American Rescue Plan Act of 2021 (ARPA)

The American Rescue Plan Act of 2021 or ARPA is a financially huge stimulus for the American economy. It is a $1.9 trillion major legislation passed by the One Hundred Seventeenth (117th) United States Congress and signed to become law on March 11, 2021, by newly elected President Joe Biden. ARPA is also known as the Covid-19 Stimulus Package or American Rescue Plan. 

With the ongoing economic decline and negative impact of the Covid-19 pandemic on the American economy and public health, the United States government diligently used this strategy to boost its immediate recuperation from its predicament.

Child Tax Credit 2020 – CTC Basics Before the ARPA Law

To be able to appreciate ARPA’s Temporary Expansion of Child Tax Credit for the tax year 2021, we need to review the basics of CTC (Child Tax Credit) before the ARPA law or specifically Child Tax Credit 2020 instead of answering the general question of, what is child tax credit. 

In terms of amount, the Child Tax Credit was $2,000 per qualifying dependent child. Moreover, a qualifying dependent child before the ARPA law was defined as a child below 17 years of age. With the following conditions:

• A child related to the taxpayer who lived with him for at least six (6) months during the year
• A U.S. citizen, national, or a U.S. resident 

The amount of $2,000 Child tax Credit was decreased if your modified adjusted gross income or MAGI was more than $200,000 or above $400,000. Assuming you filed jointly with your spouse. 

The reduction rate would be $50 per $1,000 or part of $1,000.  Modified adjusted gross income is your household’s Adjusted Gross Income or AGI inclusive of any tax-exempt interest income plus other deductions being added back.

ARPA’s Temporary Expansion of Child Tax Credit – Rules for 2021

The Child Tax Credit (CTC) is expanded temporarily for the year 2021 in terms of amount and eligibility or qualified dependent’s age. How much is the child tax credit anew? A reasonable increase is approved. A new child tax credit age limit is also revised, as you can see on the following bullets:

• The qualifying dependent child will include 17-year-old dependent, those who have not turned 18 years of age by the end of 2021
• The Child Tax Credit is now $3,000 per qualifying dependent child ($2,000 previously)
• For dependents under six (6) years of age at the end of the year, CTC is $3,600
• The bigger credit amounts will be under their own phase-out rule 

Fully Refundable Child Tax Credits (CTC) for 2021

You can still get the regular $2,000 Child Tax Credit considering the existing phase-out rules in case you do not qualify to claim the revised CTC for 2021. However, the phase-out rules are applicable regardless of the refund claim and the family credit amounting to $500 for dependents other than the qualified dependents are not refundable.

The 2021 Child Tax Credits Advance Payments

You need to pay the excess amount in case you receive advance Child Tax Credits (CTC) over the actual CTC allowable to you for the year 2021. 

In most cases, the excess may be minimized to a reasonable amount by controlling the amount in proportion to tax increase liability, thus enabling them to save a part of the amount in excess. This may be true for some low to moderate income-earning taxpayers.

A Huge Financial Stimulus for the American Economy 

Such a move to temporarily expand the Child Tax Credits will help the American people to neutralize the effects of the pandemic and economic recession. 

This may also affect tax payment collection but looking at the bigger picture, these adjustments though temporary it may seem, still bring confidence to the government. With increased confidence comes greater production and support for the economy.

Initially, Paid Leave under the Families First Coronavirus Response Act (FFCRA) was set to expire on December 31, 2020. The federal government increased the FFCRA tax credit as part of the end-of-year stimulus package. Therefore, employers are no longer expected to have FFCRA effective January 1, 2021. However, if employers want to provide their workers with FFCRA paid leave benefits actively, they will still earn the dollar-for-dollar tax credits offered under the legislation until March 31, 2021.

What Is ‘’Families First Coronavirus Response Act’’ 

The Families First Coronavirus Response Act (FFCRA) was the first piece of federal government emergency legislation introduced in response to the latest coronavirus/COVID-19 outbreak. Employers are allowed to offer qualifying workers up to two weeks of paid sick leave and up to ten weeks of paid family leave under certain unique situations specifically related to the coronavirus effect.

There’s much uncertainty about what you need to grant workers who are not working this paid time off. Such benefits only apply if the condition of the employee falls under one of the following criteria:

1. A state’s mandatory post-travel quarantine is included subject to a COVID-19-related federal, state, or local quarantine or isolation order.
2. Advised to self-quarantine by a healthcare provider due to COVID-19 issues. Remember that their doctor may have recommended them to quarantine; sending the employee home or deciding to self-quarantine does not require compensation.
3. Experiencing signs of COVID-19 and finding a medical diagnosis. They have to be symptomatic and seek medical care; it is unnecessary to qualify for pay to stay home from work as a precautionary measure.
4. Caring for a person subject to a federal, state, or local quarantine or isolation order or advised to self-quarantine by a health care provider because of COVID-19 concerns. Again, quarantine has to be an actual order; it opts not only to stay home from an abundance of caution.
5. If the child’s school or place of care is closed or the child care provider is unavailable due to a public health emergency, they must care for their child. This is the only case where the extra family leave of ten weeks occurs.

The legislation extends only to such absences connected to coronavirus; because of a company suspension, there is no lack of work. Only particular workers who are sick/quarantined, caring for a family member who is sick/quarantined, or a child whose school is closed are entitled under the legislation for paid time off. Eligible for unemployment are all those workers who suffer a loss of work due to the infection but not employer-sponsored paid time off under this statute.

