11 Mar How the New $1.9 Trillion Stimulus Package Impacts Your Money
After much debate in Congress, President Biden signed the American Rescue Plan Act of 2021 into law today, March 11th, 2021…
There is a lot in this nearly $1.9 trillion dollar bill, but here are a few key provisions that may affect you and your family.
The federal government will be dishing out a lot of money in the coming weeks and months. This means there is an opportunity for you to make a positive impact on your financial future…if you play your cards right and plan accordingly.
Keep reading for how the American Rescue Plan affects you and how you can make your stimulus work in your financial favor.
Who Is Eligible?
Full $1,400 payments will go to individuals whose adjusted gross income (AIG) is up to $75,000. Heads of household with AIG up to $112,500 and $150,000 AIG for married couples filing jointly are also eligible.
Payments are reduced for Americans with incomes above these thresholds. Payments are phased out to zero for individuals earning $80,000 in income, heads of household with $120,000, and married couples with $160,000.
What about Dependents?
Dependents of those eligible will also receive $1,400. Unlike the other two stimulus payments, all dependents will qualify for this payment.
This means if you have a 21-year-old college student living with you or an elderly parent – and you qualify – your dependent will also receive a $1,400 check.
Child Tax Credits Expanded
The American Rescue Plan expands the existing Child Tax Credit for 2021 from $2,000 per dependent to $3,000 per child ages 7 to 17 and $3,600 per child under age 6. Under the bill, the credit is fully refundable.
The child must have a Social Security number and live with you for at least 6 months during the filing year.
Phaseouts start for individuals earning more than $75,000, $112,500 for head-of-household returns, and $150,000 for married filing jointly.
The bill keeps the $400,000 and $200,000 caps in place.
This means families who aren’t eligible can claim the regular credit of $2,000 per child, less the amount of any monthly payments they got – and provided their AGI is below the current thresholds of $400,000 on joint returns and $200,000 on other returns.
AGI will be determined by 2019 or 2020 tax fillings.
Perhaps the biggest change is how you will receive the money.
In the past, you claimed the credit when you filed your taxes.
However, provisions in the American Rescue Plan will allow for parents to receive payments in advance and on a monthly basis.
Here’s a quick breakdown of key points.
- The amount you will receive monthly is based on half your 2021 child tax credit.
- Parents will receive monthly payments up to $250 per child and $300 per child under age 6.
- Payments begin July 2021 and will run through December 2021, and are paid by the IRS.
- The remainder can then be claimed as a credit on your 2021 taxes.
Those who are unemployed will receive a weekly $300 on top of state unemployment benefits through September 6, 2021.
For workers who have exhausted their state benefits, under the Pandemic Emergency Unemployment Compensation program, the bill extends benefits for a total of 53 weeks lasting through September 6.
Unemployment benefits provided in the Pandemic Unemployment Assistance Program, which covers gig workers, self-employed, and part-time workers, will be available for a total of 79 weeks and run through September 6.
In addition, if your household earns less than $150,000, federal income taxes on the first $10,200 of unemployment payments will be tax free. This applies only to 2020.
Exactly how the tax benefits will work for people who already filed their 2020 taxes is still unclear.
Support for Small Business
The bill provides $15 billion in additional relief for small businesses hardest hit through increased funding for targeted Emergency Injury Disaster Loan (EIDL) grants – a program that provides low-interest, long-term loans through the Small Business Administration.
In addition, the bill provides $25 billion in funding for a grant relief program for restaurants and $7 billion for expanded PPP assistance for digital news services and nonprofits.
Check out more resources for more small business relief.
Under the new bill, workers who lose employer healthcare coverage can keep their group health coverage through September 30, 2021.
This provision provides a tax credit employers can use to pay to keep coverage for departing employees through COBRA.
This means that employees will not have to pay anything out of pocket for their health insurance from April 1 to September 30. 100% of COBRA premiums will be covered.
Benefits end if you voluntarily leave your job or if you get a new job with health coverage.
Typically, COBRA allows a worker who loses his/her job to purchase coverage through the former employer after termination. And it isn’t cheap. The average cost to have COBRA is more than $1,500 per month.
Another provision in The American Rescue Plan allows for an increase in subsidies used to pay for health coverage purchased through the Affordable Care Act public exchange system.
- For those unemployed: For those out of work who apply for exchange plan coverage, this provision allows for them as if their income was 133% of the federal poverty level. This provision could reduce ACA exchange out-of-pocket costs to close to zero.
- For higher-income earners: This tax credit provision will help people pay for exchange plan coverage by capping payment for coverage at 8.5% of their AIG (adjusted gross income). The government would make up the difference between 8.5% of a person’s income and the cost of coverage.
3 Ways to Use Stimulus Money to Secure Your Financial Future
Before you mentally spend the cash on that new TV or upgrading your bedroom, consider investing your $1,400 stimulus money.
Here are a few options that will help you grow your money – and help you build a strong financial future.
#1 Invest in Your Retirement
One of the best ways to use stimulus money is to put it in your IRA or 401(k), which allows the money to grow over time.
Don’t think $1,400 now can make a BIG difference?
Let’s say you’re 30 years old. And you put your entire $1,400 stimulus into your IRA. Assuming a 7% return, that free federal money could be worth $14,947 if you retire at age 65.
So, instead of running out and buying something new for yourself, plan now to take your stimulus and open an IRA (Individual Retirement Account) or contribute to your 401(k).
Remember, with an IRA, you can contribute the maximum for 2020 until April 15, 2021. So, if you have an IRA, plan now to maximize the contribution limit for 2020 before this April.
If you already have a 401(k), see how 401(k) Maneuver may help you maximize returns, lower fees, and secure your retirement future.
#2 Invest in the Market
Earn passive income on your stimulus check and invest the money in high-dividend stocks.
As a shareholder in a company with high-dividend stocks, you get paid regularly. Simply for owning the stock.
If you have hesitated to trade or buy stocks, now is the time. Stock trading platforms such as Webull make it easy for beginners to start investing in companies like Tesla.
Sign up with Webull today and get free stocks!
#3 Invest in Your Side Hustle
You don’t need to invest in retirement or the stock market to see massive returns on your stimulus.
You can invest in your side hustle and reap return on your investment.
Need to take that advanced programming online course so you can provide more value to clients and earn more?
Need a new computer so you can create even better designs for your clients?
By all means, use your stimulus to invest in your small business’s success.
Connect with us on YouTube for more side hustling tips & tricks.