On Thursday, March 11th, President Biden signed the $1.9 trillion COVID relief bill, the American Rescue Plan (ARP). This is a tremendously large piece of legislation and there is a lot to unpack, but we wanted to call your attention to a few key items that are particularly relevant to the tax and financial world. This overview certainly doesn’t cover everything, but here is a summary of what we consider to be key points of the bill:
Individual Direct Payments
The bill allocates funds for a third economic impact payment to qualifying Americans.
Individuals earning up to $75,000 and couples earning up to $150,000 would receive the full direct payments of $1,400 per person. Individuals will also receive an additional $1,400 payment for each dependent claimed on their tax returns.
Income cutoff is tighter than with previous bills, payments are phased out at $80,000 for individuals and $160,000 for couples filing jointly. The IRS is going to base your stimulus payment off your most recently filed tax return.
IMPORTANT: The ARP contains a clause that stimulus payments will be paid out in two phases this time around. In Phase 1, the IRS will take all the data it already has (from 2019 or 2020 tax returns) and pay stimulus payments out based on that. For anyone who earned less in 2020 than in 2019 and has not filed your 2020 tax return yet, there will be a second date in which the IRS pays out to everyone who should have received more stimulus based on their 2020 filing. This Phase 2 date is going to be the earlier of 90 days after tax deadline OR September 1. This means that you don’t have to rush to get your 2020 taxes filed just so you can get your stimulus. You’ll ultimately receive your full stimulus amount based on your 2020 income at a later date.
The exact timing if stimulus payments is still unknown, but it’s likely to be soon. The IRS pushed its first stimulus payments out in a matter of days after the December bill was signed, and we can probably expect stimulus payments to start going out as soon as next week. Odds are that everyone who is eligible will receive their stimulus money by the end of March, but that is speculation at this time.
Federal unemployment insurance payments will remain at $300 per week and the benefits will extend through Sept. 6. This is widely expected to be the last extension of unemployment benefits.
IMPORTANT: The ARP makes the first $10,200 in unemployment payments nontaxable for households with incomes under $150,000 in 2020. This determination is a significant one that could save the average person who was on unemployment benefits over $1,500.
Expanded Child Tax Credit
The ARP legislation temporarily expands the child tax credit, increasing the amount to $3,000 for children ages 6 to 17 and $3,600 for children under age 6. Dependents who are 18+ remain at a $500 credit. Currently, this change is for tax year 2021 only, though it could become permanent at some point.
Families eligible for the expanded credit will receive these benefits monthly from July 2021 – December 2021. This means that if you qualify, you will receive $300 per month per child under the age of 6 or $250 per month per child between 6-17 years old starting in July through the end of the year.
Like the stimulus payments, there is an income phase out for the expanded child tax credit. Individuals making more than $75,000 and married couples making more than $150,000 won’t be eligible to receive the expanded child tax credit or the advance payments. These individuals will still receive the base child tax credit of $2,000.
Unlike the stimulus payments, the IRS can and will get this money back from you if you made too much money when you file your 2021 taxes. If 2020 was the only year that you were under the threshold to get the expanded Child Tax Credit, you should consider opting out of the expanded credit and the advance payments. The IRS will be setting up a portal for opting out.
Expanded Earned Income Credit
If you are a low-income earner and have earned income (so that excludes individuals who are retired and living off pensions, Social Security, or similar – however, if you have a part-time job you would potentially be able to qualify for EIC), the EIC is being nearly tripled for you to allow a maximum credit of $1,502 per year instead of $543. Also, the EIC used to be only available to individuals aged 25-65. Now all non-full-time students who are at least 19 years old can capture the EIC if they meet the income requirements.
Extension of Family and Sick Leave Credits
The ARP keeps the FFCRA going through September 30th of this year. Not only is the program extended well into 2021, but starting on April 1st, the clock resets on this program. That means that as of 4/1, everyone starts over with a fresh allotment of leave, regardless of whether they previously used their allotted FFCRA time in 2020. Meaning employees who have already received paid family and/or sick leave can now go back and capture those credits again for the period between 4/1/21 and 9/30/21.
As a reminder, self-employed individuals can also use the FFCRA credit. If you are unable to work due to the fact that you have COVID-19, have symptoms of COVID-19 or are forced to quarantine because of COVID-19 regulations, OR if you have a child you have to care for who is out of school/daycare because of anything related to COVID-19, you are also entitled to these credits.
Though there was substantial talk about mandating employers to continue with the FFCRA, your company can elect out of these credits as long as you aren’t discriminatory about it. Meaning you can’t tell Employee A they’re getting paid but tell Employee B that they aren’t.
Paycheck Protection Program
The bill includes $7.25 billion in new money for the small-business loan program known as PPP and would allow more nonprofits to apply, including those groups that engage in advocacy and some limited lobbying. It also allows larger nonprofits to be eligible. No other substantive changes to the PPP program.
Extension of the Employee Retention Credit
The Employee Retention Credit (ERC) is being extended once again, this time through December 31st, 2021. This is largely expected to be the last extension of the ERC.
As a reminder, we will not be calculating ERC for 2021 credits until 2020 is behind us. We only just received guidance on the ERC from the IRS less than two weeks ago, and we have received no guidance to date on the 2021 version of the ERC.
Restaurant Revitalization Fund
The ARP is pushing significant resources towards the struggling food and beverage industry. The SBA has been granted $25 billion for a new grant program for “restaurants and other food and drinking establishments.” Grants would be up to $10 million per entity and $5 million per physical location, with a maximum of 20 locations.
Most of the details of the program are still unknown. The SBA will need to establish rules for the program and get it set up, so it could be awhile before any restaurant gets any grants. As details become available we will reach out to our qualifying clients.
Other Industry Support
To support the transportation sector, the bill allocates nearly $30 billion for transit costs, including payroll and personal protective equipment; $8 billion for airports; $3 billion for a temporary payroll support program to help support the aerospace manufacturing industry; and $1.5 billion to recall and pay Amtrak employees who were furloughed because of the pandemic and to restore various daily routes. Another $15 billion would also be allocated to support workers in the airline industry.
As always, if you have questions about how these changes and programs apply to you, please reach out to your primary point of contact at DHA.