By signing the American Rescue Plan Act (ARPA) on March 11, 2021, which offers tax-advantaged aid to individuals, businesses, and state and local governments, President Biden enacted one of the largest relief-based bills in U.S. history. Aimed at providing economic relief to those impacted by the COVID-19 pandemic, the Act provides $1.9 trillion in funding to many within these groups and simultaneously extends and expands several of the essential provisions previously included in last year’s CARES Act relief legislation. Newly included ARPA provisions provide a pathway for many American individuals, families, and businesses to both receive government-funded payments and benefit from tax breaks.
For individuals, some of the most impactful provisions in the American Rescue Plan Act to watch for include:
Direct Relief Payments – A $1,400 direct payment for qualifying individuals along with additional direct payments of $1,400 for each dependent you claim on your tax return – including adult dependents. Eligibility guidelines allow for individuals with an adjusted gross income (AGI) of up to $75,000 per year, married couples filing jointly with AGI of up to $150,000, and heads of households with AGI up to $112,500 to receive the payments. Payments cease when AGI exceeds $80,000 for individuals, $160,000 for married couples filing jointly, and $120,000 for heads of household.
Child Tax Credit (CTC) – Beginning in 2021, this credit will now increase to $3,600 per child under the age of six and $3,000 per children age 6-17. Single filers with modified AGI of $75,000 or less, heads of households with modified AGI of $112,500, and married couples filing jointly as well as surviving spouses with modified AGI of $150,000 are all eligible to receive the full payment for this credit. The credit phases out at a rate of $50 for each $1,000 (or fraction thereof) of modified AGI over the applicable threshold. Some taxpayers whose income levels are too high to claim the new CTC for 2021, may still be allowed to claim the prior CTC of up to $2,000, subject to the existing phaseout rules.
Child and Dependent Care Tax Credit – For households with AGI of up to $125,000, expansion of the previously-existing child and dependent care tax credit allows for up to $4,000 for childcare expenses for a single child. Those with two or more children can obtain a maximum credit of up to $8,000.
Loan Debt Forgiveness – Tax-free status will be granted to student loan debts that have been forgiven between December 31, 2020 and January 1, 2026.
Unemployment Benefits – Those getting unemployment benefits will receive an additional $300 per week, through September 6, 2021. For tax year 2020, the first $10,200 in unemployment benefits received will be exempted from inclusion in gross income for those taxpayers with AGIs under $150,000. For those who are married filing jointly with AGI below this limit, the $10,200 exclusion will apply to each spouse, separately.
Health Insurance – For those seeking more affordable insurance options for 2021 and 2022, ARPA expands the availability of these options and provides subsidies for those obtaining insurance in the Affordable Care Act marketplaces.
ARPA also includes several helpful provisions for businesses and other employers, such as:
Pandemic Assistance Grants – Qualifying businesses which serve food or drinks, such as restaurants, bars, and food trucks, can obtain a pandemic assistance grant.
Funding for Forgivable Loans – Under the Paycheck Protection Program (PPP), eligible businesses can receive additional funding for forgivable loans, though it’s important to note that the PPP is set to expire on March 31, 2021.
Employee Retention Tax Credit – Under ARPA, this popular tax credit is being extended for those eligible employers which pay employee wages during COVID-19-related closures and those which are impacted by reduced revenue through December 31, 2021. Recovery startup businesses which launched after February 15, 2020, and which have average annual gross receipts of $1 million or less, also qualify to receive this credit.
Paid Sick and Family Lead Tax Credit – Tax credits that pertain to paid sick and family leave have been modified and extended to September 30, 2021.
Excess Business Loss Limitation – ARPA extends this provision through December 31, 2026.
Section 162(m) Limits – Beginning in 2027, CEOs, CFOs, and the next eight highest-paid employees at a public company will be considered as part of the limited tax deduction these companies are permitted to take for executive compensation.
If you have questions on these or other provisions included in the American Rescue Plan Act, please contact your Untracht Early advisor for more information.