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Summary of American Rescue Plan

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The $1.9 trillion relief bill, known as the American Rescue Plan Act (ARPA), was signed by President Biden last week. Here is an executive summary of items that pertain to small business owners and tax filers in ARPA.

 

Stimulus Checks

  • 1,400 per person + per dependent - Includes all dependents, unlike last 2 rounds
  • Advanced 2021 tax credit
  • Can expect to receive the stimulus monies as soon as March 17. Check payment status here
  • Checks are issued in 3 phases
    • Initial checks will be issued based on the most recent return on file, '19 or '20
    • If a 2020 filing increases your eligibility, you will be issued additional funds the earlier of 90 days after the filing deadline, or 9/1
    • When you file your 2021 tax return, if your eligibility is increased you'll get more money, but if it goes down you won't have to pay it back
  • Phase-outs:
    • Individuals - $75-80k
    • MFJ - $150-160k

Click here to calculate your third stimulus payment using a calculator from the Washington Post

 

Unemployment - Extended

  • $300 per week boost continues through early September
  • First $10,200 of unemployment income is now non-taxable for 2020 only for taxpayers with AGI under $150,000
    • Per taxpayer if married filing jointly
  • Amendments will need to be submitted for those who have already filed

Child Tax Credits - increased

  • Credit amounts will be increased for 2021
    • Children ages 6 to 18 are now $3k/yr, up from $2k
    • Children under 6 are now $3.6k/yr, up from $2k
    • It's now fully refundable, rather than only $1.4k refundable
  • You will receive half of your child tax credits on a monthly basis from July through December
  • Anything you don't receive on a monthly basis you'll get with your 2021 filing
  • Phaseout is the same as the stimulus payments
    • Be careful if you qualify based on 2020 tax return but will have >$150,000 AGI MFJ for 2021 tax return
    • You will have to pay the credit back on the 2021 tax return if you receive the advance and make too much

Earned Income Tax Credit Improvements

  • The credit has tripled for filers without children, from $543 to $1,502
  • Minimum age is now 19, rather than 25, unless you're a full-time student
  • Taxpayers can use their 2019 income rather than their 2021 income to calculate the credit

Child and Dependent Care Credit

  • Now fully refundable
  • Credit now for 50% of eligible expenses, subject to phaseout limitations, bringing it to a max of $4k for one child and $8k for two or more
  • The taxable income exclusion for employer-provided dependent care assistance has been increased from $5,000 to $10,500

Affordable Care Act Boost

  • Temporarily increases subsidies for people buying insurance through ACA marketplaces
    • According to Checkpoint taxpayers are no longer required to repay advanced Premium Tax Credits if they receive too much during the year
  • Covers the entirety of COBRA costs through September for those who lost their jobs

Employee Retention Credit Extended

  • The program, which was previously set to expire in Q2 of 2021, has now been extended through Q4 of 2021

Family and Sick Leave Credits (FFCRA) Extended

  • Extended through 9/30
  • Previously employees were allotted 10 days of sick leave or 12 weeks family leave - This limit now resets effective 4/1, enabling you to claim additional days for that employee from 4/1-9/30
  • This has been extended for self-employed individuals as well

Restaurant Revitalization Bill

  • $25B in grants are going to be issued to restaurants, up to $10M per company, $5M per location
  • This is going to be a big project to roll out, so this one will take some time to be put into action

Things That Didn't Make the Final Bill

  • No changes to PPP, but there is a separate agreement in the works to extend the program for 2 months, from 3/31 to 5/31
  • Raising minimum wage to $15/hr - This was discussed for a time, but scrapped
  • No student loan forgiveness - But there is a clause that says future student debt that is forgiven will not be subject to income tax

Other Odds & Ends

  • Money going to states, local gov'ts and schools to provide pandemic support
  • Unrelated to this bill, an agreement may be upcoming to extend the PPP program for 2 months, from 3/31 to 5/31

IRS Instructions on Reporting ARPA Unemployment Exclusion

  • The American Rescue Plan Action of 2021 allows $10,200 of unemployment income to be excluded from Federal taxable income if your AGI is less than $150,000
    • If married, it's based on each taxpayer
  • Any modified AGI over $150,000 excludes you from excluding the income as being taxable
  • Unemployment exclusion will go on the Form 1040 Schedule 1, line 7 & 8
  • If your 1099-G is incorrect, report only report what was actually paid to you
  • Example:
    • You were paid $20,000/spouse was paid $5,000 in unemployment
    • Report $25,000 on line 7
    • Report $(15,200) on line 8
  • Use Unemployment Compensation Exclusion to figure out modified AGI and amount to exclude
  • If contributions were made to a governmental unemployment compensation program/governmental paid family leave program and not itemizing:
  • Reduce line 7 by that amount

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