The American Rescue Plan Act of 2021 – Individual Provisions

Below we have assembled a brief summary of some of the individual taxpayer provisions of the American Rescue Plan Act of 2021 (ARPA), passed on March 11, 2021.

A Third Round of Stimulus

Recovery rebate credits (stimulus checks). ARPA provides a third round of nontaxable stimulus checks directly payable to individuals. These payments are structured as refundable tax credits against 2021 taxes but will paid in 2021 and reconciled on your 2021 tax return.

This round of stimulus offer’s a maximum payment of $1,400 per eligible individual ($2,800 for married joint filers) and $1,400 for each dependent.

The income phase out limitations for this round set in quicker than previous predecessor payments. For this round of payments, the phase outs will occur between the following Adjusted Gross Income (AGI) amounts:

  • Single – $75,000 – $80,000
  • Head of Household: $112,500 – $120,000
  • Married filing joint: $150,000 – $160,000

Eligibility is based on information from 2020 income tax returns (or 2019 returns, if 2020 returns haven’t been filed when the advanced credit is initially issued). For households whose payment was based on 2019 income data, and who would be eligible to receive a larger payment based on 2020 data, no need to worry, as there is a provision that allows for the IRS to issue a supplementary payment.

Changes to the Child Tax Credit and Dependent Care Credit

Child tax credit. For 2021, the child tax credit has been increased significantly from $2,000 per qualifying child to $3,000 per child or $3,600 for children under 6 years of age.

Additionally, the IRS will begin making advanced payments of a taxpayer’s estimated 2021 tax credit during the later part of this year. These advances are expected to be 50% of the anticipated credit a taxpayer would receive on their 2021 return.

Child and dependent care credit. For 2021, the amount of expenses taken into consideration for the child and dependent care credit has been increased from $3,000 to $8,000 for taxpayers with one qualifying dependent and from $6,000 to $18,000 for taxpayers with two or more qualifying dependents. This is a massive increase to a credit that was historically insignificant to high-earners.

Dependent care assistance programs. For 2021, the amount excludible under a dependent care assistance program has been increased to $10,500 (or $7,500 for a married taxpayer filing a separate return).

Change in Taxability of Unemployment Benefits

Income exclusion for unemployment benefits. For 2020, taxpayers with modified AGI less than $150,000 can exclude from gross income $10,200 of their unemployment benefit. As of the date this was written, this limit inconveniently applies to taxpayer’s of all filing statuses, whether married filing joint, separate, head of household, or single.

We hope you find these updates useful. If you have any questions, please don’t hesitate to contact our office.

The American Rescue Act of 2021 – Business Provisions

Below we have assembled a brief summary of some of the business taxpayer provisions of the American Rescue Plan Act of 2021 (ARPA), passed on March 11, 2021.

Extension of the paid sick and expanded family and medical leave tax credits

Payroll tax credits. Paid sick leave and family leave credits are extended to apply to apply to wages paid through September 30, 2021. This credit had previously only applied to wages paid up to of March 31, 2021.

Self-employment sick and family leave credits. These credits, which are creditable against the income tax for self-employed individuals, have also been extended to apply to eligible days through September 30, 2021.

Other notes. Both of these credits now expand eligible leave to include obtaining and recovering from COVID-19 immunization.

Tax-Free Treatment of Restaurant Revitalization Grants

Taxability of Restaurant Revitalization Grants . ARPA allows for tax-free treatment of the SBA Restaurant Revitalization Grants. Under ARPA, these advances aren’t included in income and taxpayers are allowed a deduction for expenses paid with these tax-free grants.

We hope you find these updates useful. If you have any questions, please don’t hesitate to contact our office.



ARPA’S Enhancements to the Premium Tax Credit

The premium tax credit (PTC) is a refundable tax credit that assists individuals and families in paying for health insurance obtained through a Marketplace (Healthcare.gov) and was established under the Affordable Care Act (ACA). Recent COVID relief legislation, the 2021 American Rescue Plan Act, (or ARPA) that was just recently passed in March 2021 made several changes to this credit. Below, we’ve assembled an overview of these changes.

Changes in Eligibility for Households Above 400% of the Federal Poverty Line

Under pre-ARPA law, individuals with household income above 400% of the federal poverty line (FPL) weren’t eligible for the PTC.

Under ARPA, for 2021 and 2022, the PTC is available to taxpayers with household incomes that exceed 400% of the FPL. This change will have the effect of increasing the number of people who are eligible for the PTC.

An Increase to PTC for 2021 and 2022

New tables for 2021 and 2021 will modify how the PTC is calculated. These tables calculate the PTC on a sliding scale based on household income, expressed as a percentage of the federal poverty line (FPL). The amount of PTC a taxpayer is eligible for is limited to the excess of the premiums for the applicable benchmark plan over the taxpayer’s required share of those premiums. Previously, a taxpayer would have had to spend as much as 9.83% of their house hold income on health insurance to be eligible for the PTC. This amount decreases to 8.5% for 2021 and 2022.

No Repayment of Excess Advance PTC Payments for 2020

One of the biggest changes to the PTC was the suspension of any repayment of “excess” advances of the PTC. Even though the ARPA was passed in March 2021, this impacted many 2020 filers and is part of the reason for the delays experienced this filing season.

Historically, if your actual PTC turned out to be more than the advance payments you received as a subsidy to your health insurance premiums during the year, you would receive a refundable income tax credit for the excess. But if your advance payments exceed your PTC, you were required to pay back the excess as additional income tax, subject to a repayment cap based on your household income.

For 2020 under ARPA, if you file a 2020 return reconciling your advance PTC payments with your actual PTC, no additional income tax will be imposed if the advance payments are greater. Taxpayers can retain the benefit of the advance payments even if they exceed the maximum PTC to which they are entitled.

This is all very new guidance, but at this time, we are not recommending that clients file amended returns to claim a refund if they’ve already filed a 2020 return and paid the excess credit back as additional tax.

Please let us know if you would like more information about these new provisions.