On Thursday, President Joe Biden signed the third stimulus package into law since the start of the Covid-19 pandemic.  The $1.9 trillion bill known as the American Rescue Plan Act “is a force for fairness and justice in America,” according to House Speaker Nancy Pelosi.  The American Rescue Plan Act includes stimulus checks, an expansion of the child tax credit, extended unemployment benefits, small business support and funds allocated for further vaccine distribution.

Let’s begin with a high level breakdown of the $1.9 trillion bill.  According to the Wall Street Journal, The American Rescue Plan Act will be allocated as follows:

Breakdown of The American Rescue Act

• $410 billion for Stimulus Checks
• $360 billion for Government
• $246 billion for Unemployment Benefits
• $194 billion for “Other”
• $176 billion for Education
• $143 billion for Tax Credits
• $123 billion for Covid-19
• $105 billion for Health
• $59 billion for Small Business
• $56 billion for Transportation
• $16 billion for Agriculture

How do I know if I qualify for a stimulus check?

The largest allocation of funds in the bill are earmarked for the next phase of stimulus checks.  Individuals earning less than $75,000 and couples earning less than $150,000 will be fully eligible for checks of $1,400 per individual or $2,800 per married couple.

In order to know if you qualify for a stimulus check, you must first know your Adjusted Gross Income or AGI.  An example of how AGI is calculated can be found below.

Add: Total Income

• Your wages from work reported on a Form W-2
• Income from self-employment, which is usually calculated on Schedule C
• Taxable interest and dividends
• Taxable alimony payments
• Capital gains
• Rental income
  

Subtract: Certain Deductions (known as above-the-line deductions)

• Expenses you incur as an educator to purchase supplies for the classroom
• Student loan interest and tuition payments
• Contributions to your IRA accounts
• Deductions for self employment tax
  

Equals: Adjusted Gross Income (AGI)

For those of you not willing to calculate it yourself (I don’t blame you!), refer to line 8b of your 2019 tax form 1040 or line 11 of your 2020 tax form 1040 if you’ve already filed.  If you can’t locate your tax return, then use this calculator to estimate your stimulus check amount.

What else should I know about the stimulus package?

• The bill includes an extension of $300 federal weekly unemployment benefits until September 6, 2021.  The federal benefit is in addition to the state unemployment benefit.

• The first $10,200 of unemployment benefits from 2020 will not be taxable for households making under $150,000.  Many Americans did not withhold taxes when collecting unemployment benefits last year.  This change is likely to get adjusted and refunded at a later date since the change is coming in the middle of tax season and many have already filed their 2020 taxes.

• The expansion of the Child Tax Credit.  Families can receive a credit of $3,600 for each child under the age of 6 and $3,000 for each child under the age of 18, which is an increase from the previous credit of $2,000.  The new credit is fully refundable, so low-income families will receive the full benefit.  Tax credits are dollar for dollar reductions in tax owed.  The full credit is available for individuals earning up to $75,000 and married couples earning up to $150,000.
• A minor provision was added that any student loan forgiveness is tax free through January 2026.  This may pave the way for for possible future action to forgive $10,000 or more in student loan payments.  Forgiveness for student loans is typically a taxable event.

• $130 billion is allocated for schools to reopen safely through protective equipment, janitorial help, and ventilation improvements.

• $50 billion is earmarked for COVID testing and contact tracing.

How does this all impact you?

The third iteration of coronavirus related aid is the largest yet. If you’d like to better understand how the bill impacts your personal situation such as knowing what to do with your stimulus check or what the increase in child tax credit means for your household please contact us to schedule a free consultation.

- Dan

Disclaimer: This article is for informational purposes only and is not a recommendation of Fyooz Financial Planning, Natalie Slagle CFP®, or Daniel Slagle CFP®. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be assumed that future performance of any specific security, investment product or investment strategy referenced in the article, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s). No portion of the article shall be construed as a solicitation to buy or sell any specific security or investment product or to engage in any particular investment or financial planning strategy. Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio.