How the American Rescue Plan Act of 2021 May Affect Your 2021 Tax Return

Written by March 2, 2022

2022’s tax season has already begun and 2021, just like the year before, was a difficult year for many people due to the continuing global pandemic. So we would like to highlight some expanded tax benefits that came with the American Rescue Plan Act of 2021. It is important to know that these benefits are available to qualifying taxpayers even if they are not current on previous years as long as they file a return for 2021, so don’t be afraid to file! Here are the key expanded tax benefits from the American

Rescue Plan Act of 2021:

  1. Child Tax Credit: The American Rescue Plan Act raised the Child Tax Credit from $2000 to $3,000 for children over 6 years old and $3,600 for children under 6 years old. The law also increased the maximum age of the child from 16 to 17 years old. 


To check if you qualify for the Child Tax Credit, you can use this questionnaire on the IRS website:

  1. Child and Dependent Care Credit: Schools were closed for most of 2021, and as a result, many parents/guardians had to pay for daycare while they were away at work. The child and dependent care credit offers some relief for this extra expense. The American Rescue Plan Act increased the credit and deductible expenses available to taxpayers in this situation.
    1. Eligible taxpayers can claim up to $8,000 in child and dependent care expenses for one child or dependent ($3,000 in previous years), or $16,000 for two or more children or dependents ($6,000 in previous years). 
    2. The maximum credit percentage of child/dependent care expenses rose from 35% to 50%. Since the new maximum expenses to be claimed are $8,000 (for one child) and $16,000 (for two or more children), this means the maximum credit available is $4,000 or $8,000. 
    3. The credit is also fully refundable depending on the taxpayer’s AGI. It was not fully refundable before 2021.


  1. Earned Income Tax Credit (EITC): The American Rescue Plan Act introduced changes for just 2021 as well as changes for 2021 and future years. 


For 2021 only, EITC was expanded for workers and couples without children or dependents. More younger taxpayers and senior citizens will be able to qualify for the EITC on their 2021 tax returns. The maximum credit for these taxpayers without dependents has also increased, from $538 up to $1,502. This can be claimed by taxpayers under $27,380 AGI that are at least 19 years old (18 for homeless and formerly fostered people).


For 2021 and future years, the limit on investment income rose from $3,650 to $10,000. In addition, singles and couples that have social security numbers, but whose children don’t have social security numbers, can claim the smaller credit normally offered to people without children. Before the new law, they would not have been able to claim anything. 


  1. Recovery Rebate Credit: This credit is meant for taxpayers that were eligible to receive stimulus payments in 2021 but did not receive part of or any of them.


  1. A Deduction for Gifts to Charity: The American Rescue Plan Act introduced a few changes to charitable deductions. Before 2021, taxpayers that claimed the standard deduction were not able to deduct any charitable contributions. Now, married couples filing jointly can claim up to $600 in cash donations during 2021, and single filers can claim up to $300. 

Taxpayers who do itemized deductions may be able to deduct large cash donations up to 100% of their AGI. Before 2021 the limit was 60% of AGI. These changes are only in effect for the 2021 tax year.


Note: This information cannot take the place of advice from a lawyer. Each case is different and needs individual legal advice. You should contact the LITC or a private attorney if you need representation on a tax matter or if you have questions.




~Josh Zarrinnaal