Congress has passed new legislation aimed at providing relief from the COVID-19 pandemic that has impacted the economy for the past year. President Biden is expected to sign the American Rescue Plan Act (ARPA) to formally approve $1.9 trillion in funding for individuals, businesses, and state and local governments.
The ARPA extends and expands some of the critical provisions in the previous CARES Act and the Consolidated Appropriations Act (CAA). It also includes new provisions that will come as welcome news to many families and businesses.
Here’s a broad overview of the key provisions that could affect you:
Businesses and other employers
- There will be additional funding for forgivable loans to eligible businesses under the Paycheck Protection Program (PPP), which was scheduled to expire on March 31, 2021.
- Pandemic assistance grants will be made to eligible businesses serving food or drinks, including restaurants and food trucks.
- The Employee Retention Tax Credit is extended for eligible employers that continue to pay employee wages during COVID-19-related closures or experience reduced revenue through Dec. 31, 2021. This includes “recovery startup businesses,” which are those businesses that launched after Feb. 15, 2020, with average annual gross receipts of $1 million or less.
- Tax credits for paid sick and family leave are modified and extended to Sept. 30, 2021.
- Nonprofit organizations and online news services will receive expanded PPP eligibility.
- New targeted Economic Injury Disaster Loan grants will be available for eligible small businesses in low-income communities.
- The excess business loss limitation is extended through Dec. 31, 2026.
- Section 162(m) limits on the tax deduction that public companies can take for executive compensation is extended to cover the CEO, the CFO, and the five next highest-paid employees, beginning in 2027.
- Additional direct payments of $1,400 — plus $1,400 per dependent (including adult dependents) — will be made to eligible individuals. To qualify, individuals must have an adjusted gross income (AGI) of up to $75,000 per year (or $150,000 for married couples filing jointly and $112,500 for heads of households). The payments phase out and then end completely when AGI exceeds $80,000 for individuals, $160,000 for married joint filers, and $120,000 for heads of household.
- For eligible individuals, the Child Tax Credit (CTC) increases to $3,000 for each child age 6 to 17 and $3,600 per year for children under age 6. To be eligible for the full payment, you must have a modified AGI of under $75,000 for singles, $112,500 for heads-of-households, and $150,000 for joint filers and surviving spouses. The credit phases out at a rate of $50 for each $1,000 (or fraction thereof) of modified AGI over the applicable threshold.
- Parents will begin receiving advance payments of part of the CTC later this year. Under the ARPA, the IRS must establish a program to make monthly payments (generally by direct deposits) equal to 50% of eligible taxpayers’ 2021 CTCs, from July 2021 through Dec. 2021.
- Some taxpayers who aren’t eligible to claim an increased CTC in 2021, because their income is too high, may be able to claim the regular CTC of up to $2,000, subject to the existing phaseout rules.
- For 2021, there’s an expanded child and dependent care tax credit of up to $4,000 for childcare expenses for one child and up to $8,000 for two or more children for households making up to $125,000.
- Any student loan debt forgiven between Dec. 31, 2020, and Jan. 1, 2026, will receive tax-free treatment.
- An additional $300 per week in unemployment benefits will be paid through Sept. 6, 2021. In addition, the first $10,200 in unemployment benefits received beginning in 2020 isn’t included in gross income for taxpayers with AGIs under $150,000. For joint filers below the AGI limit, the $10,200 exclusion applies separately to each spouse.
- There’s expanded availability of and increased Affordable Care Act (ACA) subsidies for those who obtain insurance in the ACA marketplaces, for 2021 and 2022.
- Federal rental assistance is included for families affected by COVID-19, applicable to past due rent, future rent payments, and utility and energy bills.
- There’s expanded eligibility for low-income individuals with no qualifying children to claim the Earned Income Tax Credit.
Make the most of benefits
As vaccination rates climb, the ARPA is possibly the last of the major legislative relief packages addressing the effects of the pandemic. To find out more about how you can make the most of these benefits, reach out to a KraftCPAs advisor.