A Breakdown of the New $1.9 Trillion Relief Bill
The latest COVID-19 relief bill has made its way through the U.S. Senate, House of Representatives, and is expected to be signed by President Biden by the end of this week for final approval. The American Rescue Plan Act of 2021 contains another round of stimulus checks, expanded unemployment benefits, child tax credits, additional COVID-19 funding, increased small business relief, and more initiatives that may impact your individual and business tax planning.
The most publicized highlight of the new legislation is immediate $1,400 stimulus checks for individuals and each dependent. However, income eligibility has been modified compared to the last two rounds of economic impact payments.
Individuals with modified adjusted gross income (MAGI) less than $75,000, heads of households with MAGI less than $112,500, and married couples filing jointly with MAGI less than $150,000 will qualify for the full amount. Additionally, individuals with MAGI above $80,000, heads of households with MAGI above $120,000, and married couples with MAGI above $160,000 will not qualify for the check. Taxpayers between the two income ranges will receive partial payments. In the first two rounds, only dependent children under the age of 17 qualified, but now taxpayers will qualify for a stimulus payment for their adult dependents, too.
| Eligibility | Individual | Head of Household | Married Filing Jointly |
|---|---|---|---|
| Qualifies for full amount | Less than $75,000 | Less than $112,500 | Less than $150,000 |
| Qualifies for reduced amount | $75,000-$80,000 | $112,500-$120,000 | $150,000-$160,000 |
| Does not qualify | Higher than $80,000 | Higher than $120,000 | Higher than $160,000 |
This will be based on your 2020 tax return if it has been filed and accepted by the IRS. Otherwise, it will be based on your 2019 return. This round of stimulus checks is meant to help those who lost income in 2020. If you have not yet filed this year, it may make sense to file your return as soon as possible to qualify for this payment. The checks are expected to be disbursed by the IRS in the coming days or weeks.
Originally set to expire in March, federal unemployment assistance of $300/week has been extended through September 6, 2021. For adjusted gross incomes under $150,000, the first $10,200 of 2020 jobless benefits received are now tax-free.
The child tax credit, previously $2,000 for dependents under the age of 17, has been increased for 2021 only and now includes 17-year-olds. For children up to 5 years old, the child tax credit could be as much as $3,600 per child. For children ages 6-17, the tax credit could be up to $3,000 per child. However, the increased credit amount phases out for taxpayers with incomes over $75,000 (individual), $112,500 (head of household), and $150,000 (married filing jointly). Taxpayers with income over these phaseout amounts could still claim the $2,000 credit.
Advanced monthly payments of half of the annual credit will be sent to eligible taxpayers from July 2021 through December 2021, with the ability to opt out. The advance payments would be reconciled with the actual credit allowable on the taxpayer’s 2021 tax return. Taxpayers who receive more advanced payments than they deserve may need to repay the excess if their income is over a certain amount. The IRS is expected to set up an online portal with more information.
In addition, the child and dependent care credit is also made fully refundable through 2021. The exclusion for employer-provided dependent care assistance is increased to $10,500.
Earned Income Tax Credit
For those without children, the earned income tax credit (EITC) is expanded through this year. The minimum age to claim the EITC for childless taxpayers will be reduced from 25 to 19 (except for students), the maximum age limit is removed, and phaseout amounts are increased.
Student Loans
Forgiven student loans will be exempt from taxation through 2025. Traditionally, the IRS treats student debt cancellation as taxable income.
FFCRA Paid Sick Leave Credits
The new bill extends the credits for federal sick and family leave through last year’s Families First Coronavirus Response Act (FFCRA) through September 30, 2021 and increases the limit of the credit to $12,000. In addition, leave credits are now permissible for leave due to COVID-19 vaccination. The limitation of days taken will reset as of March 31, 2021.
Employee Retention Credit
This bill extends the Employee Retention Tax credit (ERC) through the end of 2021. For more information on the ERC, see our webinar from last month.
There will be further support for business owners including $25 billion for a new grant program to help bars and restaurants. The bill allocates an additional $15 billion to the SBA EIDL program, including a priority given to severely impacted business owners with fewer than 10 employees. The bill also includes an added $7 billion to the Paycheck Protection Program (PPP) loans with the ability to make more non-profits eligible. This bill also contains a rescue package for multiemployer pension plans that are struggling financially.
Nearly $62 billion (7%) of the bill will go towards vaccine distribution, COVID-19 testing, contact tracing, genomic sequencing, and a relief fund to help cover COVID-19 funeral expenses. The bill includes $7.7 billion to hire an additional 100,000 people to support the nation’s Coronavirus response.
The bill contains $130 billion to help with reopening costs for both public and private K-12 schools. The school must use 20% of the funding to address learning loss during the pandemic with additional school days or summer school. The bill also includes $350 billion for states, local governments, tribal governments, and territories. More funds will be allocated to colleges and universities, transit agencies, housing aid, childcare providers, and food assistance.
For those receiving health care through the Affordable Care Act, there will be temporarily increased subsidies. The bill also plans to remove the maximum income cap for 2 years for those who can take advantage of the Affordable Care Act. Enrollees would pay no more than 8.5% of their income, reduced from 10%. Billions of dollars in this relief bill will go toward public health plans and veterans’ health care. Also, through COBRA, those who became unemployed will be able to keep their same health insurance plan with premiums fully covered through September 2021.
This most recent legislation unpacks a lot of new tax changes right in the middle of the 2020 tax season. If you have questions about the intricacies or how the tax changes affect your individual situation, consult with your trusted accountant and advisor.
For more information about current updates and past COVID-19 relief bills, bookmark our COVID-19 resource center.
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