Tax Credits & Tax Relief
General Information for Taxpayers
- For resources on tax filing, please visit the Wisconsin Revenue site or the IRS' website.
- Taxpayers need to be on the lookout for calls and email phishing attempts about coronavirus. These contacts can lead to tax-related fraud and identity theft. Taxpayers should watch out for calls, emails, text messages, websites and social media attempts that request money or personal information. For more information on coronavirus-related or other phishing attempts please click here.
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The American Rescue Plan Act of 2021, which was signed into law on March 11, 2021, expands the Child Tax Credit (CTC), the Earned Income Tax Credit (EITC), and the Child and Dependent Care Tax Credit to provide more financial support for individuals and families throughout 2021.
Child Tax Credit (CTC)
Learn more at ChildTaxCredit.gov.
Note: The American Rescue Plan Act of 2021 expands the Child Tax Credit for tax year 2021 only. Eligible taxpayers who do not want to receive advance payment of the 2021 CTC will have the opportunity to decline receiving advance payments.
- Unsure if you qualify? The IRS' Child Tax Credit Eligibility Assistant helps families determine whether they qualify for Child Tax Credit payments
- If you don’t normally file a tax return, register with the IRS using the Non-filer Sign-up Tool. For help see the IRS' Step by Step Guide to Using the Non-Filer Sign Up Tool. Alternatively, file a return with the IRS. Information and materials available in multiple languages
- Check the status of your monthly payments and update your information using the IRS' Child Tax Credit Update Portal
Frequently asked questions about the 2021 Child Tax Credit and Advance Child Tax Credit Payments are available here.
Resources and guidance about the 2021 Child Tax Credit and Advance Child Tax Credit Payments are available here.
Earned Income Tax Credit (EITC)
The American Rescue Plan Act of 2021 expands the EITC for taxpayers with no qualifying children for 2021 in the following ways:
- Lowers the minimum age to claim the EITC without children from 25 to 19 (for full-time college students who are not foster youth or homeless youth, the minimum age is 24) and eliminated the upper age limit so that people age 65 and over are eligible.
- Increases the benefit from $543 to $1,502.
- Increases the credit amount and phase-out percentage from 7.65 to 15.3 percent.
- Increases the income at which the maximum credit amount is reached to $9,820, and increases the income at which the phase-out begins to $11,610 for non-joint filers.
- Repeals a provision of law in order to allow a taxpayer to claim the childless EITC if they cannot claim the EITC for otherwise qualifying children because their children do not have valid Social Security numbers.
- Allows married but separated individuals to be treated as not married for the purpose of the EITC if a joint return is not filed. This applies to taxpayers who live with a qualifying child for more than half of the year but either do not live with their spouse or have a separation decree or agreement in place.
- Allows taxpayers to use their 2019 earned income for their 2021 earned income for the purposes of claiming their EITC, if their 2021 earned income was less than their 2019 earned income.
Children and Dependent Care Credit
The American Rescue Plan Act of 2021 makes enhancements to the Children and Dependent Care credit:
- For 2021, the CDCTC is fully refundable.
- The credit is also fully available to families making less than $125,000—up from $15,000—and partially available to families earning between $125,000 and $400,000.
- The credit is increased from 35% of $3,000 for one child ($6,000 for two or more) to 50% of $8,000 for one child ($16,000 for two or more). At $125,000, the credit rate begins to phase out and plateaus at 20%, before phasing out completely for families making $500,000.
- The exclusion for employer-provided dependent care assistance is increased from $5,000 to $10,500 for 2021.
More Information
For more information, please check the IRS’s website.
The American Rescue Plan Act of 2021 makes major improvements in access to and affordability of health coverage through the Marketplace by increasing eligibility for financial assistance to help pay for Marketplace coverage. Under the new law, many Wisconsinites who buy their own health insurance directly through the Marketplace will become eligible to receive increased tax credits to reduce their premiums.
Starting April 1, 2021, consumers enrolling in Marketplace coverage through HealthCare.gov will be able to take advantage of these increased savings and lower costs.
- For consumers who are eligible for premium tax credits to help purchase a Marketplace plan, an individual or a family’s tax credit amount is calculated based on the following factors:
- The tax credit calculation uses a percentage of the household’s income that they need to contribute (spend) on monthly health insurance premiums. This amount is limited based on how their household income compares to federal poverty levels (FPL).
- Prior to the American Rescue Plan Act of 2021, households had to contribute up to 9.83% of their income to pay for health insurance premiums to be eligible for tax credits based on the cost of the benchmark plan. Consumers can choose to enroll in plans that cost more or cost less than the benchmark plan, but the amount of their tax credit is based on this percentage of their income and the cost of the benchmark plan’s monthly premium. Households with incomes greater than 400% FPL weren’t eligible for tax credits to help reduce the cost of purchasing a Marketplace plan.
- After the coverage year, consumers who had a Marketplace plan with premium tax credits during the year will need to file their federal income tax return for that year and reconcile the amount of tax credits they received in advance with the final premium tax credit calculation as a part of their tax return. If their house income turns out to be higher than what they estimated on their Marketplace application, the household may need to pay back some or all of the excess premium tax credit they received in advance as a part of filing their tax return. Depending on the circumstances the amount owed back may be capped.
Lower Costs & Expanded Access Under the American Rescue Plan Act of 2021
- Individuals and families may be eligible for a temporary increase in premium tax credits for this year, with no one paying more than 8.5% of their household income towards the cost of the benchmark plan or a less expensive plan. Meaning, many consumers will be eligible for higher tax credit amounts to help cover their Marketplace health plan premiums.
