Sixth in a series of COVID-19 relief legislation, the American Rescue Plan Act (ARPA) was signed into law on March 11, 2021. It builds upon previous legislation and policies to provide financial support for many Americans and industries as well as bolster the ongoing vaccine distribution efforts. Most tax benefits are for the 2021 tax year only, though there is a push to make some of them – like the Child Tax Credit expansion – permanent.
Out of the $1.9 trillion total, notable allocations include:
- $422 billion to economic stimulus payments
- $350 billion to state and local governments
- $211 billion for education, which includes:
- $130 billion for K-12 schools
- $40 billion for public colleges and universities
- $40 billion for childcare providers
- $1 billion for the Head Start program
- $56.75 billion for vaccines and testing, which includes:
- $3 billion for a national stockpile of vaccines
- $8.75 billion to health agencies to distribute, administer, and track vaccines
- $20 billion to federal biomedical research for vaccine manufacturing and procurement
- $25 billion to expand testing, contact tracing, and reimbursements to hospitals for lost revenue
- $86 billion to multiemployer pension plans
- $16 billion to the agricultural industry
- $25 billion to the restaurant industry for grants
Economic Stimulus Payments
Individuals and families will start seeing their third economic stimulus payments in days, though the IRS has until December 31, 2021, to process all payments. Eligibility is based on a similar threshold as previous checks but payments phase out quicker. A single taxpayer making $75,000 would qualify for the full $1,400, for example; while a single taxpayer making $79,000 would see just $280. There are several stimulus check calculators available online to estimate the total payment.
| Taxpayer Groups | Phaseout Begins | Phaseout Ends |
| Individuals | $75,000 | $80,000 |
| Head of Household | $112,500 | $120,000 |
| Married Filing Jointly | $150,000 | $160,000 |
Other changes in benefits eligibility for economic stimulus payments this time around include:
- Dependents of any age qualify for the full $1,400 payment, not just children 16 and younger. However, if the household is over the top phaseout limit, the taxpayer(s) would not receive any payments for dependents.
- Mixed-status households where at least one taxpayer has a social security number
Individual Tax Benefits
Child Tax Credit
Expanding the Child Tax Credit beyond 2021 is a possibility; for this year, families with children can look forward to an increase in the credit from $2,000 per child to $3,000, plus an extra $600 for children under age 6. This year, 17-year-olds are also eligible for the Child Tax Credit.
ARPA authorized periodic payments of the Child Tax Credit instead of taxpayers receiving the full amount when they file their annual tax return. This provision is still being finalized; if it goes through, families could expect the first installment sometime this summer.
Child and Dependent Care Credit
The Child and Dependent Care Credit is expanded, too. Currently, it is 20% to 35% of eligible childcare expenses for a maximum credit of $2,100 for two or more qualifying children. ARPA increases the limit to $4,000 for one qualifying child or $8,000 for two or more children.
Earned Income Tax Credit
The EITC is temporarily increased from $543 to $1,502 for adults without children, and the age limits are revised to reflect childless adults starting at age 19 (from 25) and adults over 65.
Individuals who have children without a Social Security number are now permitted to claim the childless EITC benefit, and taxpayers who are separated from their spouse and filing a separate return may also claim EITC, even if they live with their child for more than half the year.
Affordable Care Act Premium Tax Credit (Section 36B)
This is the biggest change to the Affordable Care Act since 2010. Under ARPA, the income cap for ACA credits has been eliminated and boosts healthcare subsidies for lower-income taxpayers. Additionally, household spending on healthcare under ACA plans has been reduced to a maximum of 8.5%.
These changes will remain in effect for 2021 and 2022.
Unemployment Benefits
Federal unemployment benefits are extended to $300 per week until September 30, 2021.
The first $10,200 in unemployment benefits is excluded from federal taxes for households with up to $150,000 in AGI.
Student Loan Debt Forgiveness
Student loan debt forgiveness will not trigger a taxable event if the loan is discharged between 2021 and December 31, 2025. Typically, the remaining balance on a loan that’s forgiven is added to the taxpayer’s income for that year. This could signal that larger scale student loan debt forgiveness is on the horizon.
