After the Senate and the House approved the $1.9 trillion coronavirus relief package known as the American Rescue Plan act, President Biden finally signed the bill on March 11, 2021. This legislation is expected to benefit the majority of taxpayers through stimulus payments, unemployment benefits, and child tax credits. Many taxpayers may have a great deal of questions on what they expect to receive and how this bill will impact their tax returns. Below is an overview of what taxpayers may want to know about the bill.
1. Third Stimulus Payment
The bill includes a $1,400 third stimulus payment to individuals who make less than $75,000 for single taxpayers ($150,000 if married filing jointly), including children and adult dependents. Thus, a family of four can receive as much as $5,600. The payment will be reduced for those with income above the thresholds and will phase out completely at $80,000 for single taxpayers ($160,000 if married filing jointly). Those who have direct deposit set up with the IRS are expected to receive their payment promptly, and other taxpayers who do not may need to wait for physical checks or pre-paid debit cards. The IRS will use the information reported on the taxpayers’ most recently filed return to determine the payment amounts.
2. Unemployment Benefit Extension
Under the previous relief package, the unemployment benefits programs were extended through March 14th and were scheduled to expire this week. The new coronavirus relief bill is extending the unemployment benefits programs to September 6th. Those who are qualified for the programs will receive $300 a week on top of any state unemployment payments. The first $10,200 will be exempt from taxable income ($20,400 if married filing jointly) as long as the taxpayer’s adjusted gross income is less than $150,000 in 2020, as it applies to all filing statuses.
3. Child Tax Credit
The American Rescue Plan temporarily expanded the child tax credit for 2021 from $2,000 to $3,000 for each child dependent, and those under 6 years old will receive an additional $600 in credit. The additional credit will be reduced for those who make more than $75,000 for single taxpayers ($150,000 if married filing jointly), and the additional credit is fully refundable. The IRS is expected to send out advances on the child tax credit on a monthly basis starting as early as July 2021, which means taxpayers will receive half of the credit in advance payments, and the rest of the credit can be claimed on their 2021 tax return.
4. Employee Retention Credit
Under the American Rescue Plan Act, the Employee Retention Credit has been extended through December 31, 2021. The amount of the credit employers can claim still remains at $7,000 per employee per quarter, effectively making the maximum credit amount an employer can claim per employee $28,000 in 2021. For startups, the credit will be limited to $50,000, per calendar quarter.
In addition to the notable changes above, the bill also includes the following:
* Another $7.25 billion for the Paycheck Protection Program
* Over $128 billion in grants to state educational agencies in addition to $39 billion in grants to higher education institutions
* $4.5 billion for the Low Income Home Energy Assistance Program to support families with heating and cooling expenses
* $7.5 billion to the Centers for Disease Control and Prevention to administer and distribute COVID-19 vaccines on top of $48 billion for coronavirus infection treatments
* $25 billion to the Small Business Administration for a new grant program for “restaurants and other food and drinking establishments” to support the restaurant industry
Please refer to the following link for more information related to American Rescue Plan Act:
https://www.ncsl.org/ncsl-in-dc/publications-and-resources/american-rescue-plan-act-of-2021.aspx
If you have any questions regarding the American Rescue Plan and how it might affect you or your businesses, or if you require any other assistance with your tax planning and/or compliance needs, please do not hesitate to contact one of our knowledgeable team members.
