On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021(ARP), a $1.9 trillion COVID-19 relief package aimed at stabilizing the economy, providing needed relief to individuals and small businesses, and improving and accelerating the administration of coronavirus vaccines and testing. The relief package, which is Biden’s first major legislative initiative, is one of the largest in U.S. history and follows on the heels of the Trump Administration’s $900 billion COVID relief package enacted in December 2020 (Consolidated Appropriations Act, 2021 (CAA)). The most significant measures included in the Act are the following:
- The third round of stimulus payments to individuals and their dependents
- Extension of enhanced supplemental federal unemployment benefits through September 2021
- Expansion of the child tax credit and child and dependent care credit
- Extension of the Employee Retention Credit (ERC)
- $7.25 billion in aid to small businesses, including the Paycheck Protection Program (PPP)
- Increased federal subsidies for COBRA coverage
- $160 billion is earmarked for vaccine and testing programs to improve capacity and help curb the spread of COVID-19
- Other measures address nutritional assistance, housing aid, and funds for schools.
Measures Affecting Individuals
ARP includes several measures to help individuals who have been adversely affected by the impact of the coronavirus pandemic on the economy. The additional round of stimulus checks, in conjunction with supplemental federal unemployment benefits, should provide some measure of relief to individuals. A temporarily enhanced child tax credit offers another area of assistance.
Immediate cash relief will be granted to individuals and families in the form of new stimulus payments. Payments will begin on March 15, 2021. Individuals earning up to $75,000, single parents earning $112,500, and couples earning up to $150,000 are eligible for the $1,400 check, with the amount decreasing for individuals making between $75,000 and $80,000. Individuals earning more than $80,000, single parents earning $120,000, and couples earning more than $160,000 are disqualified from receiving stimulus checks. An additional $1,400 check will be sent to each dependent of the taxpayer, including adult dependents (e.g., college students, parents). The previous two stimulus payments limited the additional checks to dependent children 16 years old or younger. The amount of the stimulus check will be based on information in the taxpayer’s 2020 tax return if it has been filed and processed; otherwise, the 2019 return will be used. The amount of the check will not be taxable income for the recipient.
Extended Unemployment Benefits
The current weekly federal unemployment benefits (which apply in addition to any state unemployment benefits) of $300 will be extended through September 6, 2021. Additionally, the first $10,200 of unemployment insurance received in 2020 will be nontaxable income for workers in households with income up to $150,000. The extension also covers the self-employed and individual contractors (e.g., gig workers) who typically are not entitled to unemployment benefits.
Child Tax Credit
The child tax credit will be expanded considerably for 2021 to help low- and middle-income taxpayers (many of the same individuals who will be eligible for stimulus checks), and the credit will be refundable. The amount of the credit will increase from the current $2,000 (for children under 17) to $3,000 per eligible child ($3,600 for a child under age six), and the $3,000 will be available for children that are 17 years old. The increase in the maximum amount will phase out for heads of households earning $112,500 ($150,000 for couples). Because the enhanced child tax credit will be fully refundable, eligible taxpayers will receive a check for any credit amount not used to offset the individual’s federal income tax liability. Part of the credit will be paid in advance by the IRS during the period July through December 2021 so that taxpayers do not have to wait until they file their tax returns for 2021.
Child and Dependent Care Tax Credit
The Child and Dependent Care Tax Credit will be expanded for 2021 to cover up to 50% of qualifying childcare expenses up to $4,000 for one child and $8,000 for two or more children for 2021 (currently the credit is up to 35% of $3,000 for one child or 35% of $6,000 for two or more children). The credit will be refundable so that families with low tax liability will be able to benefit; the refund will be fully available to families earning less than $125,000 and partially available for those earning between $125,000 and $400,000.
Earned Income Tax Credit (EITC)
The EITC will be expanded for 2021 to ensure that it is available to low-paid workers who do not have any children in the home. The maximum credit will increase from about $530 to about $1,500, and the income cap to qualify for the EITC will go from about $16,000 to about $21,000. Further, the EITC will be available to individuals aged 19-24 who are not full-time students and those over 65.
The bill does not cancel student debt but it does provide that student loan forgiveness will be tax-free through December 31, 2025 (normally the cancellation of debt is considered taxable income). This relief package also has measures affecting businesses.
At Anderson ZurMuehlen, we understand this relief program may bring some confusion. Our experts work tirelessly to stay up to date and informed on these changes. We are happy to be a resource to you. Please contact our team with any questions you may have.