After much debate, the Senate and House reached various compromises on the latest relief bill, the American Rescue Plan Act of 2021, which Biden signed into law on March 11, 2021. The $1.9 Trillion COVID-19 relief bill contains 600 pages and includes many provisions. Expect more guidance in the coming weeks. In the meantime, here are the key provisions.
Tax Credits for Employers
- The Employee Retention Credit (ERC) was extended from June 30, 2021 to December 31, 2021. Businesses can now count all wages as qualifying wages, not just wages paid to employees not providing services. Also, it expands the credit to some startups.
- A provision in the package offers tax credits for employers who voluntarily provide paid sick and family leave pay for people who are sick, quarantined, or caring for a sick relative or child.
- The employer paid leave credit increased from $10,000 per employee to $12,000, and from March 31 to September 30, 2021. The credits include employee time off to get a COVID-19 vaccine or recover from its side effects.
The $1,400 Relief Check
This is probably the most-heralded part of the bill. These payments are $1,400 per person, including dependents, so a couple with two children is eligible for $5,600. The $1,400 check is also available for adult dependents, such as a college student or a disabled adult child.
However, the bill imposes income cutoffs. Recipients will get the full amount if their adjusted gross income does not exceed $75,000 for singles, $112,500 for heads of household, or $150,000 for joint filers. At adjusted gross incomes (AGI) higher than these, the checks start phasing out, reaching zero at $80,000 for singles, $120,000 for heads of household, or $160,000 for joint filers.
What is the AGI based on? The taxpayer’s 2020 return, unless it has not been filed yet, in which case it defaults to the 2019 return. There is room for strategizing and taxpayers should contact a tax professional to discuss the most beneficial course of action.
Congress is granting an additional $300 weekly unemployment supplement through September 6, 2021. As a benefit for those who received significant unemployment insurance payouts last year and might be facing an unexpected tax bill, Congress added a provision that makes the first $10,200 of the 2020 benefits nontaxable for households making less than $150,000.
Child Tax Credit
Although this change has not received as much attention as other aspects, it affects a large number of the population. For the 2021 tax year, the child tax credit will give parents a $3,000 credit for every child aged 6 to 17 and $3,600 for every child under age 6. This is an increase from $2,000 per dependent child up to age 16. The revised credit is fully refundable, meaning it will go to families that made so little that they did not owe enough taxes to qualify.
Those earning up to $75,000 for singles, $112,500 for heads of household, and $150,000 for joint filers will be eligible to receive the full benefit, with the amount of the payments phasing out by $50 for every $1,000 in income above those thresholds. Families ineligible for the expanded credit will still be able to claim the old $2,000 credit, which phases out after income exceeds $200,000 for single filers and $400,000 for joint filers.
This is preliminary information on an enormous bill for which there is little guidance. Additional official guidance may modify the provisions noted in this article and it is important you consult with your tax professional for details.