This week, Congress passed the American Rescue Plan Act of 2021, which means the bill is now headed to President Biden’s desk for signature. This comes just in time, as the expiration of unemployment relief was set to expire on March 14.
For the most part, the bill aligns with President Biden’s original pre-inauguration framework. It includes things like aid to state and local governments, increased funding for COVID-19 vaccination programs, and extensions of enhanced unemployment relief. It also contains several tax provisions, such as extensions of tax credits for employers, changes related to retirement plan funding, and a third round of direct stimulus payments.
Below is a quick overview of the new stimulus bill, highlighting the things we thought were most important for you to know.
Another Round of Stimulus Payments
The bill includes a $1,400 stimulus payment for taxpayers, which essentially acts as a credit against 2021 taxes. Like previous stimulus payments, this third round does come with income limitations. The amount of payment phases out ratably for single filers with adjusted gross income over $75,000 ($112,500 for heads of households and $150,000 for joint filers). The stimulus amount phases down to $0 for single filers with $80,000 of adjusted gross income ($120,000 for heads of households and $160,000 for joint filers).
If you’ve already filed your 2020 tax return, your adjusted gross income for the 2020 tax year will be used in applying the phaseout. If not, 2019 amounts will be used instead.
Expanded Child Tax Credit
The bill also significantly expands the child tax credit for the 2021 tax year. Currently, the amount of the child tax credit is $2,000 per child, with only $1,400 being refundable per child if the amount of tax credit exceeds the amount of taxes owed. The new legislation increases the amount to $3,000 per child (or $3,600 for a child under the age of six) and makes the credit amount fully refundable. The maximum age of qualifying children is also increased to include 17-year olds.
Any credit over $2,000 would phase out by $50 for every $1,000 of modified adjusted gross income when income exceeds $150,000 for joint filers, $112,500 for head of household filers, and $75,000 for single filers. Once any excess amount is eliminated, the $2,000 credit remains until present-law thresholds are reached — meaning that the credit phases out when incomes exceed $400,000 for joint filers and $200,000 for all other filers.
Unemployment Relief Extension
The new legislation includes an extension to the $300 weekly bonus unemployment checks, which have been around since the early pandemic relief bills. The extension passed in December 2020 was set to expire this March. However, the new legislation extends the extra payments through September 6, with a few changes. The most notable change is a new tax exemption available for the first $10,200 received in 2020 for unemployed workers.
Paid Sick and Family Leave Credits
In the early days of the pandemic, Congress provided the payroll tax credit for employers providing paid sick and family leave, along with a similar credit for those who are self-employed. In December 2020, the period for which the credit could be claimed was extended to the end of March. The bill extends this again to the end of September. The limit on applicable wages for which the credit can be claimed is also increased to $12,000, going into effect after March 31.
Employee Retention Tax Credit
The highly popular payroll credit for employee retention was set to expire on June 30, 2021. However, the credit is now extended through the end of 2021.
We recently published an article explaining this credit in greater detail, as the Consolidated Appropriations Act clarified and expanded it to provide more significant relief to businesses. Click below to learn more.
We will continue to monitor this bill and be available to answer questions as they come up for you — and do our best to be your continued resource for financial news during this terrible pandemic.
We hope that some of these provisions will bring some extra relief to you and your business.
As always, we are doing our best for you to make the complex simple.