What’s in the Relief Portion of the American Rescue Plan Act
The latest iteration of a COVID relief bill was signed into law by President Biden last week. Besides providing the highly anticipated $1,400 stimulus checks, the $1.9 trillion American Rescue Plan Act of 2021 includes expanded unemployment benefits, increased child tax credits, additional small business relief, and sundry initiatives with tax implications for both individuals and businesses.
American Rescue Plan Highlights
- $1,400 stimulus checks with tighter income limits
- Extended unemployment businesses through September
- Increased child tax credit
- Additional tax credits for individuals and business
- Small business and restaurant relief
- Expanded subsidies for ACA
$1,400 Stimulus Checks
The new round of $1,400 stimulus checks began hitting bank accounts within a few days after President Biden signed it into law. This time individuals and their dependents are eligible for the full amount. However, the bill made adjustments to income eligibility.
In this round of checks, individuals with modified adjusted gross income (MAGI) less than $75,000 are eligible for the full amount, as are heads of households with less than $112,500 and married couples filing jointly with less than $150,000. For incomes higher than those amounts, the stimulus amount is phased out up to $80,000 for individuals, $120,000 for heads of households, and $160,000 for married couples. Individuals with income above those amounts are not eligible for a check.
Unlike the previous rounds in which only dependent children under 17 were eligible for a check, this round will deliver checks to adult dependents as well.
The Treasury Department will base these payments on your 2019 tax returns unless you have already filed your 2020 return.
Extended Unemployment Benefits
The plus-up unemployment benefit of $300 per week was set to expire in March. The bill extends that assistance through September 6, 2021. In addition, the bill allows beneficiaries with adjusted gross incomes under $150,000 to exempt the first $10,200 of their 2020 jobless benefits from taxes.
Child Tax Credit
The child tax credit has been increased from $2,000 to as much as $3,600 per child up to five years of age. For children between the ages of 6 and 17, the tax credit is as high as $3,000 each. Note that, previously, the credit was only available for dependents under the age of 17. For 2021 only, the credit has been extended to include 17-year-old dependents.
The increased credit amount is phased out for individuals with incomes over $75,000, heads of household with more than $112,500, and married couples with more than $150,000. The original $2,000 credit is still available for these taxpayers.
Eligible taxpayers may receive advanced monthly payments of half the annual credit from July 2021 through December 2021 unless they opt-out. These payments will be squared with the total credit allowed when filing their 2021 tax return. Amounts received over the allowable credit will need to be repaid.
Also, the bill makes child and dependent care credit fully refundable for the 2021 tax year, and the exclusion for employer-provided dependent care assistance has been increased to $10,500.
Additional Expanded Credits
Earn Income Tax Credit
The earned income tax credit (EITC), which is available for taxpayers without children, has been expended for the 2021 tax year. The minimum age for EITC eligibility has been reduced to 19 (except for students) from 25. For 2021, the maximum age limit has been eliminated while phaseout amounts have been increased.
Forgiven Student Loan Tax Exemption
For tax years 2021 through 2025, student loans that are forgiven will not be treated as taxable income.
Extended Paid Sick Leave Credits
Credits for federal sick and family leave under last year’s Families First Coronavirus Response Act (FFCRA) have been extended through September 30, 2021. In addition, the maximum credit has been increased to $12,000. Also, leave credits are available for leave due to the COVID-19 vaccination. The limitation of days taken will reset on March 31, 2021.
This bill extends the Employee Retention Tax credit (ERC) through the end of 2021.
Small Business and Restaurant Relief
Eligible business owners can access additional funding through a $15 billion allocation to the SBA EIDL program. Priority will be given to severely impacted businesses with fewer than ten employees. The Paycheck Protection Program (PPP) has received a $7 billion infusion for issuing additional PPP loans with more non-profits being eligible. Eligible bars and restaurants are targeted for relief through a new grant program specific to that industry. The bill also contains a rescue package for multiemployer pension plans that are struggling financially.
The bill allocates nearly $62 billion for COVID vaccination, testing, prevention, and contact tracing. It also includes a relief fund to help cover COVID-19 funeral expenses. Another $7.7 billion is to be used to hire 100,000 people to support the nation’s COVID response.
Another $130 billion has been allocated to help public and private K-12 schools to reopen with a requirement that schools use 20% of the funds to address learning loss by adding additional school days or summer school. Also, $350 billion has been allocated for states, local governments, tribal governments, and territories.
Expanded ACA Subsidies
Recipients of health care through the Affordable Care Act will receive a temporary increase in subsidies. Also, the maximum income cap on ACA eligibility has been lifted for two years. The amount enrollees will have to pay towards coverage is reduced to 8.5% from 10%. The bill will also extend COBRA coverage for the unemployed through 2021, with premiums fully covered.
Time to Review Your Tax Situation
This massive relief bill is expected to impact most taxpayers—individuals and businesses—in some way. Now would be the time to review your situation to address how the tax changes may impact you or your business.