American Rescue Plan Act (ARPA?)

[USGrant1962]

Now that the $1.9T package is destined to become law, Michael Kitces has published one of his usual excellent summaries. This has a good discussion of aspects that are currently scattered among various threads here.

https://www.kitces.com/blog/the-ame...s-checks-and-more-that-advisors-need-to-know/

One interesting takeaway - due to the broader application combined with accelerated phase-out of stimulus credits, large families that exceed $150K AGI could face >100% marginal tax rates, not even counting state income taxes. He gives an example where a $150K earner gets a $10K bonus and loses money.

IMO, tax phase-outs and cliffs just suck, generally.

He also discusses the temporary nature of the law - it is supposedly a response to COVID-19, so temporary makes sense.

And the name is the American Rescue Plan Act, so I guess "ARPA". That way we can keep track of which mongo-spending act we are complaining about.

 

[Finance Dave]

Just read an article that says first $10,200 of 2020 unemployment benefits would be exempted from federal income. Geesh....what about all the people who already filed their returns and paid someone to do it? Now have to file an amended return and likely pay an additional fee.

Nothing amazes me anymore in regards to how much of a mess our government can create.

 

[Sue J]

My son got some unemployment last year and already filed. I was going to tell him that amended returns are easy but have to filed in paper by mail. Then I read that they changed that recently and that amended returns can be filed electronically. He and I both use FreeTaxUSA so I'm hoping they will have a way to do an amendment.

I also got unemployment last year but I haven't filed our taxes yet. The $10,200 will reduce my Fed AGI and tax and also should carry through to the state return which starts with the Fed AGI. The reduced Fed AGI will also bump up our ACA subsidy which we had for a couple of months before turning 65.

Nice benefit that I was hoping for but not counting on.

 

[MRG]

It says that you don't have to pay back ACA Premium Tax Credits from 2020 if you received an overpayment. If understand what that means that is a 10k swing for our taxes this year.

"In general, such overpayments are clawed back by increasing a taxpayer’s income tax liability by the excess payment, subject to certain statutory limits. Section 9662 of the American Rescue Plan Act temporarily pauses this clawback feature for 2020 overpayments only"

 

[aaronc879]

It says that you don't have to pay back ACA Premium Tax Credits from 2020 if you received an overpayment. If understand what that means that is a 10k swing for our taxes this year.

"In general, such overpayments are clawed back by increasing a taxpayer’s income tax liability by the excess payment, subject to certain statutory limits. Section 9662 of the American Rescue Plan Act temporarily pauses this clawback feature for 2020 overpayments only"

I was only off by $6. I don't think I will redo my taxes to get back $6.

 

[USGrant1962]

To clarify all the relief acts in my own mind I looked them up:

• CARES Act, March 2020, $2.2T, $1200 checks
• Omnibus Appropriations 2021 (COVID portion), December 2020, $0.9T, $600 checks
• ARP Act, March 2021, $1.9T, $1400 checks

So a cool $5T in extra deficit spending = 5 years of pre-COVID deficits all in one year.

 

[MRG]

I was only off by $6. I don't think I will redo my taxes to get back $6.

My CPA hasn't filed them yet, he was waiting till the stimulus checks were sent before filing 2020 where we had a large, disqualifiing, jump in income. How fortunate, I'll talk to DW about how to share this windfall.

 

[G8tr]

To clarify all the relief acts in my own mind I looked them up:

• CARES Act, March 2020, $2.2T, $1200 checks
• Omnibus Appropriations 2021 (COVID portion), December 2020, $0.9T, $600 checks
• ARP Act, March 2021, $1.9T, $1400 checks

So a cool $5T in extra deficit spending = 5 years of pre-COVID deficits all in one year.

Indeed. I have an ever growing anxiety about how we are going to pay for all of this deficit spending. We can't tax our way towards a balanced budget (much less repay the accumulated debt).

 

[38Chevy454]

You can't spend your way to prosperity.

 

[JDARNELL]

You can't spend your way to prosperity.

Well Uncle Sam sure is trying. Ughh

 

[harley]

You can't spend your way to prosperity.

DD's ex-almost-husband and his father have a saying: Live Rich to Be Rich.

Neither of them are.

 

[FANOFJESUS]

The cliff is still there for the over 400% FPL folks. I would pay about 66% what I would have in past years. If I went over the cliff. Not as good as I thought it would be.

 

[G8tr]

Well Uncle Sam sure is trying. Ughh

Yes. Now we have a looming infrastructure bill and the accompanying tax hike to help pay for it. Why not wait for the economy to recover a bit to determine what's really needed? If many folks can work from home, why do we need to spend so much to rebuild what may turn out to be underutilized infrastructure?

 

[Out-to-Lunch]

Don't forget the TCJA!

 

[The Cosmic Avenger]

Well, if our AGI had been $4K less last year, our next stimulus payment would be $1600 higher. That's fine, but I'm just a little disappointed that they made this one tail off so much steeper than the previous ones.
[ref. "Calculate how much you would get from the $1,400 (or more) coronavirus checks" in the Washington Post]

 

[zinger1457]

The cliff is still there for the over 400% FPL folks. I would pay about 66% what I would have in past years. If I went over the cliff. Not as good as I thought it would be.

What cliff are you referring to? The ACA subsidy cliff is gone.
KFF has updated their ACA subsidy calculator with the changes in relief plan.
https://www.kff.org/interactive/subsidy-calculator/

 

[frank]

did anyone go back to their tax software and make changes to show the amount of difference the new tax laws would make?

 

[Aerides]

Yes. Now we have a looming infrastructure bill and the accompanying tax hike to help pay for it. Why not wait for the economy to recover a bit to determine what's really needed? If many folks can work from home, why do we need to spend so much to rebuild what may turn out to be underutilized infrastructure?

Don't forget the TCJA!

Mod Note: Any discussions of taxes/spending/deficits get contentious and rarely end well. To keep this one on track, let's focus on this Bill and not the others. As a rule, we also do not permit discussing on legislative proposals which have not yet made it out of committee.

 

[catotx]

What cliff are you referring to? The ACA subsidy cliff is gone.
KFF has updated their ACA subsidy calculator with the changes in relief plan.
https://www.kff.org/interactive/subsidy-calculator/

This is the "cliff" for the stimulus checks.

 

[zinger1457]

This is the "cliff" for the stimulus checks.

That cliff is much higher than the 400% FPL mentioned in the post.

 

[sengsational]

did anyone go back to their tax software and make changes to show the amount of difference the new tax laws would make?

I don't imagine tax software has caught up ... the ink isn't dry on the law. But using the tax software is how I usually manage (rather than trying to understand it all, I just plug in the numbers and iterate, hehehe).

From the article:

Advisors with clients who receive their health insurance via an Obamacare policy should be mindful of the loss of any potential Premium Assistance Tax Credit as part of their planning. Specifically, advisors may wish to revisit Roth conversion plans for such clients, as the ‘net costs’ of the conversion may have just increased (due to the potential loss of Premium Assistance Tax Credits that were unanticipated when the plan was first set in motion).

Originally I asked "So that being said, is this an opportunity to Roth convert more? I'm a 395%FPL kind of guy.", but with the quoted section, sounds like the opposite.

Either way, any news from Block or TT on when they plan to update?

 

[donheff]

DSIL has outstanding student debt under the Federal program. This bill eliminates tax on forgiven student loans thru 2026. As I understand it, the President can forgive up to $50K by executive order. Has anyone heard if such an order is likely?

 

[Fermion]

It says that you don't have to pay back ACA Premium Tax Credits from 2020 if you received an overpayment. If understand what that means that is a 10k swing for our taxes this year.

"In general, such overpayments are clawed back by increasing a taxpayer’s income tax liability by the excess payment, subject to certain statutory limits. Section 9662 of the American Rescue Plan Act temporarily pauses this clawback feature for 2020 overpayments only"

Wait. WHAT?

I have not done our taxes for 2020 yet because I was waiting for legislation but I sent in $30,000 in estimated tax payments because toward the end of the year I made a boatload in biotech and knew I was going to have to pay back $11,000 in ACA subsidy.

Are you saying I just got a freebie?

 

[MRG]

Wait. WHAT?

I have not done our taxes for 2020 yet because I was waiting for legislation but I sent in $30,000 in estimated tax payments because toward the end of the year I made a boatload in biotech and knew I was going to have to pay back $11,000 in ACA subsidy.

Are you saying I just got a freebie?

That's what I believe. I've read it in several articles. Apparently they felt like many folks income swung wildly and didn't want to penalize folks.

 

[Fermion]

That's what I believe. I've read it in several articles. Apparently they felt like many folks income swung wildly and didn't want to penalize folks.

Woah, it looks like you are correct!

Dang, that is the fastest $11,000 I have ever made!

Embrace the dole!