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New Stimulus Bill American Rescue Plan (ARP): Here’s What it Means for Taxpayers

The coronavirus has had devastating effects on the world. Fortunately, the U.S. government has been taking steps to support the country financially with various stimulus packages put into effect.

On Saturday, March 6, 2021, the Senate approved President Biden’s $1.9 trillion economic plan that will extend unemployment benefits, provide funds to states and local governments, help schools to reopen and support coronavirus testing and vaccine distribution.

Here’s what you need to know. Click here to view the full American Rescue Plan Act.  

 

 

$1400 Stimulus Checks Will Be Provided

Individuals making under $75,000 and couples making under $150,000 will receive a payment of $1400 per person and $1400 per dependent. These will decrease for those above this income level. Persons making $80,000 or more or $160,000 or more jointly will not be eligible.

$300 Per Week Unemployment Benefit Boost

Unemployment will be extended through early September and will include a $300 per week federal supplement. This includes a provision that waives federal incomes taxes for the first $10,2000 of unemployment benefits received in 2020 for households that made $150,000 or less helping lower tax bills for those individuals.

Child Tax Credit Increases

The bill would temporarily increase child tax credit. Currently, the credit is set at $2000 for children under 17. Under the new legislation, it would increase it to up to $3600 for children five and under and to $3000 for children 6 to 17.

Full credit will be available to lower income people who were previously ineligible or only received a portion in past years. Some taxpayers would also be able to access advance payments of the credit in installments.

The new bill would increase child and dependent care credit for 2021 and expand earned income credit for workers without children. It will exempt student loan forgiveness from income taxes through to 2025.

Money Will Be Used to Fight the Pandemic

The bill will provide funding for vaccine distribution, coronavirus testing, contact tracing and genomic sequencing while giving money to the Federal Emergency Management Agency. $20 billion will be going towards vaccine manufacturing and distributions while $50 billion will go into testing and contract tracing.

States and local governments will be given $350 billion in relief with about $130 going towards schools. It will also increase Supplemental Nutrition Assistance Program benefit by 15% through September.

 Other funds will be dedicated to colleges, universities, transit agencies, housing aid, childcare providers and food assistance. Money will also be used to support restaurant and live venues and multi-employer pension plans that have been negatively affected by the pandemic.

Improvements to the Affordable Care Act

The bill will temporarily increase benefits for people buying insurance through the Affordable Care Act providers. Billions of dollars will go to public health veteran health care. 

The federal program COBRA will increase in value from 85 to 100% and help unemployed workers maintain health insurance through their employer through September.

Family and Sick Leave Credit

The act extends credit for paid sick leave and paid family leave to Sept. 30, 2021 and creates a special rule related to tax on employers. These are fully refundable credits that compensate employers and self-employed individuals for coronavirus related sick leave and family medical leave.

Provisions include:

  • The limit on credit paid for family leave is increased to $12,000.
  • The days a self-employed individual can take for family leave has been increased from 50 to 60.
  • Paid leave applies to days taken off for a COVID vaccination.
  • Limitation on the number of days taken for paid sick leave resets after March 31, 20221.
  • 501©(1) government organizations are now eligible for credits.

Premium Tax Credit

The applicable percentage amounts in Sec. 36B(b)(3)(A) will change allowing taxpayers who received too much in advance tax premiums in 2020 to be forgiven for excess amounts. A special rule has been created so taxpayers who have received or have been approved to receive unemployment compensation at any time in 2021 will be eligible.

New Provisions

Other provisions of the new legislation include the following.

  • $510 million will go towards the FEMA Emergency Food and Shelter Program allowing homeless services to provide the homeless with shelter, meals, one month’s rent, one month’s utility bill payments and mortgage assistance.
  • The expansion of the Employee Retention Tax Credit for startups and other businesses feeling the negative effects of the pandemic.
  • A $10 billion infrastructure program that will help local governments continue important capital projects.
  • A $200 million increase in the Amtrak relief funding
  • $12.5 for educational summer enrichment, $1.25 billion in after school programs and $3 billion for educational technology.
  • $8.5 billion towards the Provider Relief Program assisting rural health providers.
  • Expansion of subsidies and other provisions to make health care more affordable.
  • An expansion of the employee retention credit designed to keep workers on payroll.
  • An amendment of Sec. 162(m) to add a corporation’s highest compensated employees not currently covered to the list of individuals eligible for the $1 million cap on deductible compensation.
  • An extension on the Sec. 241 (l) limitation on excess business losses of non-corporate taxpayers for one year, through 2027.
  • A repeal of Sec. 864 (f) which allows affiliated groups to allocate interest on a worldwide basis.
  • Economic Injury Disaster Loan grants received by businesses through the SBA will not be included in gross income nor will it result in a deduction, a deduction or a denial of basis increase.
  • A temporary delay of the designation of multi-employer pension plans as endangered, critical or critical and declining and other changes for multi-employer plans in critical or endangered status.

 

Looking for more guidance on the ARP Act? Join us for our Virtual Latino Tax Fest, September 28 – 30, 2021, to learn all of the latest updates you need for tax season. Click here to learn more.