The Biden Administration has recently approved a third round of economic relief called the American Rescue plan, consisting of a $1,400 stimulus package to sustain families struggling to stay afloat due to the pandemic. Millions of Americans have grappled with unemployment and economic hardship, which the stimulus payment will help relieve.
As a tax preparer, you may be wondering how this will affect your clients and the work you’ll have to do in filing their returns, which should be made easier by using professional tax preparation software. Fortunately, the majority of the changes will not affect taxes for the tax year 2020. Still, your clients must send you their documents right away or even schedule an appointment when they have all the necessary forms and records to ensure everything is in good order. Here’s what you need to know about the plan:
The Internal Revenue Service announced the federal tax filing extension, which is now on May 17, 2021. Tax preparers have an extra month to file client returns, allowing you more time and opportunity to take more clients and earn more revenue. Still, the IRS is encouraging taxpayers to file as early as possible. In this case, contact your past clients who have yet to reach out and remind them to set an appointment to get their taxes ironed out in time for the deadline.
The third stimulus package began rolling out on March 13th, valued at $1,400 per qualifying individual and all dependents. If your client makes more than $80,000 and is a single filer, they won’t qualify for the package. Similarly, if your client is filing jointly and makes $160,000 or more a year, they also won’t receive a payment. The package is based on 2020 tax returns, so if your clients believe they are eligible and would like to receive the payment, they must file their 2020 taxes right away. If they haven’t, the IRS will use their 2019 tax return as a reference instead.
Meanwhile, if your client qualifies for the third payment but did not receive the first two, they can apply for the Recovery Rebate Credit. They’ll need to meet with you to file their 2020 tax return to claim the other stimulus payments.
Furthermore, the American Rescue Plan has modified the Child Tax Credit substantially. It has increased the credit for 2021 from $2,000 to $3,000 for children between the ages of 6 and 17. It increased the credit from $2,000 to $3,600 for children under six years old and raised the age limit to include 17-year-olds. Since it is fully refundable, your clients will receive the full amount.
If your client can qualify for the new Child Tax Credit, they won’t have to file their 2021 tax return to receive it. Instead, the 2020 tax return amount will be used as the basis. Currently, the IRS does not know when the payments will be delivered, and they plan to develop an online portal so qualified individuals can update the information on their dependents.
Another beneficial part of the American Rescue Plan is that they will extend the tax credit for sick leaves to October 1, 2021, for self-employed taxpayers who are sick or caring for a family member. If they are unable to work due to this, they will receive a tax credit to compensate for lost income.
The American Rescue Plan has been a welcome development to help the economy recover in light of the pandemic. However, as a tax preparer, it’s essential to know the changes that took place, as it can affect your clients’ tax returns.
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