Highlights of the American Rescue Plan

Updated March 10, 2021 – The House of Representatives has passed the American Rescue Plan Act of 2021 which was recently passed by the Senate. The bill now goes to the President who is expected to sign the legislation quickly.

Most of the tax provisions that were in the House’s original version of the bill were unchanged in the Senate’s version, but the tax treatment of 2020 unemployment benefits, the phaseout ranges for economic impact payments, and the treatment of student loan debt forgiveness were changed by the Senate.

Here are highlights of the bill:

HELP FOR INDIVIDUALS

There are a number of initiatives included in the stimulus package aimed at assisting individuals and families including:

• Individual stimulus payments
• Enhanced child tax credit
• Housing and food assistance
• Unemployment assistance
• Student Loan Treatment

Individual stimulus payments

The act creates a new round of economic impact payments to be sent to qualifying individuals. The same as last year’s two rounds of stimulus payments, the economic impact payments are set up as advance payments of a recovery rebate credit. The act creates a new Sec. 6428B that provides individuals with a $1,400 recovery rebate credit ($2,800 for married taxpayers filing jointly) plus $1,400 for each dependent (as defined in Sec. 152) for 2021, including college students and qualifying relatives who are claimed as dependents. As with last year’s economic impact payments, the IRS will send out the advance payments of the credit.

For single taxpayers, the credit and corresponding payment will begin to phase out at an adjusted gross income (AGI) of $75,000, and the credit will be completely phased out for single taxpayers with an AGI over $80,000. For married taxpayers who file jointly, the phaseout will begin at an AGI of $150,000 and end at AGI of $160,000. And for heads of household, the phaseout will begin at an AGI of $112,500 and be complete at AGI of $120,000.

The act uses 2019 AGI to determine eligibility, unless the taxpayer has already filed a 2020 return.

Enhanced Child Tax Credit

The act expands the Sec. 24 child tax credit in several ways and provides that taxpayers can receive the credit in advance of filing a return. The act makes the credit fully refundable for 2021 and makes 17-year-olds eligible as qualifying children.

The act increases the amount of the credit to $3,000 per child ($3,600 for children under 6). The increased credit amount phases out for taxpayers with incomes over $150,000 for married taxpayers filing jointly, $112,500 for heads of household, and $75,000 for others, reducing the expanded portion of the credit by $50 for each $1,000 of income over those limits.

The IRS is directed to estimate taxpayers’ child tax credit amounts and pay monthly in advance one-twelfth of the annual estimated amount. Payments will run from July through December 2021.

The IRS must set up an online portal to allow taxpayers to opt out of advance payments or provide information that would be relevant to modifying the amount.

The taxpayer in general will have to reconcile the advance payment amount with the actual credit amount on next year’s return and increase taxable income by the excess of the advance payment amount over the actual credit allowed. But taxpayers whose modified AGI for the tax year does not exceed 200% of the applicable income threshold ($60,000 for married taxpayers filing jointly) will have the increase for an excess advance payment reduced by a safe harbor amount of $2,000 per child.

Housing and Food Assistance

The bill includes numerous provisions designed to provide housing (including rent and mortgages) and food assistance for families impacted by the pandemic. These provisions include:

• $30 billion in rental assistance
• $10 billion for mortgage assistance
• $5 billion to help prevent the spread of COVID-19 in homeless populations
• $5.8 billion in EBT and WIC assistance to support nutritional programs for school-aged children and low-income women and infants

Unemployment Assistance

The act makes the first $10,200 in unemployment benefits tax-free in 2020 for taxpayers making less than $150,000 per year.

Student Loans

The act amends Sec. 108(f) to specify that gross income does not include any amount that would otherwise be included in income due to the discharge of any student loan after Dec. 31, 2020, and before Jan. 1, 2026.

HELP FOR BUSINESSES

In an effort to help hard-hit businesses, the American Rescue Plan outlines numerous elements slated to help businesses recover.

The legislation includes $25 billion to help restaurants and bars. In addition, $22 billion in relief has been earmarked with $15 billion set aside for Economic Injury Disaster Loan Advance grants and $7 billion in additional funding for the Payroll Protection Program.

The legislation also provides $12 billion of funding for the airline industry to help curb the need for layoffs.

HELP FOR STATE AND LOCAL GOVERNMENTS

The American Rescue Plan includes $350 billion to assist state and local governments as well as tribes and territories.

This includes funds for the FEMA Disaster Relief fund, infrastructure needs, and transportation assistance.

Also, $130 billion would go towards helping K-12 schools provide personal protective equipment (PPE), implement social distancing, improve ventilation systems and reduce class sizes.

Higher educational institutions would receive $40 billion with a significant portion specifically for helping to reduce hunger and homelessness and alleviate other challenges which might be experienced by students related to the pandemic.

Childcare providers will also get a boost through the Child Care and Development Block program ($40 billion). An additional $1 billion would be used to support Head Start programs.

OTHER PROVISIONS

The American Rescue Plan includes funding of $20 billion to establish a national vaccine program with an additional $50 billion to support coronavirus testing.

The bill also includes money for the Affordable Care Act (ACA), the Consolidated Omnibus Budget Reconciliation Act (COBRA), and paid leave.

Overall, the American Rescue Plan includes $1.9 trillion created to help individuals, families, and businesses recover from the negative impact of the coronavirus pandemic.

The bill is soon expected to be signed into law by President Biden. If you have any questions about the American Rescue Plan, please contact your ALL tax advisor or call us at 617-738-5200.

Sources: AICPA, White House

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