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Here are four tax breaks included in the $1.9 trillion stimulus plan

Janna Herron
·Editor
·5 min read

Editor's note: This version corrects the percentage of expenses that could be applied to the child care tax credit before the new stimulus bill.

The $1.9 trillion stimulus plan based on President Joe Biden's proposal and passed by both chambers of Congress includes four key tax improvements that would help Americans in various income brackets.

The plan would change the child tax credit, child and dependent care tax credit, the earned income tax credit (EITC), and taxes on unemployment benefits, helping to alleviate some of financial stress from the coronavirus pandemic and economic shutdowns.

Read more: Here's how you should use your tax refund in 2021

The House passed the amended bill on Wednesday after passage in the Senate on Saturday. The legislation heads this week to the president to sign into law.

Here are the proposed tax changes.

Internal Revenue Service federal building Washington DC USA
The Internal Revenue Service federal building in Washington, D.C. (Photo: Getty Creative)

Child tax credit

If the plan passes, the child tax credit would increase to $3,000 per child under 18 and $3,600 per child under 6 for the 2021 tax year. Currently, the tax credit is for $2,000 per child under 17.

The credit would also be made fully refundable for 2021. That means taxpayers receive a refund for the credit, even if it's more than what they owe in taxes. Right now, the credit is only partially refundable up to $1,400 and those who owe no tax must make at least $2,500 a year to qualify for that $1,400.

Read more: Taxes 2021: How to avoid scams this filing season

The full credit would be available for single filers who make $75,000 or less, joint filers or surviving spouses who make $150,000 or less, and heads of households who make $112,500 or less. After that, the amount of the credit would be reduced by $50 for each $1,000 that exceed the thresholds.

Half of the credit may be advanced to families over the next six months beginning in July, based on the most recent tax information available, either 2019 or 2020. It remains unclear clear if the payments would be monthly or in other increments.

Who this helps: Families with children in bottom 20% of income distribution would get an average benefit of $3,400, according to estimates previously provided to Yahoo Money by the Tax Policy Center, while overall families with children would get an average benefit of $2,300. About half of the benefit would go to families in the bottom two income quintiles, the Center found.

Child care tax credit

A parent and child wave to a sibling in the school yard at PS 361 on the first day of a return to class during the coronavirus disease (COVID-19) pandemic in the Manhattan borough of New York City, New York, U.S., December 7, 2020. REUTERS/Carlo Allegri
A parent and child wave to a sibling in the school yard at PS 361 on the first day of a return to class during the coronavirus disease (COVID-19) pandemic in the Manhattan borough of New York City, New York, U.S., December 7, 2020. REUTERS/Carlo Allegri

President Biden also wants to expand this credit on an emergency basis for one year. Families would get a tax credit equal to 50% of their child care expenses for children under 13, up to $4,000 for one child and up to $8,000 multiple children.

The credit would also be refundable, and families who earn between $125,000 and $400,000 would receive a partial credit.

Read more: Taxes: Here's how to know if you should itemize

Before, the credit applied to only 20% to 35% of child care expenses — depending on income — with a maximum of $3,000 for one child and $6,000 for multiple children.

Who this helps: This mostly would help middle and higher income households, according to the Tax Policy Center, which found in a previous analysis of a similar credit expansion that half the benefits would go to households in the top 40% of income distribution.

Earned income tax credit

NEW YORK, NEW YORK - JUNE 30: A worker wears a face mask in Gristedes supermarket in Murray Hill as New York City moves into Phase 2 of re-opening following restrictions imposed to curb the coronavirus pandemic on June 30, 2020. Phase 2 permits the reopening of offices, in-store retail, outdoor dining, barbers and beauty parlors and numerous other businesses. Phase 2 is the second of four phased stages designated by the state. (Photo by Noam Galai/Getty Images)
A worker wears a face mask in Gristedes supermarket in Murray Hill as New York City moves into Phase 2 of re-opening following restrictions imposed to curb the coronavirus pandemic on June 30, 2020. (Photo by Noam Galai/Getty Images)

The stimulus plan also would expand the earned income tax credit, or EITC, for the 2021 tax year. It would increase the age requirements and provide a larger benefit to workers without children.

Childless workers could claim the credit starting at age 19 — instead of 25 — except for some full-time students. The age limit of 65 would be eliminated, too. These workers would also get about three times more from the credit, around $1,500 from $530.

Who this helps: The job losses from the pandemic have disproportionately hit lower earners, who would benefit from the expansion of this credit.

Unemployment benefits tax exemption

Unemployment benefits are typically taxable, but a Senate amendment to the bill would make the first $10,200 of jobless benefits tax free for taxpayers with incomes of $150,000 or less for the 2020 tax year.

Read more: Tax tips for freelancers 2021: 12 smart ways to file

If you already filed your taxes but could benefit from this new break, you may need to file an amended tax return, but official guidance hasn't been given by the IRS, which is likely waiting until the bill becomes law.

Who this helps: Tens of millions of Americans filed for unemployment benefits at some point — if not multiple points — during the pandemic last year. Many of them would likely be eligible for this tax break.

Janna is an editor for Yahoo Money and Cashay. Follow her on Twitter @JannaHerron.

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Summary | 11 Annotations
The $1.9 trillion stimulus plan based on President Joe Biden's proposal and passed by both chambers of Congress includes four key tax improvements that would help Americans in various income brackets.
2021/03/11 15:12
The House passed the amended bill on Wednesday after passage in the Senate on Saturday. The legislation heads this week to the president to sign into law.
2021/03/11 15:13
If the plan passes, the child tax credit would increase to $3,000 per child under 18 and $3,600 per child under 6 for the 2021 tax year. Currently, the tax credit is for $2,000 per child under 17.
2021/03/11 15:13
The full credit would be available for single filers who make $75,000 or less, joint filers or surviving spouses who make $150,000 or less, and heads of households who make $112,500 or less. After that, the amount of the credit would be reduced by $50 for each $1,000 that exceed the thresholds.
2021/03/11 15:13
Families with children in bottom 20% of income distribution would get an average benefit of $3,400, according to estimates previously provided to Yahoo Money by the Tax Policy Center, while overall families with children would get an average benefit of $2,300. About half of the benefit would go to families in the bottom two income quintiles, the Center found.Story continues
2021/03/11 15:13
President Biden also wants to expand this credit on an emergency basis for one year. Families would get a tax credit equal to 50% of their child care expenses for children under 13, up to $4,000 for one child and up to $8,000 multiple children.
2021/03/11 15:13
This mostly would help middle and higher income households, according to the Tax Policy Center, which found in a previous analysis of a similar credit expansion that half the benefits would go to households in the top 40% of income distribution.
2021/03/11 15:13
The stimulus plan also would expand the earned income tax credit, or EITC, for the 2021 tax year. It would increase the age requirements and provide a larger benefit to workers without children.Childless workers could claim the credit starting at age 19 — instead of 25 — except for some full-time students. The age limit of 65 would be eliminated, too. These workers would also get about three times more from the credit, around $1,500 from $530.
2021/03/11 15:13
The job losses from the pandemic have disproportionately hit lower earners, who would benefit from the expansion of this credit.
2021/03/11 15:13
If you already filed your taxes but could benefit from this new break, you may need to file an amended tax return, but official guidance hasn't been given by the IRS, which is likely waiting until the bill becomes law.
2021/03/11 15:13
Tens of millions of Americans filed for unemployment benefits at some point — if not multiple points — during the pandemic last year. Many of them would likely be eligible for this tax break.
2021/03/11 15:13