President Biden signed the American Rescue Plan Act into law on March 11, 2021. The act provides additional relief for individuals and families, such as a third round of stimulus checks and extended unemployment benefits, as well as several clarifications and updated provisions that are important for your business’s strategic planning – all of which we outline below. We will update you as more information that is specific to your family and your business becomes available.
For You and Your Family
- New Stimulus Checks: The legislation provides individuals who make up to $75,000 with an additional one-time stimulus check of $1,400 ($2,800 for married couples who make up to $150,000). Further, each of the taxpayer’s dependents in the tax year in question will also be eligible for a one-time check of $1,400.
- Extension of Unemployment Benefits: The act extends the $300-per-week supplement to unemployment benefits, which expired on March 14. This supplemental benefit will last through September 6, 2021. Further, the act makes the first $10,200 of unemployment insurance received in 2020 nontaxable if the taxpayer’s AGI was less than $150,000.
- Child Tax Credit ("CTC"): Taxpayers with children 17 and younger may claim the CTC for 2021. The credit amount for each qualifying child increased from $2,000 to $3,000, with an enhanced credit of $3,600 for qualifying children under the age of 6. This tax credit is applicable for 2021 only and there is a payment phaseout of $150,000 for joint filers, $112,500 for head of household filers, and $75,000 for single filers.
- Earned Income Tax Credit ("EITC"): Taxpayers age 19 and older without qualifying children may claim the EITC. The act lowered the minimum qualifying age from 25 to 19 and eliminates the maximum age of 64. The EITC amount increased from $4,220 to $9,820 and taxpayers may elect to substitute 2019 earned income when claiming the credit if the 2021 earned credit is less. This tax credit is applicable for 2021 only.
- Dependent Care Assistance: The amount of eligible expenses has increased from $3,000 to $8,000 in the case of one dependent and $6,000 to $16,000 in the case of two or more dependents. Up to 50% of expenses can be claimed as a credit, with a maximum credit of $4,000 for one dependent and $8,000 for two or more dependents. There is a partial phase out for taxpayers that have earnings exceeding $125,000. For high income individuals, only 20% of expenses can be claimed and this credit completely phases out for individuals with income above $400,000. This assistance is only applicable during 2021. Finally, taxpayers who receive reimbursements from their employer may exclude from gross income up to $10,500 ($5,250 for married filing separately), which is an increase from the current $5,000 and $2,500 exclusions, respectively.
- Health Insurance Premium Assistance: There is an increase in subsidies for eligible taxpayers with coverage purchased on the Affordable Care Act marketplace. The act expands taxpayers eligible for assistance by allowing households with taxable income 400% above the poverty line to claim assistance. This is only applicable for 2021 and 2022.
- Student Loan Forgiveness: The act allows for the exclusion of certain discharged student loans from gross income. Student loans discharged after December 31, 2020 and before January 1, 2026 can be excluded from gross income. Student loans that are eligible are those provided by the Federal and State governments, eligible educational institutions, and certain private education loans.
For Your Business
- Paycheck Protection Program ("PPP"): The PPP program was reauthorized in December 2020 and will continue to provide funds eligible for forgiveness to small businesses who apply through May 31, 2021. The eligibility for forgiveness remains the same: employers are required to maintain their workforce and compensation levels, limit PPP spending to eligible expenses, and spend at least 60% of their loan on payroll costs and benefits to receive full forgiveness.
Businesses and nonprofits can apply for a second round of PPP loans if they show at least a 25% reduction in gross income when comparing the same quarters in 2019 and 2020. Businesses can apply for up to 2.5x their average monthly payroll costs, with restaurants and hotels eligible for a loan equal to 3.5x their average monthly payroll.
- Re-authorization of the State Small Business Credit Initiative ("SSBCI"): The SSBCI, which was previously created in 2010, has been re-enacted with additional financing of $10 billion to support small businesses by strengthening lending programs. The following eligibility criteria must be met by states:
- Show that, at a minimum, $1 of new private credit results from each $1 of public investment by the state.
- $10 of new small business financing can be leveraged for each $1 of SSBCI financing received.
- Financial institution lenders must have a reasonable amount of their own capital at risk in small business lending.
- Federal funds must be used to extend credit to small businesses.
The act also presented a new alternative eligibility standard for the third and fourth quarters of 2021 – is the employer a "Recovery Startup Business"? To be eligible, an employer must have started their business or trade after February 15, 2020. These “Recovery Startup Businesses” will be limited to a quarterly credit of $50,000 during the third and fourth quarters of 2021.
In addition, for the third and fourth quarters of 2021, severely financially distressed employers can treat all employee wages as qualified wages regardless of the number of employees. Severely financially distressed employers are those who have gross receipts for a quarter that is less than 10% of the gross receipts of the same quarter in 2019.
Additional qualifying standards were made available for voluntary FFCRA paid sick leave, which include:
- Employees seeking or awaiting the results of a COVID-19 test after being exposed to COVID or upon request from the employer.
- Employees receiving immunization for COVID-19 or recovering from after-effects of the immunization.
Finally, the maximum paid family leave has been extended from 10 to 12 weeks, while the maximum family “leave wages” were increased from $10,000 to $12,000. The limitation period on credit-related assessments has been raised from 3 years to 5 years from the date of filing of the applicable Form 941.
We will continue to update you as more information that is specific to your family and/or your business becomes available. As always, please do not hesitate to reach out if you would like to discuss any of the specifics of the new bill.