American Rescue Plan Act of 2021

The House of Representatives passed the American Rescue Plan Act, H.R. 1319, on Wednesday and President Biden signed it into law on Thursday. This $1.9 trillion rescue package is intended to provide additional support in the fight against the pandemic and economic stimulus.

Here are some of the key provisions:

  • Recovery Rebates

The act creates a new Sec. 6428B that provides individuals with a $1,400 recovery rebate credit ($2,800 for married taxpayers filing jointly) plus $1,400 for each dependent (as defined in Sec. 152) for 2021, including college students and qualifying relatives who are claimed as dependents. This credit will be sent out as a cash advance payment, same as the first two stimulus payments.

The adjusted gross income limitation phase out for this credit for single taxpayers is $75,000 with full phase out at $80,000. For joint filers the phaseout begins at $150,000 with full phase out at $160,000. The head of household phaseout begins at $112,500 through $120,000.

  • Unemployment Benefits

The supplemental unemployment benefit of $300 per week provided by the federal government is extended through September 6, 2021. There is also a taxable income exclusion on unemployment benefits for the first $10,200. Applicable for taxpayers with a household income of less than $150,000.

  • COBRA Continuation Coverage

Continued premium assistance for individuals who are eligible for COBRA continuation coverage between the date of enactment and Sept. 30, 2021. The credit applies to premiums and wages paid after April 1, 2021, and through Sept. 30. Continuation coverage premium assistance is not includible in the recipient’s gross income.

  • Child Tax Credit

The Act makes the dependent care tax credit refundable for 2021. The maximum credit has increased from 35% of up to $3,000 qualifying expenses for one child and $6,000 for two or more children to 50% of up to $8,000 of qualifying expenses for one child and $16,000 for two or more children. The credit is phased out for households with incomes from $125,000 to $440,000.

The IRS is directed to estimate taxpayers’ child tax credit amounts and pay monthly in advance one-twelfth of the annual estimated amount. Payments will run from July through December 2021.

  • Student Loan Forgiveness

The Act provides an exclusion from gross income for eligible student loan indebtedness forgiven after December 31, 2020 and before January 1, 2026.

  • Earned Income Tax Credit

The act also makes several changes to the Sec. 32 earned income tax credit. It introduces special rules 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). The maximum age is eliminated. The credit’s phaseout percentage is increased to 15.3%, and the phaseout amounts are increased. The credit would be allowed for certain separated spouses. The threshold for disqualifying investment income would be raised from $2,200 to $10,000. Temporarily, taxpayers would be allowed to use their 2019 income instead of 2021 income in figuring the credit amount.

  • Child and Dependent Care Credit

The act makes various changes to the Sec. 21 child and dependent care credit, effective for 2021 only, including making it refundable. The credit will be worth 50% of eligible expenses, up to a limit based on income, making the credit worth up to $4,000 for one qualifying individual and up to $8,000 for two or more. Credit reduction will start at household income levels over $125,000. For households with income over $400,000, the credit can be reduced below 20%. The act also increases the exclusion for employer-provided dependent care assistance to $10,500 for 2021.

  • Employment Retention Credit

The credit is extended through the end of 2021. It had previously been set to expire June 30, 2021. This allows eligible employers to claim a refundable credit of up to $7,000 per employee per quarter. Eligible employers during 2021 include companies that experienced a full or partial suspension of operations as a result of government orders, or those that can show at least a 20% reduction in quarterly gross receipts, compared with the same quarter in 2019.

  • Repeal of Election to Allocate Interest Expense on Worldwide Basis

The American Jobs Creation Act of 2004 provided for an election for US-affiliated groups to allocate interest expense between US and foreign sources to determine the foreign tax credit limitation.  After several delays, the election was scheduled to go into effect after December 31, 2020.  The Act repeals the election for taxable years beginning after 2020.

  • Economic Injury Disaster Loan (EIDL) Grants

Grants received from the U.S. Small Business Administration (SBA) are not included in gross income and that this exclusion from gross income will not result in a denial of a deduction, reduction of tax attributes, or denial of basis increase.

  • Restaurant and Venue Assistance

Restaurants impacted by the economic fallout of COVID-19 may be eligible for a grant to cover eligible expenses for the period February 15, 2020 through December 31, 2021.  The amount of the Restaurant Revitalization Grant is equal to the pandemic-related revenue loss which is the difference between the 2020 and 2019 gross receipts.  Grant funds can be used for qualified expenditures related to the operation of the business.  Amounts received from the Small Business Administration in the form of a restaurant revitalization grant shall not be included in gross income.  Deductions are allowed for otherwise deductible expenses paid with the proceeds of the restaurant revitalization grant.

  • Economic Injury Disaster Loans & Paycheck Protection Program Funds

The COVID-19 Targeted EIDL was signed into law on December 27,2020 as part of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act. The Targeted EIDL Advance provides businesses located in low-income communities with additional funds to ensure small business continuity. Advance funds of up to $10,000 will be available to applicants located in low income communities who previously received an EIDL Advance for less than $10,000 or those who applied, but received no funds, due to lack of available program funding.  The SBA will first reach out to EIDL applicants that already received a partial advance between $1,000-$9,000. Thereafter, the SBA will reach out to applicants who applied for EIDL assistance before December 27,2020 but did not receive an EIDL Advance due to the lack of funding.

To be eligible: the applicant must be located in a low-income community, the applicant can demonstrate a more than 30% reduction in revenue during an eight-week period beginning on March 2, 2020 or later, the applicant has 300 or fewer employees, the Act directs an additional $7.25 billion in Paycheck Protection Program (“PPP”) funds and also expands eligibility to more nonprofit entities.

  • Vaccinations, Testing Spending

The Act provides funding for vaccine and testing programs for COVID-19, including the creation of a national vaccine distribution program, funding for community vaccination centers and mobile vaccination. The Act also appropriates funds to increase testing capacity and regimes.

  • State and Local Aid

$360 billion will be directed to state and local governments. The funds are intended to help states and cities avoid cuts to public services due to decreased revenues and increased spending caused by COVID-19.

  • Schools

The Act provides $176 billion for education. The funds will be used to help K-12 schools add staff in order to serve decreased class sizes and purchase the necessary resources to open safely. The plan also directs funds to colleges and universities.

  • Health Insurance 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.

For more information or to discuss the specifics of your situation, contact the experts at BiggsKofford.

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