Highlights of the American Rescue Plan Act

March 15, 2021 Author: Matt Caras, CPA Compass Pointe CPAs

Compass Pointe CPAs

On March 11, 2021 President Biden signed into law a coronavirus relief bill known as the American Rescue Plan Act (ARPA). Within this Act are many provisions designed to assist Americans and small businesses that have been negatively impacted by the COVID-19 pandemic. Below is a highlight of some of these provisions.

Cash payments

Most individuals earning less than $75,000 ($150,000 if married filing jointly (MFJ)) can expect a one-time cash payment of $1,400 ($2,800 if MFJ), along with an additional $1,400 for each dependent, including college students and qualifying relatives who are claimed as dependents. As with last year’s economic impact payments, the IRS will send out the advance payments of the credit.

For single taxpayers, the credit will begin to phase out at an adjusted gross income (AGI) of $75,000 and be completely phased out at $80,000. For married taxpayers, that range is $150,000 and $160,000.

The act uses 2019 AGI to determine eligibility unless the taxpayer has already filed a 2020 tax return.

Unemployment insurance

The Act has extended the $300 weekly federal unemployment funding through September 6, 2021. This funding was set to expire on March 14, 2021.

The Act also makes the first $10,200 in unemployment benefits tax-free in 2020 for taxpayers making less than $150,000 per year. Unless additional guidance is provided, those taxpayers who have already filed their 2020 tax returns will need to amend in order to get this $10,200 benefit. Each State will also need to determine whether they will follow this Federal tax treatment as well.

Child tax credit

ARPA increases the child tax credit from $2,000 per child to $3,000 per child ($3,600 per child for children under 6). The credit phases out for taxpayers with income over $150,000 for married taxpayers filing jointly and $75,000 for single filers. The act makes the credit fully refundable for 2021 and makes 17-year-olds eligible as qualifying children.

The IRS has been directed to estimate the taxpayer’s child tax credit amount and to pay monthly in advance 1/12th of the annual estimated amount. Payments will run from July through December 2021.

The IRS must set up an online portal to allow taxpayers to opt-out of advance payments or provide information that would be relevant to modifying the amount.

The taxpayer in general will have to reconcile the advance payment amount with the actual credit amount on their 2021 tax return. Any credit received in excess of the actual credit will be taxable income.

Family and sick leave credits

The Families First Coronavirus Response Act (FFCRA) has been expanded and extended. The credit program was extended to September 30, 2021. The ARPA increases the limit on the credit for paid family leave to $12,000 (up from $10,000). The number of days a self-employed individual can take into account was extended from 50 to 60.

The limitation on the over the number of days taken into account for paid sick leave will reset after March 31, 2021.

Please see our prior blog on COVID-19 for businesses. The FFCRA became voluntary beginning 1/1/2021.

Employee retention credit

This credit was extended through the end of 2021. See our prior blog which goes into greater detail on this credit

Other provisions

Here are some additional changes that are not covered in greater detail above:

  • Changes to the Earned income tax credit
  • Changes to the Child and dependent care credit
  • Student loan forgiveness will not be included in Federal taxable income from 1/1/2021 through 12/31/2025.
  • COBRA continuation coverage credit

As a reminder, in 2021, individual taxpayers who do not itemize are eligible to take a deduction on top of their standard deduction of up to $300 for cash given to charities. In 2021, married taxpayers are eligible for up to $600.

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