On March 11, 2021, the American Rescue Plan Act was signed into law by President Biden. As we previously reported, the Act includes many provisions intended to stimulate the economy including:
- Stimulus payments
- Unemployment aid
- Increased/expanded Child Tax Credit
- Tax exemption for student loan forgiveness
- Extension of the payroll tax credit for paid sick and family leave
- Extension of the Employee Retention Credit
The above-mentioned provisions remain unchanged from our previous article, which can be viewed here.
In addition, the Act includes many other provisions for businesses and individuals such as:
COBRA Premium Subsidy - The Act subsidizes 100% of the COBRA premium from April 1, 2021 through September 30, 2021, for those eligible for assistance. Eligibility includes anyone who elected COBRA coverage and qualified for COBRA due to a reduction of hours or involuntary termination that is not due to gross misconduct.
Dependent Care Assistance - Employees can exclude $10,500 of dependent care from income and wages for 2021, a significant increase from the prior amount of $5,000.
Earned Income Tax Credit - The Act makes several changes to this credit such as introducing special rules for individuals with no children and decreasing the applicable minimum age to 19, except for students (24) and qualified former foster children or homeless youth (18). There is no longer a maximum age. Changes include:
- The childless EITC amount for 2021 increases from $543 to $1,502.
- The amount of income at which the credit is maximized increases to $9,820 (currently set at $7,100).
- The threshold for the phaseout of the credit for non-joint filers increases to $11,610 (currently set at $8,880).
- The amount of disqualifying investment income for purposes of the EITC increases to $10,000, adjusted for inflation after 2021 (currently $3,650 for 2021).
Tax Treatment of COVID-19 Relief - Targeted Economic Injury Disaster Loans (EIDL) and Restaurant Revitalization Grants received from the Small Business Administration will not be subject to income tax, and the exclusion will not result in the denial of a deduction reduction of tax attributes, or denial of increase in basis. This provision is similar to provisions in The Consolidated Appropriations Act, 2021 applicable to EIDL grants for entertainment venues, educational grants, etc.
We are poised to assist clients in proactive implementation of any new opportunities that may result from this legislation. Please contact your HLB Gross Collins, P.C. representative if you have any questions.