Income tax act irs

Published: March 23, 2021 | Last Updated: February 8, 2024

TAS Tax Tips: American Rescue Plan Act of 2021 individual tax changes summary by year

The IRS is reviewing implementation plans for the newly enacted American Rescue Plan Act of 2021. The IRS will provide official guidance, processes and procedures, and forms and instructions, as applicable, as soon as possible. We encourage you to continuously check IRS.gov for the latest guidance and updates as they are released.

The following information is a simplified summary of some of the tax provisions that affect the majority of individual taxpayers, by tax year. This list is not all inclusive and is not intended to be used as official guidance. Instead it is intended as a preliminary reference to determine which of these specific individual tax-related provisions are effective for specific tax years. Unless otherwise specified, section references are to the applicable sections of the American Rescue Plan Act of 2021.

Tax Year 2020 – These provisions apply to taxable years beginning after December 31, 2019.

• Unemployment compensation – Sec. 9042 allows an exclusion from gross income of up to $10,200 in unemployment compensation, if the adjusted gross income of the taxpayer is less than $150,000. See IRS Statement – American Rescue Plan Act of 2021 and watch for further guidance.
  • For those who received unemployment compensation last year and have already filed their 2020 tax return, IRS anticipates that they will be able to assist unemployment recipient taxpayers to take advantage of the exclusion without additional action on the part of taxpayers, with some exceptions. See IRS to recalculate taxes on unemployment benefits; refunds to start in May. So there is no need for taxpayers to file an amended return unless the calculations make the you newly eligible for additional federal credits and deductions not already included on the original tax return. See the example in the News Release.
  • For those who received unemployment compensation last year, follow the IRS instructions on the New Exclusion of up to $10,200 of Unemployment Compensation page. Those who have already filed do not need to file an amended return; as the IRS instructions provide, the IRS will refigure the taxes to make the adjustment. For additional information, go to About Form 1040 to get the latest information about Form 1040, Instructions for Form 1040,and Schedule.

  Tax Year 2021 – Except where provided, these provisions apply to taxable years beginning after December 31, 2020.

  • 2021 Recovery Rebate Credit – Sec. 9601 provides a recovery rebate of $1,400 ($2,800 in the case of a joint return) for the 2021 taxable year, plus an additional $1,400 per each dependent of the taxpayer, for all U.S. residents with adjusted gross income up to a phase-out threshold of $75,000 ($150,000 in the case of a joint return or a surviving spouse, and $112,500 in the case of a head of household), who are not a dependent of another taxpayer and have a work eligible Social Security number (SSN).Married taxpayers filing jointly where one spouse has a work eligible SSN and one spouse does not are eligible for a payment of $1,400, in addition to $1,400 per child with an SSN. The rebate amount is phased out above certain income levels.
    • Advanced Economic Impact Payments (EIP3) – these payments are advanced payments of the above 2021 Recovery Rebate Credit. Where possible, the IRS began issuing EIP3s in March of 2021. See IRS began delivering third round of Economic Impact Payments to Americans, Fact Sheet (More details about the third round of Economic Impact Payments), and the IRS.gov Economic Impact Payments page for more information.
      Note: EIP3 payments are separate from EIP1 and EIP2 payments, advances of Recovery Rebate Credits for the 2020 taxable year.
    • Sec. 9612 provides that the Secretary of the Treasury or her delegate must make payments to each territory that relate to the cost or approximate cost of that territory’s child tax credit or make payments of the credit directly to territory residents. Sec. 9612 applies to taxable years beginning after December 31, 2020.
    • Sec. 9622 repeals the rule that an eligible taxpayer with at least one qualifying child who does not claim the EITC with respect to one or more qualifying children due to failure to meet the identification requirements—including the valid SSN requirement—with respect to such children may not claim the EITC for taxpayers with no qualifying children.
    • Sec. 9623 provides that an otherwise married individual separated from the individual’s spouse is treated as not married for purposes of the EITC if a joint return is not filed. The provision applies only if the taxpayer lives with a qualifying child of the taxpayer for more than one-half of the taxable year and either:(1) Does not have the same principal place of abode as the individual’s spouse during the last six months of the taxable year, or
      (2) Both
      • Has a decree, instrument, or agreement (other than a decree of divorce) described in Code section 121(d)(3)(C)145 with respect to the individual’s spouse, and
      • Is not a member of the same household with the individual’s spouse by the end of the taxable year.
      • Sec. 9632 temporarily increases, for the 2021 taxable year only, the amount of the exclusion for employer-provided dependent care assistance (from $5,000 to $10,500).
      • Sec. 9642 provides eligible self-employed individuals with a credit equal to the qualified sick leave equivalent amount with respect to the individual, for up to 10 days occurring during the period beginning on April 1, 2021 and ending on September 30, 2021.
      • Sec. 9643 provides eligible self-employed individuals with a credit equal to 100% of the qualified family leave equivalent amount (up to $200 per day, for up to 60 days) with respect to the individual. Only days occurring during the period beginning on April 1, 2021 and ending on September 30, 2021, may be taken into account.
      • Sec. 9662 removes the requirement that excess advance payments are treated as an additional tax liability on the individual’s income tax return for the taxable year. The provision applies to taxpayers who file a 2020 income tax return and reconcile any advance payment of the credit.
      • Sec. 9663 provides a special rule for the premium assistance credit in the case of a taxpayer who has received, or has been approved to receive, unemployment compensation for any week during calendar year 2021. Under the rule, for the 2021 taxable year only, (i) such a taxpayer is treated as an applicable taxpayer, and (ii) the taxpayer’s household income is not taken into account to the extent it exceeds 133% of FPL for a family of the size involved.
      • Student Loans – Sec. 9675 excludes from gross income in taxable years 2021 through 2025 amounts related to the discharge of certain student loan debt, applicable to discharges of loans after December 31, 2020.

      Again, please continue to monitor the IRS Coronavirus Tax Relief page, IRS Guidance page and applicable tax topic pages (e.g., Child Tax Credit, Earned Income Credit, etc.) for new and updated information related to the American Rescue Plan Act of 2021.