American Rescue Plan: Stimulus Highlights for Individual and Business Taxpayers
The House of Representatives and the Senate have now approved the American Rescue Plan (ARP), which provides several tax changes that are effective for 2021.
Individual Provisions
2021 Recovery Rebates
The ARP provides for payments of $1,400 per person as a stimulus payment. Unlike prior payments, this round of stimulus will also include payments for all dependents. However, in order to qualify for the full payment, the taxpayer’s adjusted gross income must be below $75,000 for single taxpayers and $150,000 for joint taxpayers. There is a phase-out range, and taxpayers with income above $80,000 (single) and $160,000 (joint) are not eligible for this payment.
The income limitations are based on the most recently filed tax returns, so if you have not filed your 2020 return yet, it will be based on your 2019 income. Note that if your 2019 and 2020 income is above the income levels, but your 2021 income is below those levels, you will get a credit on your 2021 return that will be prepared in 2022. Also, if you qualify for the payments based on your 2019 or 2020 income, but your 2021 income is above the thresholds, you are not required to pay back the payment.
Child Tax Credit
The ARP increases the Child Tax Credit for 2021 from $2,000 per child to $3,000 per child ($3,600 per child under age six). This increase applies to taxpayers with income under $150,000 joint filers and $75,000 for individual filers. If your income is above that threshold, the historic Child Tax Credit rules apply (for joint taxpayers with income under $400,000). In addition, there will be an advance payment of this credit starting July 1, 2021.
Unemployment Relief
The bill provides an extension of enhanced unemployment benefits of $300 per week through September. In addition, it makes the first $10,200 of unemployment exempt from income tax for households with income up to $150,000.
Exclusion of Student Loan Forgiveness
The bill includes a provision that will exclude from taxable income the forgiveness of certain student loans. This applies to certain loans forgiven between December 31, 2020 and January 1, 2026. Even though this provision does not apply to private education loans, it sets the stage for potential future loan forgiveness programs which have been promoted by President Biden.
Business Provisions
Extension of the Employee Retention Tax Credit (ERTC)
The ARP extends the 2021 ERTC (previously set to expire 6/30/2021) through December 31, 2021. Learn more about the ERTC here.
Paid Sick and Family Leave Credits
The ARP modifies and extends the paid sick and family leave credits originally put in place under the Families First and Coronavirus Relief Act (FFCRA) last year. The ARP extends these credits through September 30, 2021 and slightly revises the limits related to these credits.
Restaurant Relief
The ARP includes a large sum set aside for grants for restaurants, bars, brewpubs, taprooms, and tasting rooms. The program allows grants up to $5 million per restaurant or $10 million per restaurant group through the Restaurant Revitalization Fund. In addition, a portion of the funding is set aside for restaurants with 2019 gross receipts less than $500,000. The grants can be used to offset costs from February 15, 2020 through the end of 2021.
Additional Business Provision
In addition to the items listed above, the ARP provides various subsidies targeted to help employees including COBRA Premium Subsidies, an increase in the income exclusion for employer-provided dependent care assistance, additional PPP funding, and targeted Economic Injury Disaster Loans (EIDL)
Pension Provisions
The ARP also contains many pension provisions targeted at helping employers make pension contributions as well as keep plans in good standing.
Connect with an Advisor
If you have questions about how these provisions impact your business, please reach out to your Warren Averett advisor directly, or have a member of our team reach out to you.
This article reflects our views at the time this article was written and should be used as reference only.
