The American Rescue Plan Act

March 22, 2021

On March 11, 2021, President Biden signed into law the $1.9 trillion relief bill known as The American Rescue Plan Act of 2021 (“ARPA”). This is a massive bill! The following is a summary of the more significant tax provisions that impact our clients. Some provisions are retroactive to tax year 2020 and we will consider those carefully when we are working through your 2020 individual and business tax returns.  We are your advocates and will work to maximize the tax benefits available to you.  

Individual Tax Provisions

    • Unemployment Income: Extends through September 6, 2021 a $300 per week supplement to federal unemployment benefits that would have expired March 14, 2021.

    • Unemployment Income Exclusion: A $10,200 per individual unemployment insurance exclusion for the 2020 taxable year, only for households with modified AGI of $150,000 or less. If you have already filed your 2020 return an amendment is not needed. The IRS plans to automatically issue refunds.

    • Stimulus Payments: A third round of Economic Impact Payments of $1,400 per individual and dependent (including dependents over age 17). Phase-out for this benefit begins at $75,000 (single) or $150,000 (married filing jointly).

    • Expanded Child Tax Credit: For 2021, the Act increases the child tax credit from up to $2,000 per child under the age of 17 to $3,600 for each child younger than 6 and $3,000 for each child age 6 through 17 for qualifying families. The increased credit begins to phase out at AGI of $75,000 for single taxpayers and $112,500 for married taxpayers filing joint returns. The phase out only applies to the increased credit. Families with AGI in excess of $112,500 and under $400,000 still get the $2,000 credit.

    • Child and Dependent Care Credit: For tax years beginning in 2021, eligible expenses have increased from $3,000 per qualifying child to $8,000 per qualifying child.

    • Student Loan Forgiveness: For student loans forgiven by the lender for the years 2021 – 2025, the income will not be taxable. The Act does not forgive student loans, it allows forgiveness of those loans to be excluded from taxable income.

    • COBRA Premium Subsidy: Six months of free COBRA benefits from April 1, 2021 through September 30, 2021 for employees (and their family members) who experience a loss of group health coverage due to involuntary termination or reduced hours of employment. Employees who are eligible for and elect COBRA coverage, are not required to pay the otherwise applicable COBRA premium, during this six-month period.

Business Tax Provisions

    • Employee Retention Credit: The Act extends Employee Retention Credit (“ERC”) through December 31, 2021. After June 30, 2021, the ERC offsets the employer’s share of Medicare tax.  

Note: Beaird Harris will be sending out an update to this important provision to our business clients soon. 

    • Credits for Paid Sick and Family Leave: The Act extends tax credits for employer-provided paid sick and family leave, which were established by the Families First Coronavirus Response Act (“FFCRA”), through September 30, 2021  It also increases the wages covered by the paid family leave credit to $12,000 per employee (originally $10,000), between April 1, 2021, and September 30, 2021. Additionally, it resets the 10-day limit starting April 1, 2021 for employers claiming the credit for paid sick leave provided to their employees.

    • COBRA: Credits for providing subsidized COBRA benefits. When employers provide COBRA coverage over the period referenced above, they are then eligible to take a payroll tax credit equal to the cost of the coverage.

    • Targeted Economic Injury Disaster Loans Advances and Grants Under the Restaurant Revitalization Fund: Advance targeted Economic Injury Disaster Loans (“EIDL”) advances that are not repaid and grants under the Restaurant Revitalization Fund (“RRF”) will be excluded from income, and deductions for associated expenses will be allowed. This is in accordance with prior legislation regarding PPP.  

Note: if you have a restaurant, bar or similar establishment, please contact us to discuss this in more detail. 

As always, we are here to help you sort through the myriad of new and evolving tax legislation.  Don’t hesitate to reach out to discuss your personal situation.


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