Besides the third round of stimulus payments, multiple expanded tax credits for parents are perhaps the most widely known provisions of the COVID-19 relief bill that President Joe Biden signed into law on March 11.
But the expansive legislation, formally known as the American Rescue Plan Act of 2021, contains provisions that affect Americans of all ages, even retirees.
Following is a look at some of the changes retirees can expect thanks to the new law.
1. Stimulus payments for dependent adults
One big way in which the third round of stimulus payments differs from the first two is that dependents of all ages can qualify, as we detailed in “Why Your Next Stimulus Check Might Be Bigger Than You Expect.”
That means a household that supports a disabled senior, for example, will receive an additional $1,400 payment for that senior if the household claims the person as a dependent on federal income tax returns.
In the first two rounds of stimulus payments, households only received payments for eligible dependents under age 17.
2. Funding for certain ailing pension plans
The American Rescue Plan Act includes several provisions regarding pension plans. Perhaps most notably, the law calls for the U.S. Treasury Department to transfer funds to the Pension Benefit Guaranty Corp. so that certain financially troubled multiemployer pensions can continue to pay out full benefits.
This will help more than 1 million Americans, according to Rep. Bobby Scott (D-Va.), who helped craft the provisions of the law that address the multiemployer pension crisis.
The Pension Benefit Guaranty Corp. operates insurance programs for single-employer and multiemployer pensions. Although the PBGC is a federal agency, it historically has not been funded by general tax revenues: Its multiemployer program, for example, has been financed by insurance premiums set by Congress and paid by pension plan sponsors, as well as investment income.
3. Eligibility for the earned income credit for 2021
One of several changes the American Rescue Plan Act made to the earned income tax credit — which is for working taxpayers with low to moderate incomes — is eliminating the maximum age of 64 for the 2021 tax year.
That means seniors who work may be eligible to claim the earned income credit when they file their taxes next year. (The usual eligibility requirements for the credit say you must have at least one qualifying child — or, if you don’t have a qualifying child, you must be at least 25 but less than 65 years old.)
4. Higher taxes for some gig workers
The latest COVID-19 relief law isn’t all good news for all taxpayers. Retirees (and anyone else) who bring in a little extra money via the gig economy — such as by driving for Uber or hosting on Airbnb — might face more taxes in the future because of it.
Roll Call reports that an amendment added to the American Rescue Plan Act by Democrats requires online platforms like Uber, Airbnb, DoorDash and Etsy to report their payments to gig workers to the IRS if such a worker makes at least $600 — rather than the previous threshold of at least $20,000.
This change will help offset the cost of the American Rescue Plan Act, generating an estimated $8.4 billion in additional tax revenue for the federal government through fiscal year 2031.
Now that these companies will report more payments than in the past, the IRS will have a better idea of who is earning income from gig-economy jobs. To be sure, gig workers should have been reporting income from side hustles to the IRS all along. But the change is likely to come as an unwelcome surprise for many taxpayers who have underreported income in the past.
5. Tax relief for forgiven student loans
Under the American Rescue Plan Act, student loan debt that is forgiven in 2021 through 2025 can be excluded from the debtor’s gross income, essentially shielding the canceled debt from federal taxation. (Before the law, such canceled debt generally was considered taxable income by the IRS.)
While this change applies to student loan debtors of all ages, that group includes a growing number of retirees: 20% of all student loan debt — around $290 billion — is owed by people age 50 and older, according to a 2019 AARP report. That represents a fivefold increase since 2004.
6. New or expanded tax credits for health premiums
Retirees who have yet to reach age 65 and thus don’t have Medicare health insurance might benefit from tax credits in the American Rescue Plan Act that help eligible folks with two other types of health insurance.
The Tax Adviser reports that the law creates a refundable, advanceable tax credit for COBRA continuation coverage premiums. It’s for people who are eligible for COBRA continuation coverage between the date the American Rescue Plan Act was signed into law (March 11) and Sept. 30, 2021. (“COBRA” refers to a federal law that enables workers to continue to be covered by employer health benefits for a temporary period, such as after a job loss.)
The legislation also expands the premium tax credit (which is for Affordable Care Act health insurance premiums) for 2021 and 2022. Additionally, it allows for taxpayers who received too much of this premium in advance in 2020 to not have to repay the excess.