The American Rescue Plan Act of 2021
The American Rescue Plan Act of 2021 is a COVID-19 relief bill signed into law on March 11, 2021, by President Biden. The bill provides a wide range of measures aimed at providing financial support and assistance to individuals, families, businesses, and communities affected by the COVID-19 pandemic.
$1,400 stimulus payment:
Each eligible individual in your household should receive $1,400. Eligible individuals include:
- You, as an individual taxpayer
- Your spouse (if you are filing a joint tax return)
- Any dependents you are claiming on your tax return, regardless of their age
For example: A married couple filing jointly and claiming three dependents on their tax return would be eligible for $1,400 x 5 = $7,000. This is the case even if the dependent is, say, an adult child in college, or a parent in assisted living.
The catch? Whether you receive a full, a partial, or no rebate depends on your Adjusted Gross Income (AGI) on your tax return. The payment will fully phase out when income reaches $80,000 for single filers, $120,000 for heads of household with one child, and $160,000 for joint filers or surviving spouse.
Technically, the stimulus payment is a 2021 Recovery Rebate.
Pitch #1: Your 2019 or 2020 Tax Return, Already Filed
The IRS will look at the AGI reported on the most recent tax return you’ve already filed. If 2020 tax return is not filed, the payment will be based on the 2019 tax return.
Note: Even if you end up reporting higher income in subsequent years, you will get to keep the full amount of any payment you receive from Pitch #1. The IRS will not come back to you, asking for you to pay it back.
Pitch #2: Your 2020 Tax Return Yet to Be Filed
If your 2020 return qualifies you for a higher payment than your 2019 return did, the IRS will send you the difference.
- A full or partial payment: If you received nothing based on your 2019 return, but you now qualify for one or the other based on your 2020 income.
- A second partial payment: If you already received a partial payment, but you now qualify for more based on your 2020 income.
- Nothing: If your AGI is still too high to qualify.
Note: The date to receive this payment is going to be the earlier of 90 days after tax deadline or September 1, 2021.
Pitch #3: Your 2021 Tax Return
What if neither your 2019 tax return nor your 2020 return qualify you for a full rebate? You still have one more chance. If your 2021 income is low enough to qualify, you will be able to file for a credit on your 2021 tax return for any amounts not already received.
Extended Unemployment Benefits
As an extension of the CARES Act, weekly unemployment benefits have been extended through Sept. 6, 2021, with a weekly benefit amount at $300. The first $10,200 ($20,400 if MFJ) of unemployment benefits for 2020 will be nontaxable for taxpayers with adjusted gross income of less than $150,000. If adjusted gross income is $150,000 or greater, the full $10,200 or $20,400 of unemployment compensation becomes taxable.
COBRA continuation coverage
Reduces premiums payable by providing premium assistance from April 1, 2021, through Sept. 30, 2021. Federal subsidy coverage for COBRA premiums increases to 100%. If required to notify a group health plan, failure to do so may result in $250 penalty for each failure.
Child tax credit
Special rules for 2021 include an expansion of the credit from $2,000 to $3,000 per eligible child under age 18 ($3,600 per child under age 6). The fully refundable credit, with 50% of the credit issued as advance periodic payments starting in July, will be reconciled on the 2021 tax return. For 2021, the increased credit amount (additional $1,000 or $1,600 per-child in excess of the present-law $2,000 per-child) begins to be phased-out at $75,000 ($150,000 for MFJ and SS and $112,500 for head of household). Once the increased credit amount is reduced, the credit plateaus at $2,000, and the phaseout begins at $200,000 ($400,000 for MFJ).
Earned income credit
For 2021, the minimum age to claim the EIC for taxpayers without children (childless EIC) generally is reduced from age 25 to age 19 (except full-time students). The maximum age limit of 65 for claiming the childless EIC has been eliminated. The credit and phaseout percentage increases from 7.65% to 15.3% for an individual with no qualifying children. Taxpayers may use their earned income from the 2019 tax year to determine their EIC for the 2021 tax year if the 2021 earned income was less than the 2019 earned income. The disqualified investment income limit also increases from $3,650 (2020) to $10,000.
Dependent care assistance
For 2021, the credit is fully refundable and the dollar limit for eligible expenses increases from $3,000 to $8,000 for one eligible child, and from $6,000 to $16,000 for two or more eligible children. The maximum credit rate increased from 35% to 50% and the AGI limitation increases from $15,000 to $125,000. Taxpayers with an AGI of $125,000 to $400,000 will receive a partial credit. The exclusion for employer-provided dependent care assistance increases from $5,000 to $10,500 ($5,250 for MFS).
Paid sick and family leave credits
Extends the paid leave credits from April 1, 2021, through Sept. 30, 2021, for eligible employers providing sick or family leave that otherwise would be required if the Families First Coronavirus Response Act applied after March 31, 2021. Several new provisions also take effect after March 31, 2021. For example: allows paid leave credits to obtain COVID-19 vaccine, restarts the 10-day limit for qualified sick leave wages and increases the qualified family leave wages limit from $10,000 to $12,000 in total.
Employee retention credit
Extends the employee retention credit (ERC) through Dec. 31, 2021, for wages paid after June 30, 2021, and before Jan. 1, 2022. After June 30, 2021, the ERC offsets the employer’s share of Medicare tax.
Premium tax credit
The act expands the Sec. 36B premium tax credit for 2021 and 2022 by changing the applicable percentage amounts in Sec. 36B(b)(3)(A). Taxpayers who received too much in advance premium tax credits in 2020 will not have to repay the excess amount. A special rule is added that treats a taxpayer who has received, or has been approved to receive, unemployment compensation for any week beginning during 2021 as an applicable taxpayer.
Modification of treatment of student loan forgiveness
Provides special rule for discharges in 2021 through 2025 that the discharge of student loans as cancellation of debt is not included in gross income. Student loan borrowers who made qualified student loan payments after March 13 could have those payments refunded if they notify their loan servicer. Tax refund and/or wage garnishment has been suspended through Sept. 30, 2021, for those who have defaulted on federal student loan debt.
Tax treatment of targeted Economic Injury Disaster Loan (EIDL) advances
Excludes amounts received under §331 of the Economic Aid to Hard-Hit Small Business, Non-profits, and Venues Act from gross income and treats them as tax exempt income for partnerships and S corporations. Allows deductions for expenses paid with targeted EIDL advances, does not reduce tax attributes and allows basis increases.
Tax treatment of restaurant revitalization grants
Excludes amounts received from the Small Business Administration (SBA) under §5003 from gross income and treats them as tax exempt income for partnerships and S corporations. Allows deductions for expenses paid with such amounts, does not reduce tax attributes and allows basis increases.
Modification of exceptions for reporting of third party network transactions (1099-K Reporting)
After 2021, the de minimis exception for reporting a transaction changes from $20,000 to $600. Clarifies that reportable transactions only include those for goods and services, which will apply to transactions after the enactment of this bill.