March 16, 2021
The American Rescue Plan Act of 2021 (the Act) was signed into law by President Biden on March 11, 2021. This colossal $1.9 trillion bill offers further individual taxpayer support, extends enhanced unemployment relief, provides further aid to state and local governments, and offers help to get students back into a physical classroom as well as increased funds for COVID related testing and vaccination efforts. The Act is extensive, but here are some of its key directives.
Tax Relief for Individuals
Included in the Act is a third round of stimulus payments for individual taxpayers. It will provide a $1,400 payment to each individual and each dependent claimed on their tax return. The phase-out for this third stimulus payment starts at $75,000 for individuals and $150,000 for married filing jointly. The cut-off for payments for this latest round drops from $100,000 to $80,000 per individual and $200,000 to $160,000 for married filing jointly.
The Child Tax Credit has also been expanded. For tax year 2021 only, it will increase the amount of the credit from $2,000 to $3,000 for children 6-17 years old, and to $3,600 for those children under age 6. Historically, this credit has only been available for children up to age 16. This amount will gradually reduce for those individuals earning more than $75,000 per year. Those families that are eligible for the credit will receive payments of up to $300 per month from July through December of 2021.
Unemployment benefits will remain at an additional $300 per week, over what an individual would normally qualify for at the state and local levels, and the benefits will be extended through September 6, 2021. The first $10,200 of these unemployment payments for 2020 will be nontaxable in households with incomes lower than $150,000.
The Child and Dependent Care Credit has been improved. The credit is available to taxpayers who paid for the care of a qualifying individual while they worked or sought work. It has increased from $1,050 to $4,000 for one child, and from $2,100 to $8,000 for two or more children for 2021. It is worth 50% of eligible expenses, and the credit reductions start at household income levels over $125,000. This credit is fully refundable meaning that a taxpayer would get the refund even if it is more than their tax liability.
The Act also includes a provision that any student loans that were forgiven between December 31, 2020 and January 1, 2026 will be exempt from being considered taxable income.
Tax Relief for Businesses
An additional $7.25B has been allocated to the Paycheck Protection Program (PPP). More non-profits will be able to apply, although the deadline of March 31, 2021 has not been extended.
The Employee Retention Tax Credit has been extended until December 31, 2021. This credit allows qualifying employers to receive a tax credit for wages paid to workers that were retained on their payroll during the pandemic.
Restaurants and bars will have $28.6B set aside for the Restaurant Revitalization Fund. This pandemic relief grant program is modeled after the Restaurants Act from 2020. Eligible businesses may receive tax-free federal grant money equal to the amount of its loss during the pandemic. This is calculated by subtracting the 2020 gross receipts from its 2019 gross receipts.
The raising of the Minimum Wage was struck from the bill.
Other significant parts of the bill will be used to assist K-12 education with improving ventilation, reducing class sizes and purchasing personal protective equipment (PPE) to assist schools in reopening. Colleges and universities will receive money for financial aid grants for students.
The Supplemental Nutrition Assistance Program (SNAP) will receive a 15% increase in benefits thought September 30, 2021. The Women, Infants and Children (WIC) program will also receive additional funds to increase participation and the amounts of the cash-value vouchers provided by the program.
State and local governments will receive additional aid to help replace lost tax revenue during the pandemic.
As always, please consult your Faw Casson advisor if you have any questions on how this may impact your individual situation.