American Rescue Plan Act: How it Impacts You and Your Business



On Thursday March 11th, President Biden signed the American Rescue Plan Act into law. Here is a brief summary of the key tax provisions. 

1. The first $10,200 in unemployment benefits are free of tax in 2020 for taxpayers making less than $150,000 per year.

2. Individuals will be provided a $1,400 recovery rebate credit ($2,800 for married taxpayers filing jointly), plus a $1,400 credit for each dependent, and like last year’s economic impact payments, the IRS will send out advance payments of the credit.  For single taxpayers, the credit and payment begin to phase out at an adjusted gross income (AGI) of $75,000, and will completely phase out for single taxpayers with an AGI over $80,000.  For married taxpayers filing jointly, the phaseout begins and ends at an AGI of $150,000 and $160,000, respectively, and for heads of household, the phaseout begins and ends at an AGI of $112,500 and $120,000, respectively.  

3.  The child tax credit is increased to $3,000 per child ($3,600 for children under age six), with a phase out similar to that in item (2), above, for the corresponding filers.  The IRS is directed to estimate taxpayers’ child tax credit amounts and pay monthly in advance one-twelfth of the estimated amount, with payments running from July through December of 2021.  The IRS will also set up an online portal to allow taxpayers to opt out of advance payments or otherwise modify the amounts to be paid.  

4.  The child and dependent care tax credit is refundable in 2021.  It is worth 50% of eligible expenses, up to an income limit, and results in a refundable amount of $4,000 for one qualifying individual and up to $8,000 for two or more.  A reduction of the credit begins at household income levels over $125,000.

5.  The credits enacted by the Families First Coronavirus Response Act are now statutorily codified.  The  most important changes associated with these credits are: 

(i) the credit for paid family leave is increased to $12,000.

(ii) the number of days that a self-employed individual can take into account in calculating the qualified family leave equivalent amount for self-employed individuals is now sixty, up from fifty.

(iii) paid leave credits are allowed for leave taken due to a COVID-19 vaccination.

(iv) the limitation on the overall number of days taken into account for paid sick leave will reset after March 31, 2021.  

6.  The employee retention credit is extended through the end of 2021.  The credit is allowed against the Medicare tax.  

7.  Any amount ordinarily includable in income due to a discharge of any student loan after December 31, 2020 and before January 1, 2026 will not be so included.

Please contact your MSPC advisor if you have any questions, and we will continue to update you on this and more important developments.