Tax Credits & Tax Relief
General Information for Taxpayers
- For resources on tax filing, please visit: https://www.revenue.wi.gov/Pages/News/2020/wi-covid-19.aspx and https://www.irs.gov/coronavirus
- Note the Treasury Department and Internal Revenue Service have announced that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021, to May 17, 2021. For more details please click here.
- Taxpayers need to be on the lookout for calls and email phishing attempts about coronavirus. These contacts can lead to tax-related fraud and identity theft. Taxpayers should watch out for calls, emails, text messages, websites and social media attempts that request money or personal information. For more information on coronavirus-related or other phishing attempts please click here.
The American Rescue Plan Act of 2021, which was signed into law on March 11, 2021, expands the Child Tax Credit (CTC), the Earned Income Tax Credit (EITC), and the Child and Dependent Care Tax Credit to provide more financial support for individuals and families throughout 2021.
Child Tax Credit (CTC)
Under the American Rescue Plan Act of 2021, the Child Tax Credit is enhanced in the following ways for 2021:
- The maximum credit is increased from $2,000 to $3,000, with an additional $600 for each child under the age of six, and extends the full credit to 17 year old children.
- The increased amount phases out at $150,000 for married taxpayers filing jointly, $112,500 for heads of households, and $75,000 for individual filers.
- The CTC is fully refundable for 2021. As a result, if the maximum CTC would be greater than your tax liability, you will receive the excess from the IRS.
- The IRS will send out funds on a periodic basis (ideally monthly) starting this July until December 2021, instead of making families wait until tax season to claim the credit. Families should receive about half of the benefit of the CTC by December, and then they claim the rest on their 2021 tax return.
- The CTC is extended to families in Puerto Rico and other U.S. territories.
Earned Income Tax Credit (EITC)
The American Rescue Plan Act of 2021 expands the EITC for taxpayers with no qualifying children for 2021 in the following ways:
- Lowers the minimum age to claim the EITC without children from 25 to 19 (for full-time college students who are not foster youth or homeless youth, the minimum age is 24) and eliminated the upper age limit so that people age 65 and over are eligible.
- Increases the benefit from $543 to $1,502.
- Increases the credit amount and phase-out percentage from 7.65 to 15.3 percent.
- Increases the income at which the maximum credit amount is reached to $9,820, and increases the income at which the phase-out begins to $11,610 for non-joint filers.
- Repeals a provision of law in order to allow a taxpayer to claim the childless EITC if they cannot claim the EITC for otherwise qualifying children because their children do not have valid Social Security numbers.
- Allows married but separated individuals to be treated as not married for the purpose of the EITC if a joint return is not filed. This applies to taxpayers who live with a qualifying child for more than half of the year but either do not live with their spouse or have a separation decree or agreement in place.
- Allows taxpayers to use their 2019 earned income for their 2021 earned income for the purposes of claiming their EITC, if their 2021 earned income was less than their 2019 earned income.
Children and Dependent Care Credit
The American Rescue Plan Act of 2021 makes enhancements to the Children and Dependent Care credit:
- For 2021, the CDCTC is fully refundable.
- The credit is also fully available to families making less than $125,000—up from $15,000—and partially available to families earning between $125,000 and $400,000.
- The credit is increased from 35% of $3,000 for one child ($6,000 for two or more) to 50% of $8,000 for one child ($16,000 for two or more). At $125,000, the credit rate begins to phase out and plateaus at 20%, before phasing out completely for families making $500,000.
- The exclusion for employer-provided dependent care assistance is increased from $5,000 to $10,500 for 2021.
For more information, please check the IRS’s website at https://www.irs.gov/coronavirus.
The American Rescue Plan Act of 2021 makes major improvements in access to and affordability of health coverage through the Marketplace by increasing eligibility for financial assistance to help pay for Marketplace coverage. Under the new law, many Wisconsinites who buy their own health insurance directly through the Marketplace will become eligible to receive increased tax credits to reduce their premiums.
