American Rescue Plan Features Several Tax Benefits

T he American Rescue Plan Act signed by President Biden last week includes several financial changes and quite a few tax provisions. Here’s a brief look at some of the more important items. We’ll look at them more in-depth in the coming weeks.

Stimulus Checks

A 3rd round of Economic Impact Payments (EIP) worth up to $1,400 per individual and dependent have already started going out. The EIP will begin to phase out for single taxpayers with AGIs of $75,000 and joint filers with AGIs of $150,000.

Unemployment Benefits

A $300-per-week supplement to federal unemployment benefits has been extended through September 6, 2021. Also, the first $10,200 in unemployment benefits are tax-free in 2020 for taxpayers making less than $150,000 per year. (This provision affects your current 2020 tax return as noted above!)

Child Tax Credit

The Child Tax Credit is expanded to provide a credit in advance of filing a return — the IRS will estimate each taxpayer’s child tax credit amount and pay it out monthly in advance from July through December 2021. The credit is also increased to $3,000 per child ($3,600 for children under 6), though the increase phases out above certain incomes.

Earned Income Tax Credit

Special rules now apply for individuals with no children: For 2021, the applicable minimum age is decreased to 19, except for students (24) and qualified former foster youth or homeless youth (18), and the maximum age is eliminated. The credit’s phaseout percentage and amounts are also increased.

Child & Dependent Care Credit

For 2021 only, this credit will be refundable. The credit will be worth 50% of eligible expenses, up to a limit based on income. The exclusion for employer-provided dependent care assistance is increased to $10,500 for 2021.

Family & Sick Leave Credits

The credits for sick and family leave originally enacted by the Families First Coronavirus Response Act are extended to September 30, 2021. The limit on the credit for paid family leave is increased to $12,000.

Employee Retention Credit

Originally enacted in the CARES Act, this credit is extended through the end of 2021, and allows eligible employers to claim a credit for paying qualified wages to employees.

COBRA Continuation Coverage

Eligible individuals may receive premium assistance in the form of a refundable tax credit; this applies to premiums and wages paid after April 1, 2021, and through September 30, 2021.

Premium Tax Credit

This credit is expanded for 2021 and 2022 by changing the applicable percentage amounts.

PPP Loans

Eligible companies that receive a first- or second-draw Paycheck Protection Program (PPP) loan after December 27, 2020, can now also receive a Shuttered Venue Operators Grant (SVOG). The amount of the SVOG will be reduced by the amount of PPP funds approved.

EIDLs

Targeted Economic Injury Disaster Loan grants received from the SBA are not included in gross income, and this exclusion from gross income will not result in a denial of a deduction, reduction of tax attributes, or denial of basis increase. Similar treatment is afforded SBA restaurant revitalization grants.

More to Come

In addition to many tax benefits, the new law allocates $50 billion in funding to benefit small businesses through a variety of programs, including EIDL advance payments and additional PPP funds. There is also money for state and local governments, schools, healthcare entities, vaccine distribution and COVID-19 testing.

Obviously, there is much to digest in the new legislation. We’ll be following up in future newsletters with more details on how it may affect you. In the meantime, please contact us with any questions you may have.