On Thursday, March 11th, the newest stimulus effort, called the American Rescue Plan Act of 2021 (APRA), was signed by President Joe Biden. The Act is chock-full of provisions that will make a difference to both businesses and individual taxpayers. Here are some of its highlights:
Unemployment Benefits
Under APRA, for the tax year beginning in 2020, the first $10,200 in unemployment benefits per worker, in households that make less than $150,000 in adjusted gross income (AGI), will not be taxable and will not count towards their AGI.
For those that are rushing to prepare their 2020 returns in order to qualify for the new stimulus payment, please be aware that it might take some time for the IRS (and tax software companies) to update their forms and instructions to exclude the first $10,200 of unemployment benefits in its income calculations. If a tax return has already been filed, it may need to be amended.
Stimulus Checks
The new act creates another round of economic impact payments, or ‘stimulus checks’, to be sent to qualifying individuals.
- It provides for a $1,400 stimulus check per qualifying individual, $2,800 for married taxpayers filing jointly and an additional $1,400 for each dependent. In addition, the new provision now includes college students and qualifying relatives who are claimed as dependents.
- Eligibility for single taxpayers will begin to phase out with an adjusted gross income of $75,000, and completely phase out with an AGI over $80,000.
- Phase-out for married taxpayers who file jointly begins with an AGI of $150,000 and ends with an AGI of $160,000. This means that if a married couple has above $160,000 in adjusted gross income, they will be ineligible for any stimulus payment, even if they have many children.
- For heads of household, the phase-out will begin with an AGI of $112,500 and end with an AGI of $120,000.
- The act uses 2019 AGI to determine eligibility unless the taxpayer has already filed a 2020 return. If a taxpayer’s income drops on his 2020 tax return, or if an additional dependent is added, the additional stimulus funds can still be claimed on the 2021 filing. We are not yet sure how quickly the IRS will process the stimulus checks based on a 2020 return that is filed now.
Tax Credits
The Employee Retention Tax Credit, originally enacted in the Coronavirus Aid, Relief, and Economic Security Act, has been extended through December 31, 2021. This provision allows eligible employers to claim a credit for paying qualified wages to employees. This can potentially provide a credit of up to $28,000 per employee.
The Dependent Care Refundable Credit has increased to up to 50% of eligible expenses. This makes the credit worth up to $4,000 for one qualifying individual and up to $8,000 for two or more. The credit will be fully refundable. The percentage will be gradually reduced for households with income over $125,000 until the minimum of 20%.
Child Tax Credits will be expanded to $3,600 for each child under the age of 6 and $3,000 for each child ages 6 to 17. The credits will be refundable (i.e. will be available even if no tax is due). However, this increase will be phased out for single filers making more than $75,000 and married filers making more than $150,000. In addition, the IRS will prepay 50% of the credit in monthly payments running from July through December 2021. The remaining 50% can be claimed as a credit with your 2021 tax return.
Family and Sick Leave Credits will be extended to September 30, 2021. These refundable credits against payroll taxes compensate employers and self-employed individuals for coronavirus-related paid sick leave and family and medical leave. The act increases the limit on the credit for paid family leave to $12,000, and the number of days a self-employed individual can take into account from 50 to 60. Additionally, the credits have been expanded to include 501(c)(1) governmental organizations.
Additional Funding Allocation:
- Public schools serving K-12 students will receive $130 billion in funding to help get students back into the classroom. Another $2.5 billion in funding will be allocated to private schools, and $40 billion to colleges.
- The Federal Government will be distributing $30 billion in housing assistance to state governments to help low-income households with their rent, mortgage and homelessness issues. The freeze on evictions and foreclosures will also be extended through September 30, 2021.
- Funding for vaccines and testing will be increased by another $60 billion, while COVID disaster relief will be allocated another $47 billion.
- Funding towards food stamps will be increased by 15%.
Grants and Loans
- A 100% subsidy for COBRA premiums for eligible individuals may be available for the period of COBRA coverage including the periods beginning on April 1, 2021, and ending on September 30, 2021.
- EIDL grants for small businesses will see $15 billion more in funding for grants up to $5,000.
- The Paycheck Protection Program will receive another $7 billion in funding.
- Some student loans discharged after December 31, 2020, and before January 1, 2026, will not be included in gross income.
Roth&Co is committed to keeping you apprised of all provisions that may benefit you, your business or your organization. We will provide more information as it becomes available.
This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
