One of the largest bills in U.S. history, the Biden administration’s $1.9 trillion American Rescue Plan Act was signed into law by President Biden on Thursday afternoon.
Recognizing the importance of this bill and the immense impact it will have on the U.S. economy, we are relaying to our clients the most recent reporting. Much of this bulletin is from the Journal of Accountancy of March 10, 2021.
Here is a look at the final at some of the key provisions:
Employee retention credit
The act codifies the employee retention credit and extends it through the end of 2021. The employee retention credit was originally enacted in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and it allows eligible employers to claim a credit for paying qualified wages to employees. For 2021 this credit is for 70% of wages, up to $7,000 per employee per calendar quarter, if the business or its affiliates is subject to a governmental shut-down or restriction order, as well as businesses whose revenue is 20% less in a 2021 quarter compared to the same quarter in 2019.
Family and sick leave credits
The act codifies the credits for sick and family leave originally enacted by the Families First Coronavirus Response Act (FFCRA). The credits are extended to September 30, 2021. These fully refundable credits against payroll taxes compensate employers and self-employed people for coronavirus-related paid sick leave and family and medical leave.
The act increases the limit on the credit for paid family leave to $12,000.
The number of days a self-employed individual can take into account in calculating the qualified family leave equivalent amount for self-employed individuals increases from 50 to 60.
The paid leave credits will be allowed for leave that is due to a COVID-19 vaccination.
The limitation on the overall number of days taken into account for paid sick leave will reset after March 31, 2021.
Restaurant Revitalization Fund
For established restaurants that opened in 2018 or earlier, grants are calculated by subtracting a business’ 2020 revenue from their 2019 revenue, and subtracting first and second draw PPP loans.
For restaurants that opened in 2019, the average of 2019 monthly revenues is multiplied by 12 minus the average of 2020 monthly revenues multiplied by 12, and the first and second draw PPP loans received are also subtracted. Restaurants that opened in 2020 are eligible to receive funding equal to the “eligible expenses incurred” minus their first and second draw PPP loans received last year. Restaurants that have not yet opened are also eligible and can receive funding equal to eligible expenses incurred before the date of enactment. These grants are not taxable income.
The act makes the first $10,200 in unemployment benefits tax-free in 2020 for taxpayers making less than $150,000 per year. The bill also extends the $300 per week of supplemental federal unemployment benefits through September 6, 2021.
The act creates a third round of economic impact payments to be sent to qualifying individuals. The same as last year's two stimulus payments, the economic impact payments are set as an advance payment of a recovery rebate credit. The act provides individuals with a $1,400 recovery rebate credit ($2,800 for married taxpayers filing jointly) plus $1,400 for each dependent for 2021, including college students and qualifying relatives who are claimed as dependents. As with last year's economic impact payments, the IRS will send out the advance payments of the credit.
For single taxpayers, the credit and corresponding payment will begin to phase out at an adjusted gross income (AGI) of $75,000, and the credit will be completely phased out for single taxpayers with an AGI over $80,000. For married taxpayers who file jointly, the phaseout will begin at an AGI of $150,000 and end at AGI of $160,000. For heads of household, the phaseout will begin at an AGI of $112,500 and be complete at AGI of $120,000.
The act uses 2019 AGI to determine eligibility, unless the taxpayer has already filed a 2020 return. Taxpayers who did not qualify in 2019, but who will in 2020 should file their returns as soon as possible.
COBRA continuation coverage
The act provides COBRA continuation coverage premium assistance for individuals who are eligible for COBRA continuation coverage between March 11, 2021 and September 30, 2021, and creates a COBRA continuation coverage premium assistance credit against the Medicare tax. The credit is refundable, and the IRS may make advance payments to taxpayers of the credit amount. The credit applies to premiums and wages paid after April 1, 2021, and through September 30.
A penalty is imposed for failure to notify a health plan of cessation of eligibility for the continuation coverage premium assistance. Taxpayers who receive the COBRA continuation coverage premium assistance credit are not also eligible for the health coverage tax credit. The continuation coverage premium assistance is not includible in the recipient's gross income.
Child tax credit
The act expands the child tax credit in several ways and provides that taxpayers can receive the credit in advance of filing a return. The act makes the credit fully refundable for 2021 and makes 17-year-olds eligible as qualifying children.
The act increases the amount of the credit to $3,000 per child ($3,600 for children under 6). The increased credit amount phases out for taxpayers with incomes over $150,000 for married taxpayers filing jointly, $112,500 for heads of household, and $75,000 for others, reducing the expanded portion of the credit by $50 for each $1,000 of income over those limits.
The IRS is directed to estimate taxpayers' child tax credit amounts and pay monthly in advance one-twelfth of the annual estimated amount. Payments will run from July through December 2021.
The IRS must set up an online portal to allow taxpayers to opt out of advance payments or provide information that would be relevant to modifying the amount.
The taxpayer in general, will have to reconcile the advance payment amount with the actual credit amount on next year's return and increase taxable income by the excess of the advance payment amount over the actual credit allowed. But taxpayers whose modified AGI for the tax year does not exceed 200% of the applicable income threshold ($60,000 for married taxpayers filing jointly) will have the increase for an excess advance payment reduced by a safe harbor amount of $2,000 per child.
Earned income tax credit
The act also makes several changes to the earned income tax credit. It introduces special rules for individuals with no children: For 2021, the applicable minimum age is decreased to 19, except for students (24 and under) and qualified former foster youth or homeless youth (18). The credit's phaseout percentage is increased to 15.3%, and the phaseout amounts are increased.
The threshold for disqualifying investment income would be raised from $2,200 to $10,000.
Temporarily, taxpayers would be allowed to use their 2019 income instead of 2021 income in figuring the credit amount.
Child and dependent care credit
The act makes various changes to the child and dependent care credit, effective for 2021 only, including making it refundable. The credit will be worth 50% of eligible expenses, up to a limit based on income, making the credit worth up to $4,000 for one qualifying individual and up to $8,000 for two or more. A credit reduction will start at household income levels over $125,000.
The act also increases the exclusion for employer-provided dependent care assistance to $10,500 for 2021.
Premium tax credit
The act expands the premium tax credit for 2021 and 2022 by changing the applicable percentage amounts. Taxpayers who received too much in advance premium tax credits in 2020 will not have to repay the excess amount. A special rule is added that treats a taxpayer who has received, or has been approved to receive, unemployment compensation for any week beginning during 2021 as an applicable taxpayer.
The act specifies that gross income does not include any amount that would otherwise be included in income due to the discharge of any student loan after December 31, 2020, and before January 1, 2026.
Please contact Lopata Flegel & Co. for Additional Information
The American Rescue Plan Act is an immense, complex piece of legislation with far-reaching impact on the U.S. economy. If you have any questions about this legislation, please email or call your Lopata, Flegel & Company contact, or call the firm at 314-514-8881.