The latest stimulus was a $1.9 trillion (yes, trillion) emergency package, called the American Rescue Plan Act of 2021, which was signed into law on March 11, 2021. This includes payments to individuals and funding for federal programs, vaccines and testing, state and local governments, and schools. It is intended to help people and businesses during the ongoing coronavirus pandemic and accompanying economic crisis. Here are the major provisions, including some tax provisions.
Unemployment Provisions
The legislation extends unemployment benefit assistance:
- An additional $300 weekly benefit to those collecting unemployment benefits, through September 6, 2021
- An additional 29-week extension of federally funded unemployment benefits for individuals who exhaust their state unemployment benefits
- Targeted federal reimbursement of state unemployment compensation designed to eliminate state one-week delays in providing benefits (allowing individuals to receive a maximum 79 weeks of benefits)
- Unemployment benefits through September 6, 2021, for many who would not otherwise qualify, including independent contractors and part-time workers
- For 2020, the legislation also makes the first $10,200 (per person for joint returns) of unemployment benefits nontaxable if modified adjusted gross income is less than $150,000.
Business Relief
- The employee retention tax credit was extended through December 31, 2021. It is available to employers that were significantly impacted by the crisis and is applied to offset Social Security payroll taxes. As in the previous extension, the credit is increased to 70% of qualified wages, up to a certain maximum per quarter.
- The employer tax credits for providing emergency sick and family leave were extended through September 30, 2021.
- Eligible small businesses can receive targeted economic injury disaster loan advances from the Small Business Administration. The advances are not included in taxable income. Furthermore, no deduction or basis increase is denied, and no tax attribute is reduced by reason of the exclusion from income.
- Eligible restaurants can receive restaurant revitalization grants from the Small Business Administration. The grants are not included in taxable income. Furthermore, no deduction or basis increase is denied, and no tax attribute is reduced by reason of the exclusion from income.
Housing Relief
- The legislation allocates additional funds to state and local governments to provide emergency rental and utility assistance through December 31, 2021.
- It allocates funds to help homeowners with mortgage payments and utility bills.
- It also targets funds to help the homeless.
Health Insurance
- For those who lost a job and qualify for health insurance under the federal COBRA continuation coverage program, the federal government will generally pay the entire COBRA premium for health insurance from April 1, 2021, through September 30, 2021.
- For 2021, if a person gets unemployment compensation, the taxpayer is treated as an applicable taxpayer for purposes of the premium tax credit, and the household income of the taxpayer is favorably treated for purposes of determining the amount of the credit.
- Persons who bought their own health insurance through a government exchange may qualify for a lower cost through December 31, 2022.
Student Loan
- For student loans forgiven or cancelled between January 1, 2021, and December 31, 2025, the forgiven amounts are not included in taxable income. They would ordinarily be considered income.
Tax Credits
- For 2021, the child credit amount increases from $2,000 to $3,000 per qualifying child ($3,600 for qualifying children under age 6), subject to phaseout based on modified adjusted gross income. The legislation also makes 17-year-olds eligible as qualifying children in 2021.
- For most individuals, the credit is fully refundable for 2021 if it exceeds tax liability.
- The Treasury Department is expected to send out periodic advance payments (to be worked out by the Treasury) for up to one-half of the credit during 2021.
- For 2021, the legislation increases the maximum credit up to $4,000 for one qualifying individual and up to $8,000 for two or more (based on an increased applicable percentage of 50% of costs paid and increased dollar limits).
- Most taxpayers will not have the applicable percentage reduced (can be reduced from 50% to 20% if AGI exceeds a substantially increased $125,000) in 2021. However, the applicable percentage can now also be reduced from 20% down to 0% if the taxpayer’s AGI exceeds $400,000 in 2021.
- For most individuals, the credit is fully refundable for 2021 if it exceeds tax liability.
- For individuals with no qualifying children, the minimum age at which the earned income tax credit can be claimed is generally lowered from 25 to 19 (24 for certain full-time students) and the maximum age limit of 64 is eliminated (there are no similar age limits for individuals with qualifying children).
- For 2021 only, earned income tax credit: increase of credit available for individuals with no qualifying children (bringing it closer to the amounts for individuals with one, two, or three or more children which were already much higher).
- To determine the credit amount, taxpayers can elect to use their 2019 earned income if it is more than their 2021 earned income.