- Individuals and families get a temporary boost in their premium tax credits.
- Taxpayers who receive unemployment compensation during any week beginning in 2021 may be eligible to receive premium tax credits to help pay for 2021 Marketplace coverage.
For more information, please check the Centers for Medicare and Medicaid Services here.
Paycheck Protection Program (PPP) Expenses Now Tax Deductible
The Internal Revenue Service (IRS) recently announced that PPP loan recipients whose loans are forgiven are not required to treat the loan proceeds as taxable income and can deduct expenses paid with a forgiven PPP loan from their taxes. The Coronavirus Response and Relief Supplemental Appropriations Act of 2021 explicitly included this change, which was based bipartisan Small Business Expense Protection Act that Senator Baldwin supported.
Employer Tax Credits
Many businesses that have been severely impacted by coronavirus (COVID-19) will qualify for new employer tax credits.
Paid Leave for Employees Taking Time Off Due to COVID-19 Vaccinations
The American Rescue Plan Act of 2021 allows small and midsize employers, and certain governmental employers, to claim refundable tax credits that reimburse them for the cost of providing paid sick and family leave to their employees due to COVID-19, including leave taken by employees to receive or recover from COVID-19 vaccinations. The ARP tax credits are available to eligible employers that pay sick and family leave for leave from April 1, 2021, through September 30, 2021.
For more details from the U.S. Department of the Treasury on how the paid leave tax credits from the American Rescue Plan will work for employers to enable employees to get vaccinated and recover from after-effects of vaccination, as well as for other purposes, click here.
Sick and Family Leave
Credit for Sick and Family Leave
An employee who is unable to work (including telework) because of coronavirus quarantine or self-quarantine or has coronavirus symptoms and is seeking a medical diagnosis, is entitled to paid sick leave for up to ten days (up to 80 hours) at the employee’s regular rate of pay, or, if higher, the Federal minimum wage or any applicable State or local minimum wage, up to $511 per day, but no more than $5,110 in total.
An employee who is unable to work due to caring for someone with coronavirus, or caring for a child because the child’s school or place of care is closed, or the paid child care provider is unavailable due to the coronavirus, is entitled to paid sick leave for up to two weeks (up to 80 hours) at two-thirds the employee’s regular rate of pay or, if higher, the Federal minimum wage or any applicable State or local minimum wage, up to $200 per day, but no more than $2,000 in total.
Care for children due to daycare or school closure
An employee who is unable to work because of a need to care for a child whose school or place of care is closed or whose child care provider is unavailable due to the coronavirus, is also entitled to paid family and medical leave equal to two-thirds of the employee’s regular pay, up to $200 per day and $10,000 in total. Up to ten weeks of qualifying leave can be counted towards the family leave credit.
Note: The emergency paid "sick leave" and expanded "family and medical leave" requirements of the Families First Coronavirus Response Act of 2020 are no longer mandated as of December 31, 2020. Under the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, the refundable tax credit for sick and family leave was extended until March 31, 2021 for employers who opt to provide it. If the employee has already used this leave in 2020, employers cannot claim the credit for that employee in 2021.
Employers should consult with an attorney and/or a tax professional if they have questions regarding leave requirements and tax credits.
Credit for eligible employers
Eligible employers are entitled to receive a credit in the full amount of the required sick leave and family leave, plus related health plan expenses and the employer’s share of Medicare tax on the leave, for the period of April 1, 2020, through December 31, 2020. The refundable credit is applied against certain employment taxes on wages paid to all employees. Eligible employers can reduce federal employment tax deposits in anticipation of the credit. They can also request an advance of the paid sick and family leave credits for any amounts not covered by the reduction in deposits. The advanced payments will be issued by paper check to employers.
Employee Retention Credit
Eligible employers can claim the employee retention credit, a refundable tax credit equal to 50 percent of up to $10,000 in qualified wages (including health plan expenses), paid after March 12, 2020 and before January 1, 2021. Eligible employers are those businesses with operations that have been partially or fully suspended due to governmental orders due to COVID-19, or businesses that have a significant decline in gross receipts compared to 2019.
The refundable credit is capped at $5,000 per employee and applies against certain employment taxes on wages paid to all employees. Eligible employers can reduce federal employment tax deposits in anticipation of the credit. They can also request an advance of the employee retention credit for any amounts not covered by the reduction in deposits. The advanced payments will be issued by paper check to employers.
Tax Relief
The IRS has developed an online tool to help you determine if you or your business is likely to qualify for one or more of the tax relief options currently available.
Scams
IRS.gov/coronavirus is the official IRS source for information on relief related to COVID-19. Be on the lookout for scam artists trying to use this relief as cover to steal personal information and money. The IRS will not call, text, email or contact anyone on social media asking for personal or bank account information. Also, watch out for emails with attachments or links claiming to have special information on relief.
Additional Information for Small Businesses
Downloadable materials from the IRS:
Additional Information
For general information and resources about coronavirus for Wisconsinites, please click here.
For more information about coronavirus relief for Wisconsin businesses and nonprofits, please click here.
For more information about the American Rescue Plan Act of 2021, please click here.
Disclaimer: The information provided on this webpage does not, and is not intended to, constitute legal or tax preparation advice from Senator Baldwin. All information, content, and materials available on this page are for general informational purposes only.
This webpage shares information, email addresses and links to other sites or entities on the Internet that are not maintained by Senator Baldwin. Resources, email addresses and links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Senator Baldwin of any of the products, services or opinions of the entity or organization or individual. Senator Baldwin bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.
