American Rescue Plan Act of 2021

16 Mar American Rescue Plan Act of 2021

Heading into March 2021, the United States had previously provided over $4 trillion in economic relief to
the American people in response to the coronavirus pandemic that began to plague the country a year
ago. But the U.S. government was far from done. On March 11, 2021, President Biden signed into law the
American Rescue Plan Act, a $1.86 trillion COVID‐19 relief and stimulus package. The Act contains several
provisions intended to directly impact millions of individuals, small businesses and companies needing
economic relief during these difficult times. Fuller Lowenberg is here to provide guidance on these key
provisions, what it could potentially mean for you, and what comes next.

INDIVIDUAL PROVISIONS

Economic Impact Payments
The Act provides for a third round of economic impact payments to be distributed to qualifying
individuals. The rebate checks are for $1,400 for a single individual and $2,800 for married filing jointly
couples. Parents will also receive an additional $1,400 per qualifying dependent in 2021, including college
students and other qualifying dependents, regardless of age. Nonresidents aliens and those that can be
claimed as a dependent on someone else’s tax return do not qualify for a stimulus check. The rebate
checks are advance payments of a tax credit for your 2021 tax return and have no impact on your 2020
tax return currently due.

U.S. resident individuals with adjusted gross income up to $75,000 for single filers, $112,500 for head‐of-household
filers, and up to $150,000 for married couples filing joint returns will receive the full stimulus
check. For those taxpayers over the income limits, the payment amount is reduced by $28 for each $100
above their respective $75,000/$112,500/$150,000 thresholds. For those individuals with income exceeding
$80,000, head‐of‐household filers with $120,000, and $160,000 for the joint filers with no children, there
will be no check issued.

The IRS will calculate and automatically send the stimulus checks to all those that are eligible, based on
the most recently filed tax return. The IRS will use the address on the taxpayer’s last filed return to deliver
the check. In addition, if direct deposit information was provided on the last filed tax return or prior to
a previous round of checks, this banking information will be used to directly deposit the rebate amount.
The IRS has announced that direct payments are to officially start to be deposited on Wednesday, March
17th. However, the IRS Commissioner stated that some taxpayers may have started to see the pending
payments over this past weekend. Taxpayers can view their 2021 Economic Impact Payment Status via
the IRS’s website. Get My Payment

Child Tax Credit
The Act provides for a temporary one‐time modification to the child tax credit for the 2021 tax year.
Normally capped at $2,000, for 2021 the child tax credit is increased to $3,000 per qualifying child age 6
and older and $3,600 per qualifying child under the age of 6 (an additional $1,000 or $1,600). The term
“qualifying child” has been expanded to include dependent children under the age of 18.

The increased credit also has a revised phase‐out range under the Act. The additional credit amount of
$1,000 or $1,600 is reduced based on increased income. For single filers, the extra credit amount begins
to phase‐out by $50 for each $1,000 by which the taxpayer’s AGI exceeds $75,000. For head‐of‐household
filers the phase‐out begins at $112,500 while married couples filing jointly’s phase‐out begin at $150,000.
The standard $2,000 qualifying child credit is phased out by $50 for each $1,000 by which a taxpayers AGI
exceeds $200,000 or $400,000 for married couples filing jointly. In addition, the 2021 credit is fully
refundable.

Also, in order to get this benefit into taxpayers’ hands sooner rather than later, half of the 2021 credit
amount will be paid in advance through periodic payments issued to taxpayers between July and
December. It is expected to consist of six monthly payments with the remaining half of the credit to be
claimed on your 2021 income tax return.

The Act instructs the IRS to create an online portal where taxpayers may elect to opt out of advanced
periodic payments as well as inform them of any changes during the year that would impact the advanced
credit amount such as the birth of child, change in income or change in marital status. It is expected that
taxpayers will need to reconcile these advance payments on their 2021 tax return and any advance
payments received in excess of their allowable credit, will be required to be paid back to the IRS and
increase their tax liability.

Child and Dependent Care Tax Credit
Similar to the Child Tax Credit, the Act provides for temporary one‐time enhancements to the child and
dependent care tax credit for 2021. Under previous law, an eligible non‐refundable credit was available
for 20% to 35% in child care expense for children under the age of 13 for up to $3,000 per child or $6,000
for two or more. The applicable percentage would decrease as income increased over $15,000.
For 2021, the maximum credit percentage has been increased from 35% to 50%, the credit is increased for
up to $8,000 in eligible expense for one child and $16,000 for two or more. In addition, the credit has
been deemed fully refundable for 2021. With these enhancements, the maximum credit could be $4,000
for one child and $8,000 for two or more.

