You might say that the $1,400 checks that are being distributed to most Americans as part of the $1.9 trillion American Rescue Plan signed into law by President Joe Biden represent the metaphorical sizzle.
But there’s a lot more steak to this stimulus package as well, which we’ll get into in this post. There’s a lot that’s worth covering, so let’s just dive right in. We’ll start with a real interesting line item on student loan debt, which seems to pave the way for some sort of forgiveness in the future.
Student Loan Forgiveness is Now Tax-Free
We’ve written about the potential for some sort of student loan forgiveness a bit this past year, and we’ve always taken a “we’ll believe it when we see it” approach. Well, if a provision in the American Rescue Plan is to be read into, it could be the biggest indicator that something could be coming down the pike in the imminent future. Specifically, the provision states that any student loan debt that is forgiven won’t be taxed. Prior to this provision, any student loan debt canceled could be taxed, meaning borrowers still would have been on the hook for some cost. For instance, if $10,000 in student loan debt was forgiven, the tax bill for an average borrower would likely be between $2,000 and $3,000. Now, should student loan debt be canceled, it won’t be taxed.
Waiver on Unemployment Benefits
Another thing we’ve written about here is how out-of-work Americans are still subject to paying taxes on unemployment benefits. Thanks to the American Rescue Plan, there’s now a provision that waives federal taxes on the first $10,200 of unemployment benefits received in 2020. For married couples who each filed unemployment, this waiver doubles to $20,400 worth of benefits. If you’ve already filed your 2020 taxes and weren’t able to claim this exemption, you can file an amended tax return. The IRS is expected to release further guidance on how to take advantage of this moving forward.
Enhanced Child Tax Credit
Should they qualify based on income limits, households with kids are going to see a nice boost to the child tax credit when they go to file their 2021 taxes. The standard child tax credit, which is currently $2,000, increases to $3,000 per child for the year. The income and phase-out baselines are similar to how the $1,400 stimulus checks were distributed.
Health Insurance Subsidies
If you purchase your own health insurance and do not receive it through an employer, it’s about to become a lot more affordable. That’s because the American Rescue Plan broadens Obamacare subsidies, making it much more affordable, notably for low-income earners. For instance, according to a report from The New York Times, those earning under $20,000 per year will likely be able to access healthcare coverage at no monthly cost. And those who earn more and purchase healthcare could see a significant reduction in premiums.
