Four Tax Breaks Included In The $1.9T Stimulus Package
The new bill, scheduled to be signed into law this Friday, includes four major changes to the tax code.
This credit increases to $3,000 per child under 18 and to $3,600 per child under 6 for the 2021 tax year. Currently the credit is $2,000 per child under 17.
The credit would also be made fully refundable. Currently the credit is only refundable up to $1,400. The full credit would be available to single filers making less than $75,000 and MFJ returns below $150,000. Above those numbers it is either reduced or eliminated depending upon income.
But wait. There’s more.
Half of the credit may be advanced to families beginning this July either monthly or in a lump sum. They haven’t decided exactly how this will occur. Stay tuned.
Child Care Tax Credit
There is an emergency expansion of this credit for one year. Families will receive a credit of up to 50% of their child care costs up to $4,000 for one child and $8,000 for more.
This credit would also be fully refundable. Families earning between $125,000 and $400,000 would only receive a partial credit.
Earned Income Tax Credit
This credit is substantially increased in the 2021 tax season. It changes the age limit on the credit and increases the benefit up to three times the current credit in certain cases.
Tax Exemption For Unemployment Benefits
Under the bill, the first $10,200 of benefits are untaxable on returns below $150,000 for the 2020 tax filing season. If you have already filed your return, you may need to file an amendment.
Let me leave you with this.
Have you ever wondered why every January 1st, the quickie income tax preparation businesses seem to sprout up on every other corner in only the worst neighborhoods? You probably never thought about it before, but the answer is the two refundable credits in the income tax code.
Please allow me to tell you a true story. Early in the formation of Accounting Solutions we used to do off the street 1040 work. The business was in its infancy and we needed the work.
I remember one family that came in; a husband, wife, and four children. They brought a W-2 with $5,000 in total income for the year and $400 withheld in federal withholding tax. I asked if this was all of the income for the family for the entire year, and was assured that it was.
Anyone with three brain cells to rub against each other can tell you that no one can feed a family of six on five G’s. I’ll bet you dimes to donuts that he had a construction job and she had a cleaning job that both paid cash. There was no way they would ever report that income, because they knew the system.
Once I put all of the information into the computer, they were getting a $6,000 income tax refund. That’s right. Think about it. $5,000 in income and $400 withheld would get you a $6,000 check based on the old refundable Earned Income and Child Tax Credits.
I didn’t complete the return. I was so disgusted that I threw the family out of my office. The father looked at me as if I was committing a crime. I told him that I wouldn’t be party to a fraud. He looked at me like I was crazy.
Why? Because this problem so endemic in the system, that publicly traded companies make their entire livings helping American steal the Earned Income and Child Tax Credits.
What did Congress just do? They expanded the existing credits and added a few more that are fully refundable.
I’m sitting here thinking about a west side mother of seven, all of which having different last names, thinking about how much more money she can make by popping out just one more child.
And how are they going to pay for all of this fraud? They’re coming. Don’t kid yourselves my brothers and sisters, they’re coming. Whenever a politician gives with one hand, they find a way to take with the other.
The only thing between your bank balance and them is us.
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. If there is anything you need, whether you are a current client or not, your have but to ask. I’m here and I remain,
Accounting Solutions Ltd.
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