By: Todd Schanel, CFA, CPA, CFP®
on March 12, 2021

The American Rescue Plan Economic Impact

One of the highlights of the American Rescue Plan Act is another round of Economic Impact Payments (EIPs), also known as “stimulus checks”.  Here is what you need to know about “EIP 3”.

  • The amount of the stimulus payment will be calculated as $1,400 times the total number of eligible individuals, including the full $1,400 for children and dependents. Eligible taxpayers should begin receiving payments over the next few weeks.
  • For the first two EIPs, eligible dependents included only those who qualified for the Child Tax Credit, or children ages 16 and under. For this round, eligibility is expanded to all dependents of the taxpayer. This is significantly more inclusive, as it includes 17-year old children, adult children who are under 23 but are full-time students, and other dependents such as elderly parents.

We will continue to keep you posted on new developments.

  • The Adjusted Gross Income (”AGI”) phase-out levels begin at the same point as they did with the previous two payments, but the phase-out range has been dramatically narrowed as follows:
      • Single Filers and Married Filing Separate: $75,000-$80,000 (previously $75,000-$99,000)
      • Health of Household Filers: $112,500-$120,000 (previously $112,500- $136,500)
      • Married Filing Joint: $150,000-$160,000 (previously $150,000-$198,000)
  • This narrow phase-out range has the potential to create some extremely high marginal tax rates on any additional income earned over $150,000.  For example, a family of five at an AGI of $150,000 would be eligible for $7,000 in stimulus payments and the one-time enhanced child tax credit amounts provided by the Rescue Act (an additional $1,000 per child, or $1,600 for children under 6).  At $160,000, the family’s tax would be $2,200 higher, they would lose the entire $7,000 in EIP AND be subject to a $500 child tax credit phase-out, resulting in $9,700 in additional tax on $10,000 of earnings, or a marginal tax rate of 97%!
  • To determine eligibility, the IRS will use a series of payment determination “checkpoints” based on a taxpayer’s 2019, 2020, and/or 2021 filings. Here is how it will work:
  • Payment Determination Checkpoint 1: The IRS will determine initial payment eligibility for the initial stimulus check based on the most recent AGI on file with the IRS. For most people, this will be 2019, but for some early filers, it may be 2020.  If the taxpayer receives the maximum amount, the process is over.
  • Payment Determination Checkpoint 2: Eligibility will be evaluated again based on 2020 AGI, if 1) the initial payment was based on 2019, 2) the amount of the initial payment was zero or reduced, and 3) the 2020 return is filed by the “Additional Payment Determination Date” (which is currently 7/15 but could be as late as September 1st if filing deadlines are extended). If it is determined that an additional payment is due, the taxpayer will receive a stimulus check for the calculated amount at that time.
  • Payment Determination Checkpoint 3: And finally, the payment will be “trued up” on the taxpayers’ 2021 tax return as a Recovery Rebate Tax Credit. If the initial payment determinations resulted in no payment or reduced payment, but the taxpayer qualifies based on their 2021 AGI, they will receive a tax credit on their 2021 tax return.
  • As with the first two EIPs, there are no claw-back provisions at any point in the process. If a taxpayer is eligible based on an earlier year but not in a subsequent year, they do not need to pay back the funds.
  • Strategy: A taxpayer who is close to these income thresholds and wants to make sure they optimize their payments should do the following:
      • If 2020 AGI > 2019 AGI, wait to file 2020 until your stimulus check is received.
      • Plan on filing your 2020 tax return by July 15th.

We will continue to keep you posted on new developments.


Schanel & Associates is a CPA firm specializing in accounting, tax, business valuation and litigation support serving Palm Beach, Martin and St. Lucie Counties and beyond since 1993. Our CPAs and accounting professionals work with individuals, businesses, estates and trusts to provide everything you need under one roof. For more information, contact us today at 561-624-2118.
Todd Schanel has been a principal at Schanel & Associates since 2004, where he specializes in financial planning, tax planning and consulting services. He also serves as Founding Principal and Director of Investment Advisory Services at Core Wealth Management, our sister company, where he leads an accomplished professional team offering independent and objective financial advice to help clients achieve their financial goals. Todd has been a CFA Charterholder since 2005, and in 2007 he earned his Certified Financial Planner® designation and became a licensed CPA. In 2015, he earned the Certified Valuation Analyst (CVA) designation.