On March 6, the Senate passed the American Rescue Plan Act of 2021. The $1.9 trillion bill now goes back to the House for expected approval and then will go to President Biden for signature. Legislatures are working to finalize the bill in advance of the March 14 expiration of unemployment aid programs. The Act is intended to stimulate the economy once again with direct payments to taxpayers, extensions of certain tax credits, and extension of unemployment aid. Below is a summary of key aspects of the legislation.
Key Takeaways for Individuals
The bill includes direct payments of $1,400 for qualified taxpayers. Individuals making $75,000 or less will receive the full $1,400, while individuals making over $75,000 but not more than $80,000 will receive a phased-down amount. Married taxpayers who file jointly who make $150,000 or less will receive $2,800, and those making over $150,000 but not more than $160,000 will receive a phased-down amount. Taxpayers within these income limits will also receive a $1,400 credit per dependent, including older dependents such as college student dependents and adult dependents who were not included in prior stimulus payments.
The bill includes a $300 per week enhancement of unemployment benefits, a decrease from the current $400 enhancement. However, the bill does allow for the first $10,200 of unemployment relief to be tax exempt for households earning $150,000 or less.
Child Tax Credit
The bill makes significant changes to the child tax credit. For tax year 2021 only, the child tax credit increases to $3,000 per child ($3,600 for children under age six) and is fully refundable. Dependents who are 17 years old will also qualify for the credit. This credit is an increase from the existing $2,000 credit and the additional $1,000 phases out for married taxpayers making over $150,000 and single taxpayers making over $75,000.
The bill allows for advance payments of half of this credit to be issued monthly beginning July 1, 2021. The remainder of the credit can be claimed when filing 2021 tax returns.
The bill includes a provision making any student loan forgiveness passed between December 31, 2020 and January 1, 2026 tax free. The bill does not include direct student loan forgiveness but this provision potentially paves the way for later enactment of some type of forgiveness program.
Key Takeaways for Employers
Paid Sick and Family Leave
The Act extends the payroll tax credit for employers providing paid sick and family leave. Currently this is set to expire on March 31, 2021, however the Act would extend this through September 30, 2021. The Act also allows for qualified leave to include time off to receive the COVID-19 vaccine, or to recover from a vaccine-related illness or injury.
Employee Retention Credit
The Act extends the payroll credit for employee retention through December 31, 2021. This credit is currently set to expire June 30, 2021.
There are several additional relief provisions including changes to retirement plan funding, COBRA coverage assistance, and additional tax credits. As the American Rescue Plan Act of 2021 nears final approval, we are well-versed on the relevant provisions and available to help clients implement any new opportunities.