Congress has President Joe Biden's pandemic rescue package moving on a fast track to give Americans another big dose of relief. The legislation just cleared the U.S. House and now goes to the Senate.
Along with the much-discussed stimulus checks, additional proposals in the bill would offer the average household $3,100 in tax savings for 2021, according to the Urban-Brookings Tax Policy Center.
So, the $1.9 trillion legislation would provide not only a stimulus check of up to $1,400, extended unemployment benefits and more funding for the COVID vaccine rollout, but also some tax relief.
You may get more of your tax dollars back from the IRS to help you pay down debt or build up your emergency fund.
How does it work?
The House of Representatives passed the economic stimulus bill early Saturday morning; the Democrats who control Congress want the legislation completed and ready for Biden's signature before March 14.
If it becomes law, families will see tax savings from four major provisions:
Your $1,400 stimulus check, which is actually just an advance on a tax credit.
An expanded earned income tax credit.
An expanded child tax credit.
A bigger credit for those paying for child care.
When you file your federal return, the credits give you a dollar-for-dollar reduction in how much you owe in income taxes.
Plus, some of those credits would be refundable for 2021. This means if your tax liability drops to zero, the IRS will send you a refund for a set amount — putting money directly back in your pocket.
Who would benefit from the tax savings?
Two-thirds of the tax savings will go to households earning less than $91,000 a year, according to the tax center’s analysis. That’s not to say higher-income households won’t also receive some relief: About 11% of the proposed benefits will go to families making more than $164,000.
Under the plan, the child tax credit not only gets a boost, but it also becomes refundable — meaning families would receive even more money. Low-income parents would be able to claim $3,600 (up from $2,000) for children under the age of 6 and $3,000 for children under 18.
Nearly 80% of those expanded benefits will go to low- to moderate-income families, according to the tax center’s analysis. The proposed changes to the child tax credit would help lift 11 million children out of poverty, says the Center for American Progress.
As for the earned income tax credit, the boost included in the bill would nearly triple the maximum credit for workers without children and extend eligibility to more people.
What if I need money right now?
If you’re running short on funds and can’t wait for these tax breaks, there are a few things you can do. If you’re carrying some big debts, don’t let interest weigh you down:
Cut back on the cost of your debt. If plastic has been holding you up throughout the pandemic, you’re probably facing a ton of expensive interest. Make your debt more affordable and easier to shake off by folding your balances into a single debt consolidation loan at a lower interest rate.
Cut back on college costs. The average student loan borrower carries $32,731 in debt, according to the Federal Reserve. Refinancing your student loan is quick, painless and could save you thousands in interest.
Get a better rate on your mortgage. If it’s been more than a year since you refinanced your home loan, you’re overdue. And rates are still historically low, so refinancing your existing mortgage could reap big savings. Millions of U.S. homeowners could reduce their monthly house payments by more than $300 through a refi, according to mortgage tech and data provider Black Knight.
Here are other ways to find some room in your budget:
Get creative with savings. Cut back on your streaming services and get a library card for free entertainment. Instead of ordering takeout for family pizza night, make it at home together. And download a free browser extension that automatically hunts for the best deals and coupons whenever you shop online.
Get new rates on insurance. If you’re driving way less because of the pandemic, ask your auto insurance provider to give you a discount. If they’re unwilling to budge, why not shop around for a better deal with a more flexible company? And while you’re at it, you might save hundreds on your homeowners insurance by comparing rates to find a lower price.