Starting April 1, 2021, consumers enrolling in Marketplace coverage through HealthCare.gov will be able to take advantage of these increased savings and lower costs.
Background: How These Premium Tax Credits Work
- For consumers who are eligible for premium tax credits to help purchase a Marketplace plan, an individual or a family’s tax credit amount is calculated based on the following factors:
- Household’s total expected income for the year
- Total number of people in the household that file taxes together
- The premium amount of the second-lowest cost Silver plan in the consumer’s area in the Marketplace. This is the “benchmark” plan cost used to calculate premium tax credits. It’s not related to which plan a consumer actually chooses to enroll in.
- The tax credit calculation uses a percentage of the household’s income that they need to contribute (spend) on monthly health insurance premiums. This amount is limited based on how their household income compares to federal poverty levels (FPL).
- Prior to the American Rescue Plan Act of 2021, households had to contribute up to 9.83% of their income to pay for health insurance premiums to be eligible for tax credits based on the cost of the benchmark plan. Consumers can choose to enroll in plans that cost more or cost less than the benchmark plan, but the amount of their tax credit is based on this percentage of their income and the cost of the benchmark plan’s monthly premium. Households with incomes greater than 400% FPL weren’t eligible for tax credits to help reduce the cost of purchasing a Marketplace plan.
- After the coverage year, consumers who had a Marketplace plan with premium tax credits during the year will need to file their federal income tax return for that year and reconcile the amount of tax credits they received in advance with the final premium tax credit calculation as a part of their tax return. If their house income turns out to be higher than what they estimated on their Marketplace application, the household may need to pay back some or all of the excess premium tax credit they received in advance as a part of filing their tax return. Depending on the circumstances the amount owed back may be capped.
Lower Costs & Expanded Access Under the American Rescue Plan Act of 2021
- Individuals and families may be eligible for a temporary increase in premium tax credits for this year, with no one paying more than 8.5% of their household income towards the cost of the benchmark plan or a less expensive plan. Meaning, many consumers will be eligible for higher tax credit amounts to help cover their Marketplace health plan premiums.
- This new lower cap on the percentage of a family’s household income that goes toward premiums addresses the “subsidy cliff” for those with household incomes above 400% of the federal poverty level (FPL). Instead of no premium tax credits for individuals and families making more than 400% FPL, the new law will make premium tax credits available to these families and caps how much of a family’s household income the family needs to pay towards their premiums at 8.5%, based on the cost of the benchmark plan.
- Some consumers making more than 400% FPL may not receive tax credits if the cost of the benchmark plan is less than the 8.5% of their household income that they need to contribute toward the premium.
- When consumers enroll, they can choose a plan that is the same, costs more or costs less than the benchmark plan. The 8.5% cap is used to calculate this increase in premium tax credit amounts, but the cost of the plan a consumer chooses to enroll in may be higher or lower than the benchmark plan.
- Individuals and families get a temporary boost in their premium tax credits.
- The law increases premium tax credits for all income brackets for coverage years beginning in 2021 and 2022. For 2021 and 2022, the law applies a new premium percentage owed by individuals and families at all household income levels.
- Of note, most people across all household income levels will see lower premiums as a result of receiving more tax credits to reduce plan prices. Many consumers with household incomes from 100% to 150% FPL would have $0 premium plans (after tax credits) available to choose from when considering their options and selecting a plan.
- Taxpayers who receive unemployment compensation during any week beginning in 2021 may be eligible to receive premium tax credits to help pay for 2021 Marketplace coverage.
For more information, please check the Centers for Medicare and Medicaid Services at https://www.cms.gov/newsroom/fact-sheets/american-rescue-plan-and-marketplace
Paycheck Protection Program (PPP) Expenses Now Tax Deductible
The Internal Revenue Service (IRS) recently announced that PPP loan recipients whose loans are forgiven are not required to treat the loan proceeds as taxable income and can deduct expenses paid with a forgiven PPP loan from their taxes. The Coronavirus Response and Relief Supplemental Appropriations Act of 2021 explicitly included this change, which was based bipartisan Small Business Expense Protection Act that Senator Baldwin supported.
