This week’s reader question is about the American Rescue Plan (ARP) Act of 2021: What elements of the new relief package should individuals be aware of that may impact portfolios and financial plans?
Andrew Busa, senior financial planner, had this to say:
The ARP is an ambitious piece of legislation aimed at speeding up the economic recovery and the distribution of vaccines. Those are important objectives that ultimately benefit everyone. But there are also some practical aspects of the bill that could impact your pocketbook and portfolio. Here’s a running list:
- Direct payments. Compared to the initial CARES Act passed last year, ARP payments are aimed at people who earn a little less in their paycheck. In this case, individuals making up to $75,000 a year stand to receive $1,400 while couples bringing in $150,000 or less will get $2,800. (If you qualify and are set up to receive electronic payments from the IRS, you may have already gotten yours.) That said, the ARP reaches some people that CARES passed by—namely, adult dependents, including college students, disabled individuals or elderly family members living under your roof. (Payments will be issued to the taxpayer, not the dependent.) If you’re not sure about your eligibility, it’s worth checking the IRS’ “Get My Payment” tracker by clicking here.
- Unemployment benefits. If you lost your job during the pandemic, the ARP offers some assistance by extending expanded unemployment benefits (scheduled to expire earlier this week) into early September and adding an additional $300 a week. The benefits also include some relief for self-employed and gig workers. As part of the benefit, the ARP waives federal taxes on the first $10,200 of unemployment benefits collected in 2020 for individuals and couples who earned less than $150,000 combined.
- Health care subsidies. The bill also expands access to the Affordable Care Act. The biggest adjustment is an increased subsidy for people buying private health insurance, including some higher earners who didn’t previously qualify. The ARP also covers 100% of COBRA premiums through September 2021 for those who lost a job in the past year.
- The child tax credit. The ARP expands the child tax credit for the 2021 tax year to $3,600 per child under age 6 and $3,000 for children ages 6 through 17. As with the stimulus checks, the credits start to phase out for individuals above a certain income level, but the previous credit of $2,000 per child remains unchanged for some higher-income families.
Specifics aside, we see the stimulus as a net positive for some of the individuals hardest hit by lockdowns. As a financial planner, I see the potential tax savings and some extra cash in people’s pockets as a great opportunity to top off an emergency fund, rework your 2021 budget or accelerate a savings plan.
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