State and Local Governments
Funding to state and local governments is intended to replace lost revenue, aid with increased expenses, and mitigate economic hardship from COVID-19. Funding will be distributed in two waves: half in 60 days and the other half within one year. States with higher unemployment rates would be allocated more money.
In addition to the primary purposes outlined above, state and local governments could also forward the money to private non-profit organizations, public benefit corporations or use the money to provide premium pay to essential workers (or grants to their employers).
Governmental entities have until December 31, 2024, to use all the funds.
Business Taxes
Paid Sick and Family Leave Credits
Paid sick and family leave tax credits originally authorized through the Families First Coronavirus Response Act (FFCRA) are extended until September 30, 2021. Additionally, 501(c)1 entities are now eligible to claim credits.
Eligible employee wages are increased from $10,000 to $12,000 and eligible paid time off now includes vacation time and time off after receiving a vaccination. The number of eligible days off for paid sick leave resets after March 31, 2021.
Self-employed individuals can now qualify for up to 60 days of paid leave, versus the 50 days in previous legislation.
Employee Retention Credit
The Employee Retention Credit (ERC) was also extended, this time until December 31, 2021. Eligibility has been included to reflect startups established after February 15, 2020, with annual gross receipts of up to $1 million.
Another welcome change for the hardest-hit businesses is that if they experienced a 90% decline in gross revenue due to COVID-19, they can treat all employee wages as eligible for the ERC.
Other rule changes contained in the Consolidated Appropriations Act still apply. For example, the amount of the credit for 2021 is still increased from 50% to 70% of qualified wages. And, employers with more than 100 full-time equivalent employees are limited to taking the credit against wages paid to employees who are not actively working due to COVID-19.
Read more about new ERC rules and guidelines here.
Paycheck Protection Program
First, it is important to note that the deadline to apply for first- or second-draw PPP loans remains March 31, 2021. However, ARPA allocated an additional $7.25 billion to the program.
More nonprofits are eligible for forgivable loans under the new law. Organizations listed in Sec. 501(c) of the Internal Revenue Code other than 501(c)(3), 501(c)(4), 501(c)(6), or 501(c)(19) now qualify. The revised requirements are as follows.
- Less than 300 employees
- Lobbying activities comprise less than 15% of activities and the organization collects less than 15% of receipts from lobbying; such activities cannot exceed more than $1 million during the most recent tax year.
Larger nonprofits will now qualify, too, if they have less than 500 employees in any one location.
Economic Injury Disaster Loans
The EIDL program has been replenished with another $15 billion. EIDL advances will be targeted this round to small businesses located in low-income communities with fewer than 300 employees. Organizations must have suffered at least a 30 percent loss in gross receipts during an eight-week period between March 2, 2020, and December 31, 2020, compared to the previous period.
EIDL advances are limited to $10,000 per entity.
Other Business Tax Provisions
- The State Small Business Credit Initiative is restored and refunded.
- The Defense Production Act is authorized to buy and distribute medical supplies.
- Airlines, airports and the aviation industry is allotted several billion dollars to support workers and businesses in the industry.
- $1.25 billion is allocated for the Shuttered Venue Operating Fund.
- $25 billion is set aside for the restaurant industry to be distributed as grants of up to $10 million per entity/$5 million per physical location. Restaurants and other similar businesses with more than 20 locations are disqualified.
- Multiemployer pension plans that are most at risk of becoming insolvent are getting a bailout. These pension plans include about 185 unions representing mostly retired truck drivers, retail clerks, builders, and others, according to the New York Times. The $86 billion cash infusion is enough to pay retirees for 30 years.
- Section Sec. 461(l), limitation on excess businesses of noncorporate taxpayers, is extended for one year through 2027. of
- Section 864(f), the worldwide interest allocation provision, is repealed.
- There are additional limitations on corporate deductions for certain executive compensation beginning in 2027.
There are many other elements of the American Rescue Plan Act that will be explored in more detail in further articles. Bookmark this page for the latest updates and contact your Windham Brannon advisor for specific guidance on how this latest legislation affects you or your business.
