As we are writing this blog Congress is finalizing the new AMERICAN RELIEF ACT 2021 to send to the President’s desk for signature. Because the final form of the bill is subject to final approval by the House of Representatives, and because we have not read the bill, itself, we offer this information based upon the reports and analysis of public reporting in the Washington Post and other publications.
In this 2-part blog, we have selected 4 areas of the plan to highlight because the changes in these 4 areas will have direct impact on your Divorce finances especially Child Support and Spousal Support. This is because ascertaining your actual income and calculating your post tax net income has a direct bearing on calculating these amounts.
We offer this as general information only. This is not legal advice. For individual advice about your situation, please consult with a divorce professional like a collaborative lawyer or divorce financial planner.
As a quick primer on these matters, you may want to glance at these blog posts:
- Child support
- Stimulus and child support
- Alimony & long-term marriage
- Custody and visitation (also, Parenting Plans, Co-Parenting Plans, and Impacts on Children)
Following you will find information on
- Unemployment benefits
- The stimulus checks.
Watch for part 2 next week where we will highlight child tax credits and the health insurance expansion.
Each area begins with bullet points summarizing the changes in each area. Below the bullet points we include brief comments in italics regarding how the changes may impact your situation.
Here we go.
- Unemployment benefits:
- The package extends the existing $300 weekly unemployment benefit from mid-March through Sept. 6, 2021. The package also provides a tax break on $10,000 paid in unemployment benefits in 2021.
- The prior $900 billion stimulus package which was passed in December provided an extra $300 per week in unemployment benefits. That program is set to expire in mid-March 2021.
As always, UE benefits are income available for support calculations. Combined with the December package, the extra $300/week runs all year until September 6th. One challenge is that this is a temporary benefit ending September 6, 2021. Support started or modified based on the receipt of this income can only be established until September 6, 2021 and should be set for automatic review for changes thereafter (it may be extended again, or you may have a new job, for instance).
The second challenge is including the (up to) $10,000 tax break (maybe dependent on annual individual income) in calculating your after-tax net income for support purposes. Looking at the math, receiving the $300/week benefit through September 6, 2021 equals $10,000.00. The intent here is to make all the payments non-taxable income which has a magnifying effect on it’s impacts on support calculations. Depending on your tax bracket, $300 non-taxable may be equal to anywhere from $360 to $450 in taxable income when included in the calculations.
Because these calculations can get complicated, be sure to receive customized advice from your divorce professionals or CPA.
- Stimulus checks:
- This Bill will send $1,400 stimulus checks in addition to the $600 payments sent through the stimulus bill passed in December 2020, bringing the total stimulus to $2,000.00.
- Individual tax filers earning $75,000 [adjusted gross income] per year and couples earning $150,000 [AGI] would still receive the full $1,400-per-person benefit. Unlike the 2020 CARES ACT, this benefit phases out between $75,000 and ends for individuals earning more than $80,000 annually and has a similar phase out for couples earning more than $160,000. Phase out simply means the more you make the less the benefit you would receive.
- Compared to the rules in the prior CARES ACT 2020, the change means singles making between $80,000 and $100,000, who were formerly eligible for a benefit, and couples earning between $160,000 and $200,000, who were formerly eligible for a benefit, would be newly excluded from seeing any benefit under the revised structure.
Assuming the IRS will treat these 2021 stimulus checks in the same manner as the 2020 stimulus checks, they will not be income for tax purposes. So, they should not increase your income or affect your calculation of your after-tax net. The one caveat we offer is the payment may affect a calculation of a spouse’s need for alimony. In calculating one’s need for alimony, all sources of self-support may be taken into consideration.
Finally, only the parent who claims the dependency exemption will receive the stimulus payments for your children. Both parents will not receive a check for the same child. This probably raises a ‘fairness’ issue in the other parent’s mind, but that’s how it works. Working out the ‘fairness’ issue is a matter between the parents. For more on this topic, please see our blog: AMERICAN RELIEF ACT 2021 and your Divorce – Part 2 of 2.
For assistance with your child support and other family law questions, contact us at Family Peacemaker for a free one-hour consultation. Family Peacemaker provides mediation and collaborative family law services in Orange County and the surrounding areas.
This article is not legal advice. It is general information. You should not rely on it regarding your specific situation. Please seek individual consultation if you have questions about your situation.