Congress approved another coronavirus relief bill on March 10, 2021, the American Rescue Plan Act of 2021. The passing of the $1.9 trillion bill comes on the heels of a long and close vote in the Senate last week. The new bill, expected to be signed into law by President Biden on March 12, includes provisions for stimulus payments, extended employment benefits, additional small business funding, and much more.
As we have done many times during the COVID-19 pandemic (many in our Coronavirus Resource Center), the teams at Avidian Wealth and Doeren Mayhew wanted to share these highlights directly impacting individuals and businesses (see attached summary):
- Direct Stimulus Payments: A third round of stimulus payments for eligible individuals will be deployed. Single filers with an adjusted gross income of $75,000 or less will receive $1,400, while married couples filing jointing with an adjusted gross income of $150,000 or less will receive $2,800. Phaseout thresholds are $80,000 and $160,000, respectively. Adult dependents, along with all children, are also eligible for $1,400 payments.
Similar to the two previous stimulus payments, these payments are fully refundable credits against 2021 taxes and only for 2021. However, unique to this bill is the allowance of residents married to undocumented residents to receive the direct stimulus payment. The IRS will post more details as they become available at www.irs.gov/coronavirus.
As these payments are made in the coming weeks, they will be made based on the taxable income reported in your most recent filed tax return (for most, it will be their 2019 or 2020 1040 Tax Return). A point to note, if you qualify (per the phaseouts) with your 2019 return, don’t file your 2020 return until you get your check as there will be no “claw-back” in the event your income exceeds the thresholds in 2020 or 2021. The same thing goes if your 2019 return does not qualify you for these payments (or you expect your 2021 tax return not to qualify), but if your 2020 return qualifies, you should file your 2020 return right away. Talk to your CPA right away to get some timely guidance, and see the image on “checkpoints” for eligibility at the end of this article.
- Unemployment Benefits: Weekly federal unemployment supplemental benefits will be extended through September 6, 2021, at the current $300 per week rate, including self-employed individuals. Initially, this benefit was slated to expire this coming Sunday, March 14, 2021.
A provision in the bill also calls for the first $10,200 in unemployment insurance benefits to be tax-free for households with up to $150,000 in income (regardless of single or joint).
- Child Tax Credits: The child tax credit, which is fully refundable for 2021 only, will allow families to receive a $3,000 credit, up from $2,000, for each child over the age of 6 and $3,600 for each child under the age of 5.
- Earned Income Tax Credit: Increases to the credit amount ($1,502, up from $543), income amount at which the credit is maximized ($9,820, up from $7,100), and phaseout threshold for non-joint filers ($11,610, up from $8,880) in 2021 will benefit childless filers.
- Student Loan Forgiveness: Student loans discharged in 2021 through 2025 will be excluded from taxable income. Exclusions do not apply to loans discharged by private lenders.
- Important Note on Tax Credits and Relief: Unlike the prior CARES Act tax stimulus payments, these 2021 payments tend to have more of a “cliff” elimination of the benefits. If your income is approaching the phaseout thresholds discussed above, you may want to be very careful monitoring your income to help assure that you don’t lose these important payments (this could include avoiding Roth conversions and/or putting more into your tax-deductible retirement plans if you are close). These quick phaseouts can cause a “stealth tax” by having slightly more taxable adjusted gross income. Tax planning will be crucial this year!
- Paycheck Protection Program (PPP) Funding: More than an additional $7 billion in PPP funding will be made available for small businesses. Non-profits with less than 500 employees per physical location are now eligible for the program’s loans, where previously they only qualified with less than 300 employees per physical location.
- COVID-19 Tax Relief Treatment: Under the bill, Targeted Economic Injury Disaster Loans (EIDL) and Restaurant Revitalization Grants received will not be subject to the income tax. Furthermore, the exclusion will not result in the denial of a deduction reduction of tax attributes or denial of an increase in basis.
- Employee Retention Credit: The refundable tax credit against an employer’s share of Social Security tax equal to 70% of qualified wages will now be available through December 31, 2021. Originally, this credit was extended by the Consolidated Appropriations Act until June 30, 2021.
- Paid Sick and Family Leave Credits: Under the new bill, employers can now claim this credit through September 30, 2021. Furthermore, applicable wages paid between April 1, 2021, and September 30, 2021, can be claimed up to $12,000. Employers can claim applicable wages up to only $10,000 through March 31, 2021.
Until now, employers were only allowed to claim a total of 10 days of paid sick and family leave for each employee. After March 31, 2021, a new 10-day period will be available per employee.
- Retirement Funding: Multiple provisions were included to help employers meet funding obligations of plans, such as the delay of funding changes on endangered multiemployer plans, longer amortization periods of up to 15 years for funding shortfalls of single-employer plans, and a freeze on inflation-adjusted increases to annual contribution limits of defined contribution plans.
- Restaurant Grants: Eligible restaurants impacted by the pandemic will have access to $5 billion in funding through the U.S. Small Business Administration. Eligible entities, such as restaurants, food trucks, bars, and caterers, will have access to the funding if their gross receipts in 2019 were less than $500,000. Prioritization will be given to qualifying entities owned by women, veterans, or other socially and economically disadvantaged individuals for the first 21 days of funding availability.
Taking Advantage of Relief
Wondering how the American Rescue Plan Act of 2021 will impact you and your business? Both Avidian Wealth’s Financial Planners and Doeren Mayhew’s Houston tax advisors stand ready to help you take full advantage of the tax credits and deductions available to you, especially in these times of uncertainty. If you have questions about how the new legislation may impact you or your business or your financial plan, call us today.
Also, please check out these other tax and policy related articles on our website:
- 2021 Income Tax Update – Alert
- Key Estate and Income Tax Planning Takeaways from the “Blue Wave” Democratic Victories
- Year-End Tax Planning Checklist – 2020
- Secure Act (and the loss of the Lifetime Stretch IRA and Changes in RMDs)
- Qualified Opportunity Zone (Investment Considerations and Tax Benefits)
- Review of Real Estate 1031 Exchanges
- Tax Cuts and Jobs Act (good to know and review if any “repeal”)
- For Individuals
- For Business Owners
Checkpoints for Eligibility for 2021 Rebates:
My friend Jeffrey Levine, CPA/PFS, CFP®, on Kitces.com shared some thoughts as well in addition to this great image to help you determine if you will be eligible for the Act’s rebates: