By Nicole DeRosa, CPA, MAcc, Senior Tax Manager
The much anticipated $1.9 trillion American Rescue Plan was released by lawmakers last week and passed by House by a near party-line vote of 219-212 early Saturday morning. The third stimulus package is now on its way to the Senate, which is expected to pass in hopes to meet a mid-March deadline, albeit with some potential changes. Once signed into law by President Biden, this 592-page stimulus package will offer a wide range of help for American taxpayers – both individuals and for struggling elements of the economy. Here is a rundown of its tax highlights:
Round 3 of Stimulus Payments
Individuals making up to $75,000 a year will receive a $1,400 payment, while married taxpayers filing jointly making up to $150,000 a year will receive a $2,800 payment; payments per dependent child will be up to $1,400. Unlike the first two rounds of stimulus, adult dependents will now qualify for a payment. Again, taxpayers earning too much money (single taxpayers earning over $100,000 per year and married couples earning over $200,000 per year) will be phased out and not eligible to receive a check. The calculation for eligibility on this third round of checks is to be based on either 2019 income amounts or 2020 income amounts, depending on what the Internal Revenue Service has on record once checks are slated to be calculated.
Targeted EIDL Advances
Created by the Economic Aid Act (EAA), this program will be extended and expanded to provide funds to businesses located in low-income communities that have no more than 300 employee and have suffered an economic loss of more than 30%. These funds will not be included in gross income of the person who receives the grant, no tax deductions will be denied, no tax attribute reduced, and no basis increase denied due to the exclusion of the grant funds from gross income.
Unemployment Benefit Expansion
Currently, the $300-per-week federal supplement is set to expire March 14th. However, the American Rescue Plan bill moves the expiration date to August 29th and increases the supplement to $400 per week. In addition, the bill also increases the total number of weeks eligible for the supplement from 50 weeks to 73 weeks.
Business Credit Expansion
Employee Retention Credit: Extension and enhancement of the employee retention credit would encourage businesses to keep employees on payroll through the end of 2021. Expansion of this credit would also include credit against the Medicare tax.
Family and Sick Leave Credit: Originally enacted by the Families First Coronavirus Response Act (FFCRA), this bill increases the limit on the credit for paid family leave and extends the period to September 30th. In addition, the bill extends the refundable tax credit for leave to cover 100 percent of the cost for employers with less than 500 employees and reimbursing state and local governments.
Ancillary Individual Tax Provisions
Earned Income Credit: More changes in the calculation have been made to enable taxpayers who lost wages or jobs during the pandemic to still qualify for the credits. The bill increases phaseout percentages, investment income thresholds, and allows taxpayers to use their 2019 income instead of 2021 income in figuring the credit amount. Allowing taxpayers to utilize a lower income amount would enable them to potentially receive larger credits because the credits “phase in” with income.
Child Tax Credit: The bill expands the credit by making the child tax credit fully refundable for 2021 and increases the amount of the credit to $3,000 per child, $3,600 for children under the age of six. Like many refundable tax credits, the credit amount will phase out for taxpayers who make too much money – in this case, taxpayers with incomes over $150,000 for married taxpayers filing jointly, $112,500 for heads of household, and $75,000 for others.
Child and Dependent Care Credit: Included in the bill are changes to this credit for 2021, making it refundable; the bill also increases the exclusion for employer-provided dependent care assistance to $10,500.