If your modified adjusted gross income (AGI) is less than $150,000, the American Rescue Plan enacted on March 11, 2021, excludes from income up to $10,200 of unemployment compensation paid in 2020, which means you don’t have to pay tax on unemployment compensation of up to $10,200. If you are married, each spouse receiving unemployment compensation doesn’t have to pay tax on unemployment compensation of up to $10,200. Amounts over $10,200 for each individual are still taxable. If your modified AGI is $150,000 or more, you can’t exclude any unemployment compensation.
The exclusion should be reported separately from your unemployment compensation.
Section 9675 of the act effectively makes all student loan debt eligible for tax-free loan forgiveness through the end of 2025.
What does this change mean for borrowers, and how should they plan for their student loans?
Understanding Section 9675
The legislation will treat any student loan forgiveness from 2021 through 2025 as tax-free. The definition includes virtually all types of student loan debt used expressly for post-secondary education purposes.
- All federally backed loans: Direct Loans, FFEL, Consolidation Loans, Federal Perkins Loans, and Parent PLUS Loans
- All state-sponsored education loan programs
- All institutional loans made by colleges and universities
- All private loans made to students and parents
The inclusion of state, institutional, and private student loans in the legislation is a massive expansion for student loan borrowers as all federal stimulus aid before the new legislation was limited to federal loan borrowers only.
H.R.1319 – American Rescue Plan Act of 2021
American Rescue Plan Act of 2021
This bill provides additional relief to address the continued impact of COVID-19 (i.e., coronavirus disease 2019) on the economy, public health, state and local governments, individuals, and businesses.
Specifically, the bill provides funding for
- agriculture and nutrition programs, including the Supplemental Nutrition Assistance Program (SNAP, formerly known as the food stamp program);
- schools and institutions of higher education;
- child care and programs for older Americans and their families;
- COVID-19 vaccinations, testing, treatment, and prevention;
- mental health and substance-use disorder services;
- emergency rental assistance, homeowner assistance, and other housing programs;
- payments to state, local, tribal, and territorial governments for economic relief;
- multiemployer pension plans;
- small business assistance, including specific programs for restaurants and live venues;
- programs for health care workers, transportation workers, federal employees, veterans, and other targeted populations;
- international and humanitarian responses;
- tribal government services;
- scientific research and development;
- state, territorial, and tribal capital projects that enable work, education, and health monitoring in response to COVID-19; and
- health care providers in rural areas.
The bill also includes provisions that
- extend unemployment benefits and related services;
- make up to $10,200 of 2020 unemployment compensation tax-free;
- make student loan forgiveness tax-free through 2025;
- provide a maximum recovery rebate of $1,400 per eligible individual;
- expand and otherwise modify certain tax credits, including the child tax credit and the earned income tax credit;
- provide premium assistance for certain health insurance coverage; and
- require coverage, without cost-sharing, of COVID-19 vaccines and treatment under Medicaid and the Children’s Health Insurance Program (CHIP).