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Overview of the American Relief Plan Act Signed by President Biden on March 11, 2021

March 12, 2021
Overview of the American Relief Plan Act Signed by President Biden on March 11, 2021 March 12, 2021

On March 11th, President Biden signed the American Relief Plan Act of 2021 into law.  Highlights of the tax provisions of the act are as follows:

  1. For 2020, up to $10,200 of unemployment benefits can be excluded from income if adjusted gross income is less than $150,000
    1. For joint returns, the $10,200 limit applies separately to each spouse
    2. Previously filed 2020 income tax returns may need to be amended
  2. The third round of stimulus payments equal to $1,400 per taxpayer, plus $1,400 for each dependent, will begin going out this weekend
    1. Payment reduced if adjusted gross income exceeds:
      1. $150,000 for joint
      2. $112,500 for head of household
      3. $75,000 for all other taxpayers
    2. Payment completely phased out if adjusted gross income exceeds:
      1. $160,000 joint
      2. $120,000 head of household
      3. $80,000 for all other taxpayers
    3. Stimulus payment will be based on the most recently processed tax return
    4. Any additional payment due to the taxpayer, but not received in 2021, can be claimed as a credit on the taxpayer’s 2021 tax return
    5. Dependents are not eligible to receive payments
  3. For 2021, the Child Tax Credit is expanded
    1. Credit is increased to $3,000 per child ($3,600 for children under the age of 6), up from $2,000 per child
    2. Increased credit amount phases out when modified adjusted gross income exceeds:
      1. 150,000 for joint and surviving spouses
      2. $112,500 for head of household
      3. $75,000 for single
      4. This phase-out only applies to the additional credit amount, not the $2,000 per child credit allowed previously
    3. 17 year-olds are now included in the definition of a qualifying child
    4. Credit is fully refundable for most taxpayers
    5. IRS will establish a program to make advance payments of the credit, generally by direct deposit
      1. The advance payment will be equal to 50% of the credit amount and is expected to be paid monthly in July 2021-December 2021
      2. IRS must create an online portal to allow taxpayers to:
        1. Update information regarding the number of qualifying children, marital status, income, etc.
        2. Elect out of the advance payment
      3. Excess advance payments must generally be repaid on the 2021 tax return, but the repayment amount may be reduced by a safe harbor amount for taxpayers with modified adjusted gross income below certain thresholds
  4. Beginning in 2021, the Earned Income Tax Credit is expanded
    1. Minimum age reduced to 19 (minimum age of 24 for specified students) and maximum age eliminated
    2. Maximum credit amount and phaseout range increased for taxpayers without children
    3. Certain separated married individuals need not file a joint return to claim the credit
    4. Taxpayers can now have up to $10,000 of disqualified investment income before losing eligibility for the credit
    5. Credit may be based on 2019 earned income if that amount is greater than the taxpayer’s earned income for 2021
  5. Beginning in 2021, enhanced Child and Dependent Care Credit
    1. Maximum credit increased from $1,050 to $4,000 for one child and from $2,100 to $8,000 for two or more children
    2. Credit does not begin phasing out until adjusted gross income exceeds $125,000
    3. Credit phases out completely if adjusted gross income exceeds $400,000
    4. Credit is now refundable
  6. For 2021, the exclusion for dependent care benefits is increased from $5,000 to $10,500
  7. Extends federal unemployment assistance through September 6, 2021
  8. Changes to Premium Tax Credit for health insurance purchased through the Exchange
    1. For 2020, excess Advance Premium Tax Credit does not have to be repaid, previously filed returns may need to be amended
    2. For 2021, increased premium tax credit for taxpayers receiving unemployment in 2021
    3. For 2021 and 2022, increased premium tax credit
  9. For 2021, eligible individuals may receive a 100% subsidy of COBRA premiums
    1. Group health plans must notify eligible individuals of the assistance availability
    2. Employers will receive a quarterly tax credit to cover the insurance cost not paid by the eligible individual
  10. For 2021 – 2025, expansion of student loans eligible for tax-free discharge
  11. Expanded Paid Sick and Family Leave Credits
    1. Extends the FFCRA credits from March 31, 2021, to September 30, 2021
    2. Increases the amount of wages for which an employer may claim the paid family leave credit from $10,000 to $12,000
    3. Permits the paid sick and family leave credit to be claimed by employers who provide time off for COVID-19 vaccination or recovery from illness related to immunization
    4. Resets the 10-day limitation.  The current 10-day limitation runs from the start of the credits in 2020 through March 31, 2021.  For the self-employed, the 10-day reset applies to sick days after January 1, 2021.
  12. Employee Retention Credit extended from June 30, 2021, to December 31, 2021
  13. Targeted Economic Injury Disaster Loan Advances and Restaurant Revitalization Grants are not taxable, and the expenses paid with those funds are fully deductible
  14. Provides additional benefits and grants for:
    1. Restaurants and other specified food businesses
    2. Shuttered venue operators
    3. Aviation manufacturing

There are many additional rules, exceptions, etc. that apply to the American Relief Plan Act, so please do not hesitate to reach out if you believe you may qualify or if you have any questions.

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