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There have been several changes to the Internal Revenue Service’s tax laws, regulations, and procedures in response to COVID-19, and it pays to familiarize yourself with how they may affect you. New aspects of the coronavirus relief measures provided for in the American Rescue Plan Act will affect the tax returns you file and receive this year and next.
Navigating these tax filings can be tricky, and the Bryson Law Firm, LLC is here to help with details on two big changes. Bryson is a local, Louisiana-based law firm that focuses 100% of their efforts on tax resolution. Cary and Angie Bryson have assembled a team of lawyers, analysts, and tax specialists to help clients navigate these ever-changing tax laws, regulations, and procedures.
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The Bryson Law Firm, LLC shares some helpful details on two big changes to taxes in response to COVID-19.
A recent change in the law allows some taxpayers to not pay taxes on their unemployment benefits, and the IRS has been issuing automatic tax refunds to Americans who filed their 2020 return and reported unemployment compensation before tax law changes were made under the American Rescue Plan.
The American Rescue Plan Act, which was enacted in March, exempts up to $10,200 of unemployment benefits received in 2020 ($20,400 for married couples filing jointly) from federal income tax for households reporting an adjusted gross income (AGI) less than $150,000 on their 2020 tax return.
Keep in mind that the new tax exemption only applies to unemployment benefits received in 2020. So, if a person receives unemployment compensation in 2021 or beyond, they can expect to pay federal tax on the amount received.
Child tax credit
The American Rescue Plan Act also provides for advance Child Tax Credits to be paid in 2021. Individuals who qualify will receive up to $3600 for each child under the age of 6, and up to $3000 for each child age 6 through 17. These will be paid in equal monthly installments from July to December. A family that qualifies for the full credit with two children ages 3 and 5 would receive a monthly payment of $600.
These advance payments will be up to 50% of the Child Tax Credit that can be claimed on the 2021 income tax return filings. If a taxpayer does not want to receive the advance payment, they will have the opportunity to opt out.
A taxpayer should qualify for the child tax credit expansion if their modified adjusted gross income (MAGI) is up to $75,000 for single filers, or up to $150,000 for married couples. They may still qualify for a partial child tax credit of $2,000 if the MAGI is less than $200,000 per year ($400,000 for married couples). If they exceed these amounts, the credit phases out, or won’t qualify for anything.
Eligibility for the new child tax credit will be based on 2019 or 2020 tax return—whichever is the most recent one filed. Even if a taxpayer did not earn any income, the IRS encourages filing a tax return to ensure the receipt of monthly child tax credit payments.
There are several other changes this year, so it’s important that you file 2020 and 2021 tax returns carefully and correctly. Visit brysonlawfirm.com or call Bryson Law Firm, LLC for all of your tax resolution needs.