On Saturday, February 27, the House passed the $1.9 Trillion American Rescue Plan Act (ARPA) of 2021 (H.R. 1319) which now moves on to the Senate for consideration. ARPA is a comprehensive package that includes significant assistance for struggling families, as well as other provisions not related to the pandemic. Congress is hoping to get the bill passed and signed by the President no later than March 14 when current pandemic-related assistance programs are scheduled to expire.
Among the many new proposed provisions, the bill includes the following:
- The bill includes new recovery rebates that will provide individuals with a credit of $1,400 ($2,800 for married couples filing jointly) plus $1,400 for each dependent. The IRS will make advance payments, similar to the first two payments made in 2020. Eligible taxpayers will be ones whose adjusted gross income (AGI) on their 2019 return (unless the 2020 return has already been filed) is under $75,000 for singles and under $150,000 for married couples filing jointly. Any AGI in excess of these amounts will cause the rebate to be phased out gradually and reduced to zero for singles AGI over $100,000 and married couples filing jointly at $200,000.
- In addition to the rebates, the bill calls for a REFUNDABLE child tax credit for 2021 of $2,000-$3,000 for children ages 6-17 and $3,600 for children under six years of age. The same $75,000 for single taxpayers and $150,000 for married couples filing jointly applies to this provision as well. In addition, the current exclusion for employer-provided dependent care assistance would increase to $10,500 for 2021.
- The minimum wage is also proposed to increase to $15 per hour by 2025, but it is anticipated that this provision will be eliminated in the final version of the bill.
- Unemployment benefits would continue past the March 14 end date through August 29 with the enhanced federal payments going from an extra $300 to an extra $400.
- The bill makes changes to the Earned Income Credit, making it easier for individuals with no children to take advantage of the credit. The credit’s phaseout is increased to 15.3%, and the phaseout amounts are also increased. Credit would also be available to certain separated spouses. The threshold for disqualifying investment income would be raised to $10,000, and taxpayers would be able to use 2019 income instead of 2021 income in determining the credit amount for 2021.
- Credits for sick and family leave enacted by the Families First Coronavirus Response Act would be extended to September 30, 2021. The leave would include leave due to a Covid-19 vaccination. The days limitation would reset after March 31, 2021.
- The bill would also extend the Employee Retention Credit (ERC) to December 31, 2021, allowing employers to take a 70% credit for paying qualified wages paid in 2021 up to $10,000 per employee per quarter for two quarters, totaling a $14,000 credit per employee.
- There is also a proposal to provide subsidized COBRA payments for taxpayers who were laid off or had their hours reduced. The plan would apply to premiums and wages paid after April 1, 2021 and would provide premium assistance for individuals who are eligible for COBRA continuation coverage between the enactment date and September 21, 2021. This credit is refundable, and the IRS would make advance payments to taxpayers of the credit amount.
In addition to the above provisions, there are changes and enhancements for businesses applying for Paycheck Protection Loans, Economic Injury Disaster Loan (EIDL) grants up to $10,000 received from the Small Business Association (SBA), as well as Restaurant Revitalization Grants and grants for schools and other shuttered businesses. We will report on these items in a separate letter as the bill moves to final form in the next two weeks.
Should you have any questions, please don’t hesitate to reach out to your tonneson + co representative.