This afternoon, Wednesday, March 10th, Congress passed legislation designed as another stimulus to help those in need as a result of the COVID-19 pandemic. The American Rescue Plan Act of 2021 is a $1.9 trillion economic stimulus package designed to provide additional relief to address the continued impact of COVID-19 on the economy, public health, state and local governments, individuals, and businesses. The legislation now awaits President Biden’s signature. MWB’s tax partner, Julie Welch, was interviewed by Fox 4’s Dave D’Marko regarding the American Rescue Plan Act. The interview aired last night, Tuesday, March 9th, and can be seen here: fox4kc.com/news/passing-1-9t-stimulus-bill-could-affect-how-much-you-owe-in-taxes-right-now.
Key tax provisions of the act are:
- Extends the Employee Retention Tax Credit through December 31, 2021. Additionally, the credit will be allowed against the Medicare tax.
- Extends the family and sick leave credits through September 30, 2021 and increases the credit for paid family leave to $12,000. For self-employed individuals, the number of days taken into account is increased from 50 to 60. Additionally, the overall number of days to be taken into account for the credit resets after March 31, 2021.
- Excludes from taxable income targeted Economic Injury Disaster Loan grants received from the SBA and SBA restaurant revitalization grants. The exclusion will not result in a denial of deduction, reduction of tax attributes, or denial of tax basis increases.
- Roughly doubles the maximum exclusion for employer-provided dependent care assistance to $10,500 ($5,250 for married filing separately) for 2021. Employer plans must allow the change.
- Includes $1,400 stimulus checks for many individuals earning up to $75,000 as shown on the 2019 or 2020 income tax return, depending on when the 2020 tax return is filed ($112,500 for heads of households and $150,000 for couples) – plus $1,400 for each dependent regardless of age. Those with income above these levels could receive a partial payment but the payments phase out much more quickly than the previous stimulus payments (No payment for single individuals with Adjusted Gross Income (AGI) over $80,000, couples with AGI over $160,000, or heads of households with AGI over $120,000). Those not eligible based on 2019 or 2020 depending on which return is used for the initial payment but eligible based on 2021 income will get a refundable tax credit when filing their 2021 income tax return.
- Extends unemployment benefits at $300 weekly for an additional 25 weeks through September 6, 2021.
- Retroactively excludes up to $10,200 of unemployment benefits received in 2020 from taxation for those with income under $150,000. Eligible individuals who already filed for 2020 may need to amend.
- Provides for student loan forgiveness to be tax free. While the bill does not provide for cancellation of student loans, if a future bill provides for forgiveness, any amounts forgiven between December 31, 2020 and January 1, 2026 would be tax-free.
- Increases the child tax credit for 2021 to up to $3,000 ($3,600 for ages 5 and under) and raises the age limit for qualifying children to 17 (subject to income phaseouts). The credit is fully refundable and half of the credit could be advanced monthly based on 2020 tax information or 2019 if 2020 is unavailable.
- Increases the earned income tax credit for 2021 for childless people. The maximum credit for 2021 is increased to $1,502 from $543. The age range of those childless people eligible for the credit is broadened to begin at age 19 instead of 25, with the exception of certain full-time students, and the upper age limit of 65 is eliminated. In certain cases, separated couples could be treated as not married for purposes of the credit. The investment income limitation for those claiming the credit is raised from $3,650 to $10,000 permanently, and this amount will be indexed for inflation.
- Provides premium assistance for certain health insurance coverage.
This is a quick synopsis of the legislation. While every attempt has been made to include the most up-to-date information, you should check any specific provisions of interest to be sure. This information is for general guidance. If you have any specific questions, please reach out to our team at MWB on anything above or ANY impact you are seeing to your business during this time.