The American Rescue Plan Act of 2021 was passed by Congress and signed into law by President Joseph R. Biden on March 11, 2021. It provides approximately $1.9 trillion in support and stimulus for individuals, businesses, other organizations, and state and local governments who have been affected by the COVID-19 pandemic.
Here’s a highlight of what’s in the bill:
Rebates For Individuals
The Act authorizes $1,400 to individuals and an additional $1,400 for each dependent up to specified income limits. Payments are fully phased out for single filers earning $80,000, head of household filers with $120,000 in income, and joint filers making $160,000. Nonresident aliens, and dependents of another taxpayer are not eligible.
Unemployment Insurance Benefits
The federal unemployment supplement that was scheduled to expire on March 14th, has been renewed, providing an additional $300/week through September 6th. Notably, the first $10,200 in Unemployment Insurance benefits that were received in 2020 is now nontaxable for households with under $150,000 in taxable earnings. For joint filers, up to $10,200 in unemployment insurance benefits received by each spouse would be nontaxable. Since this may affect returns already filed for 2020, we are waiting for guidance from the IRS on whether those returns will need to be amended.
Child Tax Credit and Earned Income Tax Credit
The American Rescue Plan increases the Child Tax Credit and the Earned Income Tax Credit. For 2021, the Child Tax Credit is increased to $3,000 per child over age six and $3,600 for each child under age six as of the close of the calendar year. Dependent children are eligible up to age 17. These credits are subject to phase-out limits beginning at $75,000 in income for single filers and $150,000 for married filing joint. The Child Tax Credit is fully refundable for 2021.
Congress required the IRS to establish a program to send periodic (likely monthly) advance Child Tax Credit payments to qualifying families beginning in July 2021, representing half of the Child Tax Credit a taxpayer might be entitled to for 2021. The remaining half will be claimed on the 2021 income tax return.
For 2021, the American Rescue Plan expands eligibility requirements and the maximum credit amount for the Earned Income Tax Credit (EITC) for taxpayers without dependents. The minimum age is now 19 years old, the maximum age has been eliminated and special age provisions apply to students, qualified former foster youth and qualified homeless youth.
Child & Dependent Care Credit
The Child & Dependent Care credit is refundable for taxpayers whose principal place of residence has been in the US for more than 6 months. The dollar limit in determining the credit has increased to $8,000 for one qualifying individual and to $16,000 for two or more qualifying individuals. Once a taxpayer’s adjusted gross income exceeds $125,000 the applicable percentage is increased to 50% and reduced by 1% for every $2,000 over the limit.
Employee Retention Credit Extended
The Employee Retention Credit (ERC) has been extended through December 2021. The credit percentage remains 70% of up to $10,000 in qualified wages per employee per quarter. Employers may qualify if their operation is fully or partially suspended due to orders from a governmental authority related to COVID-19, or if they can demonstrate that gross receipts for a calendar quarter are less than 80 percent of the gross receipts for the same calendar quarter in 2019. The credit is increased by the proportionate share of an employer’s health costs related to such wages.
New businesses that started after February 15, 2020 can also take advantage of the Employee Retention Credit, provided average annual receipts are under $1,000,000. For these businesses, the amount of the credit may not exceed $50,000 per quarter.
Restrictions have been relaxed on “Severely Financially Distressed Employers,” defined as employers who can demonstrate that gross receipts are less than 10 percent of those in the corresponding period in 2019. The ERC can be applied to all wages paid to employees up to $10,000 per employee per quarter limit, even those with over 500 employees.
Some Other Highlights
Eligibility for Paycheck Protection Program (PPP) loans have been expanded to include solos, lobbying organizations and other 501( c ) entities. The Program, which is currently taking applications for second-round loans, would get an additional $7 billion and the bill would make more non-profit organizations eligible. Check with your banker, SBA, or financial professional for more information.
The Dependent Care FSA Exclusion has been increased, as have Affordable Care Act premium subsidies. Assistance is also be provided for underfunded multi-employer (MEP) pension plans. Consult your financial advisor.
The FFCRA Paid Sick and Family Leave tax credit has been extended through September 30, 2021. Though the requirement for covered employers to offer paid FFCRA leave expired in 2020, for covered employers that offer it, the leave is funded by the federal government up to applicable limits. The Act also adds additional reasons employees may take paid sick or family leave for which employers are entitled to the tax credit, and the wage limit for payments was increased to $12,000 per employee.
$15 billion of the $1.9 trillion Bill has been designated for the Emergency Injury Disaster Loan (EIDL) program, which provides long-term, low-interest loans from the Small Business Administration. It also provides $25 billion for a new grant program specifically for bars and restaurants. Eligible businesses may receive up to $10 million and can use the money for a variety of expenses, including payroll, mortgage and rent, utilities and food and beverages. Contact your local SBA.
States, local governments, territories and tribes will receive $350 billion in aid. Nutrition assistance has been increased 15% in food stamp benefits through September. $880 million has been earmarked for the Special Supplemental Nutrition Program for Women, Infants & Children. The Pandemic-EBT program which provides families whose schools are closed with funding to replace free and reduced priced meals through the summer. $125 billion will go to public K-12 schools to help students return to the classroom. Nearly $40 billion will go to colleges to help defray lost revenue from declining enrollment and increased costs. $39 billion will go to child care providers.
The American Rescue Plan provides $14 billion for research, development, and distribution of vaccines with another $47.8 billion for testing, contact tracing and mitigation.
The Act provides for a 100% COBRA subsidy for qualified individuals and their dependents who lose coverage as a result of involuntary termination or reduced hours. Notices will be required to be sent to qualified individuals in regard to the availability and option to enroll. Check with the Department of Labor.
Stay safe, and stay healthy, and thank you for being part of the Garibaldi Group family.