Employer Tax Credits
Many businesses that have been severely impacted by coronavirus (COVID-19) will qualify for two new employer tax credits – the Credit for Sick and Family Leave and the Employee Retention Credit.
Sick and Family Leave
Credit for Sick and Family Leave
An employee who is unable to work (including telework) because of coronavirus quarantine or self-quarantine or has coronavirus symptoms and is seeking a medical diagnosis, is entitled to paid sick leave for up to ten days (up to 80 hours) at the employee’s regular rate of pay, or, if higher, the Federal minimum wage or any applicable State or local minimum wage, up to $511 per day, but no more than $5,110 in total.
Caring for someone with Coronavirus
An employee who is unable to work due to caring for someone with coronavirus, or caring for a child because the child’s school or place of care is closed, or the paid child care provider is unavailable due to the coronavirus, is entitled to paid sick leave for up to two weeks (up to 80 hours) at two-thirds the employee’s regular rate of pay or, if higher, the Federal minimum wage or any applicable State or local minimum wage, up to $200 per day, but no more than $2,000 in total.
Care for children due to daycare or school closure
An employee who is unable to work because of a need to care for a child whose school or place of care is closed or whose child care provider is unavailable due to the coronavirus, is also entitled to paid family and medical leave equal to two-thirds of the employee’s regular pay, up to $200 per day and $10,000 in total. Up to ten weeks of qualifying leave can be counted towards the family leave credit.
Note: The emergency paid "sick leave" and expanded "family and medical leave" requirements of the Families First Coronavirus Response Act of 2020 are no longer mandated as of December 31, 2020. Under the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, the refundable tax credit for sick and family leave was extended until March 31, 2021 for employers who opt to provide it. If the employee has already used this leave in 2020, employers cannot claim the credit for that employee in 2021.
Employers should consult with an attorney and/or a tax professional if they have questions regarding leave requirements and tax credits.
Credit for eligible employers
Eligible employers are entitled to receive a credit in the full amount of the required sick leave and family leave, plus related health plan expenses and the employer’s share of Medicare tax on the leave, for the period of April 1, 2020, through December 31, 2020. The refundable credit is applied against certain employment taxes on wages paid to all employees. Eligible employers can reduce federal employment tax deposits in anticipation of the credit. They can also request an advance of the paid sick and family leave credits for any amounts not covered by the reduction in deposits. The advanced payments will be issued by paper check to employers.
Employee Retention Credit
Eligible employers can claim the employee retention credit, a refundable tax credit equal to 50 percent of up to $10,000 in qualified wages (including health plan expenses), paid after March 12, 2020 and before January 1, 2021. Eligible employers are those businesses with operations that have been partially or fully suspended due to governmental orders due to COVID-19, or businesses that have a significant decline in gross receipts compared to 2019.
The refundable credit is capped at $5,000 per employee and applies against certain employment taxes on wages paid to all employees. Eligible employers can reduce federal employment tax deposits in anticipation of the credit. They can also request an advance of the employee retention credit for any amounts not covered by the reduction in deposits. The advanced payments will be issued by paper check to employers.
The IRS has developed an online tool to help you determine if you or your business is likely to qualify for one or more of the tax relief options currently available.
IRS.gov/coronavirus is the official IRS source for information on relief related to COVID-19. Be on the lookout for scam artists trying to use this relief as cover to steal personal information and money. The IRS will not call, text, email or contact anyone on social media asking for personal or bank account information. Also, watch out for emails with attachments or links claiming to have special information on relief.
Additional Information for Small Businesses
Downloadable materials from the IRS:
For general information and resources about coronavirus for Wisconsinites, please click here.
For more information about coronavirus relief for Wisconsin businesses and nonprofits, please click here.
For more information about the American Rescue Plan Act of 2021, please click here.
Disclaimer: The information provided on this webpage does not, and is not intended to, constitute legal or tax preparation advice from Senator Baldwin. All information, content, and materials available on this page are for general informational purposes only.
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