes. Anyone with health premiums exceeding 8.5% of their household income is qualified for relief.

Those with incomes below a threshold qualify for tax credits paid by the federal government to your insurer, leaving you with a reduced monthly payment. The American Rescue Plan makes health premium subsidies available to those with higher incomes who otherwise wouldn't qualify for assistance. Now, anyone with health premiums exceeding 8.5% of their household income is qualified for relief. 

ARP also increases the subsidies for those with lower incomes who are currently enrolled in an ACA-qualified health plan. The federal government will pay a larger share of their health premiums, which reduces the monthly cost to the policyholder.

Additionally, ARP prevents taxpayers who overestimated their 2020 income from having to repay any excess subsidies at tax time. That clawback protection will be in place only for a year. However, like other tax breaks covered here, Congress may consider making them permanent legislation.

The Congressional Budget Office estimates that the ARP will allow millions of Americans without health insurance to get coverage. There's a special enrollment period for ACA coverage that runs through May 15, 2021. So, there's never been a better time to get affordable health coverage if you're uninsured. 

RELATED: 6 Tips to Find Health Insurance When You Become Self-Employed

5. Getting COBRA subsidies

Another significant ARP benefit that will help Americans maintain their health coverage is subsidies for COBRA coverage. COBRA is a federal law that allows workers who leave a job with group health insurance to continue purchasing it for a period.

If you're laid-off or no longer qualify for employee benefits due to having reduced hours, the law will pay 100% of the cost of your COBRA premiums. That's a huge, temporary benefit that begins in April and ends September 30, 2021. Again, the subsidy is not available when you voluntarily leave a job or become eligible to enroll in another group health plan.

If you're laid-off or no longer qualify for employee benefits due to having reduced hours, the law will pay 100% of the cost of your COBRA premiums. That's a huge, temporary benefit that begins in April and ends September 30, 2021.

The COBRA subsidy is quite valuable because the premiums can be expensive. Additionally, they're not considered taxable income.

This post isn't a complete list of all the tax breaks in the American Rescue Plan, but the ones that may affect you the most. As you can imagine, all these temporary regulations mean that the IRS will be busy rolling out the changes and recalculating tax liability. 

Plus, the new regulations are going into effect in the middle of the 2021 tax season, making it even more confusing. I'm sure the IRS will be issuing much more guidance soon to clarify the many questions from consumers and tax accountants.

About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.