ARPA Introduced

Tax Alert: President Biden Signs American Rescue Plan Act of 2021

On March 11th, President Biden signed the American Rescue Plan Act of 2021 (ARPA).  This COVID-19 emergency bill addresses the ongoing economic challenges facing employers and employees as the pandemic continues across the nation.

Here are some of the key individual and business provisions under the ARPA that you should be aware of.

Individual Provisions

  • Individual Recovery Rebate
    • An eligible individual is allowed an income tax credit of $1,400 ($2,800 for joint filers).
    • An additional $1,400 is allowed for each dependent of the taxpayer.
    • Income limitations are $150,000 for a joint return, $112,500 for head of household and $75,000 for all other taxpayers.
    • The credit is phased out at $160,000 for joint filers, $120,000 for head of household and $80,000 for all other taxpayers.
    • Adjusted gross income (AGI) amounts for the 2020 tax year are used in applying the phase-out. 2019 amounts will be used for taxpayers who have not yet filed their 2020 returns.
  • Unemployment
    • The bill extends the enhanced $300 weekly unemployment relief to early September.
    • The first $10,200 (per spouse) of unemployment benefits received in 2020 will be excludable from income if a taxpayer’s AGI is less than $150,000. Amended returns may be required for 2020 returns already filed.
    • The $150,000 limit is the same for single, married, head of household.
  • Child Tax Credit (CTC) for 2021:
    • For 2021 only, a qualifying child is a child who has not turned 18 by the end of 2021.
    • The CTC is increased to $3,000 per child ($3,600 for those under the age of 6 at the end of 2021) and is fully refundable.
    • The increased credit is phased out for those with a modified AGI of:
      • $75,000 single
      • $112,500 head of household
      • $150,000 for joint filers and surviving spouse
    • Taxpayers not eligible to claim an increased CTC in 2021 can claim a regular CTC of up to $2,000 subject to the existing phase-out rules.
  • Child and Dependent Care Credit Enhanced and Made Refundable – For 2021
    • The expenses considered for the credit are increased from $3,000 to $8,000 for one qualifying child and from $6,000 to $16,000 for two or more qualifying children.
    • The credit is refundable for taxpayers living in the US for more than half of the tax year.
    • The credit percentage is increased to 50% of qualifying expense and phased down for taxpayers with AGI between $125,000 – $185,000. The credit percentage for taxpayers with AGI between $185,000 – $400,000 is 20% and phased out completely for taxpayers with AGI over $440,000.
  • Increase in the Exclusion for Employer-Provided Dependent Care Assistance – For 2021 only
    • The exclusion for employer-provided dependent care assistance is increased from $5,000 to $10,500, and from $2,500 to $5,250 in the case of a separate return filed by a married individual.
  • Student Loan Discharges
    • ARPA excludes from gross income certain discharges of student loans after December 31, 2020 and before January 1, 2026.

Business Provisions

Employer Tax Relief

  • Paid Sick and Family Leave Credit
    • The bill extends the applicable period from April 1, 2021 to September 30, 2021.
    • The bill also increases the limit on applicable wages for which the credit can be claimed from $10,000 to $12,000, effective after March 31, 2021.
    • The leave for which a credit can be claimed is also expanded to include time off to receive a COVID-19 vaccine, or to recover from a vaccine-related illness or injury.
    • Effective March 31, 2021, the bill will allow the credit to offset Medicare tax.
  • Employee Retention Tax Credit (ERC)
    • The bill extends the ERC through the end of 2021. Effective for periods after June 30, 2021, the ERC offsets Medicare Tax.  The excess may be refundable.
    • Eligibility has been expanded to certain recovery startup businesses that began operations after February 15, 2020.
  • Retirement Plan Funding
    • The bill includes several changes meant to help employers meet funding obligations for plan years beginning after December 31, 2019.
    • The bill provides for a freeze beginning in 2030 to the inflation adjusted increases of various defined contribution plan limits.
  • COBRA Premium Subsidy
    • Eligible individuals may receive a 100% subsidy for COBRA premiums for any period of COBRA coverage during the period beginning on April 1, 2021 and ending on September 30, 2021.
    • Individuals who elected but discontinued COBRA coverage before April 1, 2021 are eligible if they are still within their maximum period of coverage.
    • These individuals may make a COBRA election during the period beginning on April 1, 2021 and ending 60 days after they are provided required notification of the extended election period.
    • Subsidy amounts will not be included in the gross income.
    • Employers will be allowed a quarterly tax credit against the Medicare payroll tax equal to the premium amounts not paid by the eligible individuals.
    • If the credit amount exceeds the quarterly Medicare payroll tax, the excess will be treated as a refundable overpayment.
  • Targeted Economic Injury Disaster Loan (EIDL) Advances
    • Amounts received as targeted EIDL advances are not included in the gross income of the person who receives the amounts.
    • In the case of a partnership or S corporation that receives targeted EIDL advances, any amount of the advance excluded from income is treated as tax exempt income and will be allocated to the partners’ or shareholders’ tax basis.
  • Restaurant Revitalization Grants
    • Eligible restaurants, food trucks, and similar businesses may receive restaurant revitalization grants from the Small Business Administration.
    • Amounts received as restaurant revitalization grants are not included in the gross income of the person who receives the amounts.

Sax will continue to update you as further details are made available.  Reach out to your Sax advisor or email [email protected] with questions.  For more and on-going information relative to your state and business, visit Sax’s COVID-19 Resource Center.

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