President Biden signed the $1.9 trillion American Rescue Plan Act of 2021 (ARPA) into law on March 11, 2021. Unlike previous stimulus legislation, ARPA provides some economic relief to both businesses and individuals but the main purpose was to provide funding for government agencies and social programs. We have compiled a summary of the tax related provisions below. We will keep you updated as we continue to analyze the Act’s impact on our clients.
Relief for Individuals and Employees
- Stimulus Payments: Individuals with adjusted gross income of up to $75,000 will receive the full $1,400 payment; a couple filing jointly with adjusted gross income of up to $150,000 will receive $2,800 ($1,400 per eligible person) and taxpayers will receive an additional $1,400 per dependent (of any age).
- The payment is based on the taxpayer’s 2019 return, though the 2020 filing may be used if it has been processed by IRS.
- The payment amount phases out for individuals with adjusted gross income between $75,000 to $80,000, and for couples between $150,000 to $160,000.
- IRS announced taxpayers will receive stimulus payments as soon as March 17th.
- Child Tax Credit: For the 2021 tax year, the Child Tax Credit is increased to $3,600 (previously $2,000) for every child under age 6, and to $3,000 for children between the ages of 6 and 17 (previously age 16). The credit begins to phase out if income exceeds $150,000 for a joint return ($75,000 single taxpayers). The credit is also now refundable and IRS will create a system to allow taxpayers to get the credit in advance of filing their tax returns
- Unemployment Benefits: For 2020, taxpayers with adjusted gross income under $150,000 can receive $10,200 in unemployment compensation tax free (total of $20,400 for a couple where both spouses received benefits). In response to this provision, the IRS announced on March 12, 2021, that taxpayers who already filed their 2020 returns should not file amended returns at this time. The IRS will release additional guidance soon. For California tax reporting, all unemployment compensation is nontaxable.
- The $150,000 cut off applies to single, joint, and married filing separate returns.
- The $300 in weekly Federal Pandemic Unemployment Compensation has been extended through September 6, 2021 and the maximum benefit period was extended to 79 weeks (from 50 weeks)
- Student Loans: Certain student loan forgiveness granted between December 30, 2020 and January 1, 2026 has been classified as tax-free.
- Child and Dependent Care Credit: For the 2021 tax year, the amount of eligible expenses increased to $8,000 for one child or dependent (up from $3,000 in 2020), and to $16,000 for two or more children (up from $6,000 in 2020). The maximum 2021 employee contribution to a dependent care assistance program increased to $10,500 (from $5,250).
- COBRA Benefits: The ARPA provides an opportunity for free COBRA coverage from April through September 2021 for employees who lost their jobs due to the COVID-19 pandemic. This provision applies to all eligible taxpayers regardless of income levels.
Relief for Businesses
- Employee Retention Credit: ARPA extends the Employee Retention Tax Credit to December 31, 2021 and enhances the credit for certain eligible employers.
- Families First Coronavirus Response Act: ARPA extends the tax credits for employer-provided paid sick and family leave through September 30, 2021. The cap on family medical leave pay is now $12,000 (up from $10,000).
- Restaurant Grants: The ARPA includes $28 billion of grants for restaurants (bars, halls, brew pubs, tap rooms, and tasting rooms). The funds can be used to offset expenses from Feb. 15, 2020 through Dec. 31, 2021 including, payroll, benefits, rent, utilities, cleaning, equipment, food, etc. The grant will operate as a SBA grant program.
- Paycheck Protection Program: the ARPA adds $7 billion to the program, and expands the eligibility for larger nonprofits. The ARPA did NOT extend the March 31, 2021 deadline to obtain a loan.
- Excess Business Losses: The limitation on business losses deductible by individuals has been extended to tax year 2026.
- Shuttered Venue Operator Grants: Grant recipients are now allowed to obtain a PPP Loan and still be eligible for a grant. This will allow recipients to receive PPP funding while waiting for the grant program to become operational (possibly in early April).
Contact us to learn how these changes will impact you or your business.