Unemployment Benefits
Under the COVID‐19 related Tax Relief Act passed in December 2020, unemployment benefits were
extended for those that normally do not qualify as well as to include an additional $300 per week.
Originally set to expire March 14, 2021, the latest Act extends the enhanced unemployment benefits to
September 6, 2021, including the $300‐per‐week of additional payments.

In addition, the Act includes a tax break for the millions of individuals who received unemployment in
2020. The Act makes the first $10,200 in unemployment benefits received in 2020 retroactively tax‐free
for taxpayers making less than $150,000. This threshold is the same for all filing statuses and the exclusion
is available for both spouses on a married filing joint tax return, if both received unemployment benefits.
The IRS has released guidance on how to report the exclusion. However, New York and other state taxing
authorities have yet to rule on their tax treatment of this exclusion . Additional guidance is expected over
the coming weeks on how these $10,200 of unemployment benefits will be treated on state income tax
returns. The IRS has stated that while millions of taxpayers have already filed their 2020 income tax
returns, the IRS urges taxpayers to not file amended returns at this time.

Earned Income Tax Credit
The Act expands the eligibility and benefits available under the earned income tax credit (EITC) for 2021.
The existing law for the credit caps the credit availability for those without any children to earned income
and AGI under $15,820 for single filers and $21,710 for those filing married joint. For those with children,
earned income and AGI can be has high as $56,844. In addition, without a qualifying child, you must be
between 25 and 64 years old at the end of the tax year to claim the credit.
For 2021, the EITC has been revised for those without children as follows:
 The minimum age has been reduced from 25 to 19 years old.
 The maximum age limit of 65 years old has been eliminated.
 The maximum credit has increased from $543 to $1,502.
Also, to assist those that may have been laid off, furloughed or suffered an income loss in 2021 or 2020,
taxpayers are temporarily allowed to use their 2019 income instead of 2021 income in figuring out their
credit.

Student Loan Debt

While the Act does not call for the cancellation of any student loan debt, a provision was included that
would benefit taxpayers if this were to happen in the near future.

Normally, any debt that is canceled, forgiven , or discharged is taxable in the year it occurs and must be
reported on your income tax return. This would normally include any cancellation of student loan debt.
However, the American Rescue Plan includes a temporary exception to this rule that applies only to
student loans. For any forgiven student loan debt between 2021 and 2025, the amount is not subject to
federal income tax.

BUSINESS PROVISIONS

Employee Retention Tax Credit
Established under the CARES Act, the Employee Retention Tax Credit (ERTC) is a refundable credit
against applicable federal employment taxes for employers. The credit originally provided for a credit
equal to 50% of wages that were paid or incurred from March 13, 2020 through December 31, 2020 capped
at a $5,000 credit per employee for 2020. It was then expanded further under The Consolidated
Appropriations Act with a credit up to 70% of wages from January 1, 2021 through June 30, 2021 capped
at a $7,000 credit per employee per quarter.

Set to expire at the conclusion of the second quarter of 2021, the Act extends its availability through
December 31, 2021.

Visit our blog for information regarding the ERTC: Employee Retention tax Credit – Updated Employer Guidance

Economic Injury Disaster Loan Advance
The Act expanded access for funding under the Economic Injury Disaster Loan (EIDL) program. An
additional $15 billion has been appropriated to businesses that apply for EIDLs that are located in a low income
community, suffered an economic loss of more than 30% and have under 300 employees.
$10 billion of this amount is reserved for the business that previously applied for EIDLs after the passage
of the Venues Act in January, but have yet to receive the full amount of their loans. The remaining $5
bullion is reserved for EIDL advances of $5,000 to such eligible businesses which have suffered an
economic loss of 50% or greater and have under 10 employees. EIDL advances do not need to be paid
back regardless of the approval or denial of an EIDL.

Paid Sick Leave & Expanded Family Medical Leave Act
In March 2020, the Families First Coronavirus Relief Act expanded the Family Medical Leave Act (FMLA)
and unemployment benefits on a temporary basis through December 31, 2020 and required certain
covered employers to provide paid sick and family leave to employees affected by the COVID‐19 outbreak.
This, as well as the credit available to the employer, were later extended through March 31, 2021 under
the Consolidated Appropriates Act.

The American Rescue Plan Act of 2021 further extends the voluntary leave and credits through September
30, 2021. The FMLA has been increased from 50 days to 60 days resulting in an increased credit from
$10,000 to $12,000. The amount of eligible sick leave restarts on April 1, 2021 and employers can provide
up to 10 days of leave through September 30, 2021. In addition, eligibility for the leave has been expanded
to include leave for obtaining a COVID‐19 vaccination or leave for recovering from a COVID‐19
vaccination.

As further guidance is released, we will continue to update our clients on all of the necessary details.