Signed into law in March 2021, the American Rescue Plan Act (ARPA) includes numerous provisions that impact the 2020 tax returns of Americans. “Within the provisions laid out in the ARPA, there are several that are important for taxpayers to understand, specifically since they help alleviate some economic burdens for U.S. citizens,” says Philip L. Liberatore, CPA, a California-based provider of accounting, tax, and financial management services. The ARPA extends financial assistance to taxpayers in two ways: by offering tax-free cash payments directly in the form of the Economic Impact Payments of $1,400 for eligible Americans and the Child Tax Credit for families and by reducing the tax burden for unemployment and health care benefits.
One of the key elements contained within the ARPA is tax relief for unemployed Americans. “For the 2020 tax year, all eligible U.S. citizens earning under $150,000 in modified adjusted gross income qualify to receive tax-free unemployment benefits of up to $10,200,” explains Philip L. Liberatore, CPA. In the case of families with more than one unemployed taxpaying member, it is important to note that each person is eligible for $10,200 in tax-free benefits. However, people earning over the $10,200 threshold will need to pay taxes on any amount exceeding the limit.
In addition to tax-free unemployment benefits, the ARPA also has significant implications for Americans who purchase their health coverage independently. For such people, the federal government provides a Premium Tax Credit (PTC) designed to lower the cost of health insurance. Philip Liberatore notes, “Although the PTC was established under the Affordable Care Act, the ARPA expands the scope of who receives that benefit and how much they ultimately collect.” There are several factors determining the final benefit that each family can get, including family size and overall income. Households may choose to accept their PTC through advanced payments based on expected income, and any differences in income will be reconciled upon filing taxes.
Although the pandemic has had an enormous impact on the economic stability of many American families, the ARPA is in place to alleviate some of these hardships. By providing tax-free cash injections directly, lightening the tax burden on unemployment benefits, and reducing health coverage premiums, the ARPA is helping to keep more money in the hands of hardworking Americans. “As banal as it may sound, at the end of the day, we are in this together,” Philip Liberatore comments. “The key for Americans is to understand how the provisions in the ARPA impact their taxes so that they can keep more money in their pockets.”
Launched in 1988, Philip L. Liberatore, CPA was started by veteran CPA and entrepreneur Philip Liberatore. Located in La Miranda, California, the company offers financial guidance and accounting services to both individuals and enterprises in Southern California. With a reputation built on providing personalized customer care and maintaining the highest professional standards, Philip L. Liberatore, CPA is a trusted company offering a comprehensive service portfolio and firmly focusing on maximizing outcomes for its clients.
Philip L. Liberatore, CPA on Tax Inflation Adjustments for Tax Year 2022 Provided by the IRS: https://www.yahoo.com/now/philip-l-liberatore-cpa-tax-023000208.html
Philip L. Liberatore, CPA Explains the Advanced Child Tax Credit (CTC) Payments in 2021: https://www.yahoo.com/now/philip-l-liberatore-cpa-explains-173000580.html