Yesterday, President Biden signed the American Rescue Plan Act of 2021. As with previous legislation passed to combat the economic effects of the Covid-19 pandemic, the bill includes provisions expected to provide relief to both businesses and individuals. We wanted to list some of the provisions here so that we can begin discussing them with you.
Employer Provisions
Employee Retention Credit:
Under the CARES Act passed in 2020, the Employee Retention Credit was set to expire on December 31, 2020. The Consolidated Appropriation Act, 2021 extended the availability of the Employee Retention Credit to June 30, 2021. The American Rescue Plan Act further extends the Employee Retention Credit to December 31, 2020.
Paycheck Protection Program:
The American Rescue Plan Act provides for an additional $7.25 billion for the PPP loan program.
SBA Restaurant Revitalization Fund:
The American Rescue Plan Act provides for Restaurant Revitalization Grants. The amount of the grant will be based on the pandemic-related revenue loss, which is defined in the statute as the difference between the applicant’s 2020 revenues and 2019 revenues. Special provisions have been made if 2020 was the restaurant's first year of operation. The grant funds can be used for payroll costs, payments of principal or interest on any mortgage obligation (other than prepayments of a mortgage obligation), rent payments (other than any prepayments of rent), utilities, maintenance expenses, supplies including protective equipment and cleaning materials, food and beverage expenses that are within the scope of the normal business practice, as well as other expenses that the SBA determines to be essential to maintaining the eligible entity. These grants will not be subject to income tax and the exclusion from income will not result in the denial of a deduction for the expenses funded.
Individual Provisions
Recovery Rebates:
The American Rescue Plan Act provides for an economic stimulus payment of up to $1,400 for each qualifying taxpayer ($2,800 in the case of a joint return) and for each dependent of the taxpayer, subject to income limitations. The phaseout bands to receive the payments are:
Single: $75,000 to $80,000
Heads of Households: $112,500 to $120,000
Joint Filers: $150,000 to $160,000
Extension of Unemployment Assistance:
The bill extends unemployment compensation that was set to expire on March 14, 2021 by almost six months, supplementing the unemployment benefit by $300 per week through September 6, 2021
Exemption of Unemployment Assistance:
The American Rescue Plan Act provides that the first $10,200 of unemployment benefits ($20,400 for married couples filing a joint return) will be exempt from tax for taxpayers with less than $150,000 of adjusted gross income.
Note: Since the income thresholds for the stimulus payments are determined by looking at "your most recently filed returns", you may want to take a close look at what the exemption of unemployment assistance means for your 2020 returns and if it brings your income within (or below) the thresholds above. If your 2019 income is within (or below) the thresholds for receiving the stimulus payments, you may want to consider filing an extension of your 2020 returns.
Child Tax Credit:
For the 2021 tax year only, the child tax credit will be temporarily increased to $3,000 per child (or $3,600 for a child under the age of six) from $2,000 per child under current law, and the 2021 credit will be fully refundable.
Child and Dependent Care Credit:
For the 2021 tax year only, the amount of the child and dependent care credit will be refundable and the amount of expenses eligible for the credit will be increased to $8,000 (from $3,000) for one child or dependent and $16,000 (from $6,000) for two or more children or dependents
Student Loan Forgiveness:
Under current law, forgiven student loans are excludable only under certain conditions such as by reasons of disability or death. The American Rescue Plan Act expands the student loan forgiveness exclusion rule for any discharge of federal student loans during the period after December 31, 2020 and before January 1, 2026.