Paid Time Off Benefits Given by the Families First Coronavirus Response Act

Sick Leave 

All employers with less than 500 employees are allowed to give all employees two weeks of paid sick leave or the hourly equivalent of an employee’s usual workload over the course of two weeks in some circumstances.

Employees are entitled to use paid sick days for a limit of 80 hours for the number of hours they work, on average, over two weeks. When the two weeks of vacation are used up, they do not have any more emergency sick days to use. This ensures that each time the employee has to be out for a covered cause, it is unnecessary to pay for two weeks.

What is the sick leave rate of pay?

If the employee is using sick leave because

• they issued an exclusion or quarantine order from the federal, state, or local level because of COVID-19,
• a healthcare professional has been told to self-quarantine because of COVID-19
• has COVID-19 signs and pursues a medical diagnosis

Then the sick time hours are paid at the employee’s regular rate. The amount of pay is capped at $511 per day, up to $5,110 total per employee.

If the employee is using sick leave because

• cares about someone under a quarantine or isolation order
• the school is closed or child care providers are inaccessible due to COVID-19, and the employee cares for their child
• a “substantially similar condition” as set out by the Secretary of Health and Human Services, along with the Secretaries of Treasury and Labor, also applies

Then the sick time hours are paid at ⅔ of the employee’s regular rate. The amount of pay is capped at $200 per day, up to $2,000 per employee. 

Family Leave

Employees are liable if they have worked for the company for at least 30 calendar days for the ten-week paid family leave benefit. Remember that for the two weeks of paid sick leave, no duration of work condition exists.

What is the family leave rate of pay?

An employee is entitled if

• the employee has to take care of his minor child because the school of the child is closed or because the childcare provider is inaccessible owing to public health emergencies, 
• the employee is unable to work or work remotely

Then ⅔ the employee’s regular rate is paid for the number of hours the employee would otherwise be normally scheduled. There is a maximum payment cap of $200 per day and $10,000 in aggregate per employee. 

If your situation meets the requirements and you want to make sure you get the most credit available for you, give us a call at 404-900-1040 or request a free consultation.

It is inevitable that cryptocurrency markets are currently all over the place. More than 6700 cryptocurrencies are traded publicly today. We now read about them in the front pages of daily websites or financial publications. Well, it is tax season and if you mined, purchased or sold any cryptocurrencies this past year, you should know that Uncle Sam is waiting for his share. 

Last year, for the first time, federal tax forms asked about your cryptocurrency activities. So here is a quick recap of cryptocurrency implications on your taxes: 

To start, if you have been using cryptocurrency but not filing for your taxes on them, know that you are not compliant with the IRS which means unless you could provide some “reasonable cause” you might get penalized. According to IRS Notice 2014-21, the IRS classifies cryptocurrencies as property, not cash or currency.

So how do cryptocurrencies get taxed?

The way your transactions get taxed depends on whether the gain or loss you have incurred of the currency is a capital asset or an ordinary asset in your hands. Capital assets are generally properties that are not used in trade or business of the taxpayer. On the other hand, ordinary assets are properties used in trade or business or primarily held for sale by the taxpayer. For example, if you sell a stock, a piece of art, an investment property, or another capital asset and earn money on the sale, you realize a capital gain and you would need to pay capital gains tax on it. However, if your transactions are a part of business reasons, mainly for sale to customers in a trade or business, your gains or losses would be considered as ordinary assets and you would need to pay ordinary income taxes on them. Same treatment goes for your gains or losses from your cryptocurrency transactions. In another case, let’s say you’ve received virtual currency from your employer, then it’s treated the same way as wages. How you will be taxed depends on the intent and character of your transactions.

How to prepare and file your cryptocurrency taxes?

It is crucial to keep a detailed track of all your cryptocurrency transactions. You can typically pull the information you need through your cryptocurrency exchange platform. For each transaction you need to know:

• The amount you spent to buy the cryptocurrency (in USD) 
• The date you purchased (or received) them
• The date you sold or exchanged the coins
• The amount in dollars the cryptocurrency was worth when you sold it (or value you received in the exchange)

Once you gather all the information you need, the two very important things you need to pay attention to are the method you choose to calculate your gains or losses and your holding periods. 

1. Deciding which method of calculation to choose is important as it will greatly affect your gains or losses. FIFO method’s advantage would depend on whether the market is a bear market or a bull, and your initial costs of acquiring the cryptocurrencies. With the IRS’ latest guidance issued, now, If you want a method that allows you to better manage your gain or loss and optimize your taxes, you may also choose the specific identification method.
2. For capital gain transactions, when you buy and then sell or exchange a crypto asset within one year, your gains are considered short-term gains and are subject to your ordinary income tax rate — that’s the rate you pay on your income. This rate can go up to 37%. Cryptocurrencies you buy and then sell or exchange after holding it for a year or longer are long-term transactions and are subject to the capital gains rate which cap out at 20%.

Tracking transactions at such detailed level might be hard to keep up with. Well, that is why we are here for you. We, at Manay CPA specialize in all kinds of tax issues including cryptocurrency tax reporting. Call us today at 404-900-1040 to schedule a free consultation. We are here to improve your financial health and provide you with the best solutions for you.