After much debate, the Senate and House reached various compromises on the latest relief bill, the American Rescue Plan Act (ARPA), which President Biden signed into law on March 11. The 600 pages contain many provisions and additional guidance is likely to follow in the coming weeks. Meanwhile, here are the key benefits.
The $1,400 relief check
This is probably the most-heralded part of the bill. These payments are $1,400 per person, including dependents, so a couple with two children is eligible for $5,600. The $1,400 check is also available for adult dependents, such as a college student or a disabled adult child.
However, the bill imposes income cutoffs. Recipients will get the full amount if their adjusted gross income doesn’t exceed $75,000 (singles), $112,500 (heads of household) or $150,000 (joint filers). At AGIs higher than these, the checks start phasing out, reaching zero at $80,000 (singles), $120,000 (heads of household) or $160,000 (joint filers).
What is the AGI based on? The taxpayer’s 2020 return, unless it hasn’t been filed yet, in which case it defaults to the 2019 return. There is room here for some strategizing—taxpayers should contact a tax professional to discuss the most beneficial course of action.
It’s unclear how quickly Washington will be able to disburse these funds.
Congress is granting an additional $300 weekly unemployment supplement through Sept. 6. As a benefit for those who received significant unemployment insurance payouts last year and might be facing an unexpected tax bill, Congress also added a provision that makes the first $10,200 of the 2020 benefits nontaxable for households making less than $150,000.
Child tax credit
Although this change hasn’t received as much attention as other aspects, it affects a wide swath of the population. For the 2021 tax year, the child tax credit will give parents a $3,000 credit for every child aged 6 to 17 and $3,600 for every child under age 6. This is an increase from $2,000 per dependent child up to age 16. The revised credit is fully refundable, meaning it will go to families that made so little that they didn’t owe enough taxes to qualify.
Those earning up to $75,000 (singles), $112,500 (heads of household) and $150,000 (joint filers) will be eligible to receive the full benefit, with the amount of the payments phasing out by $50 for every $1,000 in income above those thresholds. Families ineligible for the expanded credit will still be able to claim the old $2,000 credit, which phases out after income exceeds $200,000 for single filers and $400,000 for joint filers.
Extras for employers
The new act does not mandate the leaves as instituted in the FFCRA. However, it has extended the credit for employers who voluntarily provide qualified leave benefits through Sept. 30, 2021. The Employee Retention Credit has been extended through the end of the year. Both of these provisions are complicated, so be sure to get all the details before deciding what is right for you.
Please note that this is a preliminary report on an enormous bill for which there is currently little guidance. Additional official guidance may modify the provisions noted in this article. R&A is monitoring the situation and will advise as more guidance becomes available.
About this Author
Nate is a trusted advisor for businesses and individuals, providing tax planning, compliance support, and accounting services. He also is certified as a Personal Financial Specialist which allows him to guide clients through the many challenges and phases of their career from start-up to retirement.