American Rescue Plan Act of 2021
On March 10, 2021 Congress passed the American Rescue Plan Act of 2021 (ARPA), a $1.9 trillion coronavirus relief package. President Biden signed the bill into law on March 11, 2021. Please see the following summary of the key provisions to businesses and individual taxpayers.
- Allocates an additional $7.25 billion towards PPP funding.
- Targeted Economic Injury Disaster Loans (EIDL) advances – additional $15 billion:
- $10 billion for payments to businesses that did not already receive the full EIDL advance grant they are eligible for.
- $5 billion for grants to small businesses with 10 or fewer employees which suffered an economic loss of greater than 50% (up to $5,000 per business).
- Exempts EIDL grants from tax.
- $25 billion for the Restaurant Revitalization Fund. Grants up to $10 million per entity (maximum $5 million per physical location), based on pandemic-related losses.
- Family and sick leave credits:
- Extends the credits for paid sick time and family paid leave that were enacted in the Families First Coronavirus Response Act from March 31, 2021 to September 30, 2021.
- Permits the IRS to waive penalties for failure to deposit on “applicable employment taxes” if the failure to deposit is due to an anticipated credit.
- Allows the credits for paid sick and family leave to be structured as a refundable payroll tax credit against Medicare tax only beginning after March 31, 2021.
- Increases the amount of wages for which an employer may claim the paid family leave credit in a year from $10,000 to $12,000 per employee and increased the number of days for which self-employed individuals can claim the credit from 50 days to 60 days.
- Permits the paid sick and family leave credit to be claimed for employers who provide paid time off for employees to obtain the COVID-19 vaccination or to recover from an illness related to the immunization.
- Employee Retention Tax Credit (ERC):
- Extends the ERC from June 30, 2021 as amended under the Consolidated Appropriations Act (see our January 11, 2021 correspondence) through December 31, 2021.
- Continues the year over year gross receipts decline requirement at 20%.
- Continues the ERC 70% credit on qualified wages up to $10,000 per quarter. This means an employer would potentially have up to $40,000 in qualified wages per employee through 2021. At a 70% credit, this would be a maximum $28,000 per employee.
- Qualified wages do not include wages taken into account as payroll costs under certain SBA programs (PPP).
- Extends Pandemic Unemployment Assistance (PUA) through September 6, 2021 to individuals not otherwise eligible for unemployment benefits (i.e. self-employed), who are unable to work as a result of COVID-19. Increased the number of weeks PUA benefits are available from 50 weeks to 74 weeks.
- Federal Pandemic Unemployment Compensation or Mixed Earner Unemployment Compensation Program (FPUC), provides an additional $300 weekly benefit after March 14, 2021 until September 6, 2021.
- Excludes up to $10,200 in unemployment compensation from taxation for those with adjusted gross incomes of $150,000 or less, beginning in tax year 2020.
- Extends Pandemic Emergency Unemployment Compensation (PEUC) through September 6, 2021 and authorized additional unemployment benefits to those who exhaust their regular unemployment benefits. The number of weeks PEUC benefits are available increased from 24 to 48 weeks.
- Recovery rebates in the form of refundable tax credits paid in advance, similar to the Economic Impact Payments in the CARES Act and Consolidated Appropriations Act. The credit is $1,400 for single filers and $2,800 for joint filers. In addition, $1,400 will be paid for each dependent. These rebates phase out between $75,000 – $80,000 of adjusted gross income (AGI) for single taxpayers, between $112,500 and $120,000 of AGI for heads of households and between $150,000 and $160,000 for joint filers. Payments will be determined using 2020 tax returns if already processed by the IRS or 2019 returns.
- Child tax credit enhancement:
- The child tax credit is fully refundable for 2021. It can be received even to the extent that is exceeds the taxpayer’s tax liability.
- Increases the credit amount to $3,000 per child ($3,600 for children under the age of 6), from $2,000.
- 17 year-old children now qualify, where previous law provides the credit only for children under age 17.
- For 2021, the increased amount of the child tax credit is reduced by $50 for every $1,000 in AGI in excess of $150,000 for joint files ($112,500 for head of household and $75,000 for single filers). Once the credit is reduced, the remaining $2,000 credit then phases out at all levels provided in the previous law (AGI of $400,000 for joint filers and $200,000 for other filers).
- Directing the IRS to estimate each taxpayers’ child tax credit and pay in advance monthly from July – December 2021. In order to distribute the monthly estimated child tax credit payments, the IRS will create an online portal where taxpayers can both opt out of advance payments and provide information that modifies the amount of their payments.
- Provides that all COVID-19 student loan relief is not included in taxable income.
- COBRA continuation coverage – A 100% subsidy of COBRA health insurance premiums. A laid-off worker can maintain health insurance through their former employer’s plan at no cost. The subsidy covers the period from April 1, 2021 – September 30, 2021.