On March 10, 2021, the U.S. House of Representatives passed the Senate-amended H.R. 1319,The American Rescue Plan (ARP). It was signed by President Biden on Thursday March 11, 2021. The latest COVID relief follows the $4 trillion in relief that was passed in 2020. ARP was enacted as part of Congress’ fiscal year (FY) 2021 budget, and includes provisions impacting a wide variety of stakeholders. It is meant to provide relief for individuals and businesses struggling due to COVID-19 as well as to achieve other priorities of the Biden Administration. Below we highlight some key provisions.
Another round of economic stimulus payments
- $1,400/person ($2,800 MFJ)
- $1,400/dependent (regardless of age. The past two rounds of payments the dependent needed to be under age 17)
- AGI phase-out thresholds are different
- Single taxpayers in the first two payments started to phase out at AGI of $75,000 and completely phased out at $100K (MFJ started at $150K and fully phased out at $200K). For this payment the phase-out range is much smaller. For single taxpayers, you are fully phased out at $80K and MFJ at $160K.
- If you have filed your 2020 return and it has been processed by the IRS, your AGI will based off 2020. If you have not filed yet, it will be based on 2019. Therefore, if your income is higher in 2020 and you would be ineligible based on 2020 income but eligible based on 2019, would be worth holding off on filing your 2020 return.
Unemployment benefits
- Enhanced benefits of $300 per week through September 6
- First $10,200 of unemployment benefits are not taxable (this applies to 2020 benefits received)
- AGI must be below $150K
- TBD how states will respond to this
- If you already filed your 2020 tax return and reported all of the unemployment benefits as taxable, you will need to amend your return.
Child tax credit improvements for 2021
- Child tax credit increases from $2,000 to $3,600 for children under
- Child tax credit increases from $2,000 to $3,000 for children between 6 and 17
- Currently, only for 2021 tax year
- Entire credit would be refundable
- There are two separate phase-outs now for 2021. The excess credit available only for 2021 gets phased out at AGI of $150K for MFJ. The phase-out for the regular child tax credit begins at $400K.
- Could receive advance payments of the credit from July-December 2021 instead of waiting to when you file tax return
Dependent care tax credit changes for 2021
- Maximum credit for one child goes from $1,050 to $4,000
- Maximum credit for two or more children goes from $2,100 to $8,000
- Credit will now be refundable
- There is phase-out for high income individuals
- Maximum amount you can contribute to an employer dependent care plan increases from $5,000 to $10,500
Student loans
- Bill does not include any student loan forgiveness. Could be legislation in the coming months. Biden has expressed interest in forgiving $10K.
- Exemption of all student loan forgiveness from taxation through 1/1/2026.
- Cancellation of debt, including student loan debt, is typically a taxable event for the borrower.
Employee retention credit
- Extended through 12/31/21
- Start-up businesses established after 2/15/20 with annual gross receipts up to $1 million and otherwise do not meet the ERC eligibility tests would now be eligible.
Stay tuned for more to come from DKB on the ARP and please feel free to reach out to a member of our COVID-19 Task Force at [email protected] at anytime.
