Our colleagues from NATP have provided us with some valuable insight into the American Rescue Plan Act, which is to be signed into legislation this week by President Joe Biden.
American Rescue Plan Act – H.R. 1319 Summary of Title IX
Unemployment
As an extension of the CARES Act, weekly unemployment benefits have been extended through Sept. 6, 2021,
with a weekly benefit amount at $300. The first $10,200 ($20,400 if MFJ) of unemployment benefits for 2020 will be
nontaxable for taxpayers with adjusted gross income of less than $150,000. If adjusted gross income is $150,000
or greater, the full $10,200 or $20,400 of unemployment compensation becomes taxable.
COBRA
Reduces premiums payable by providing premium assistance from April 1, 2021, through Sept. 30, 2021. Federal
subsidy coverage for COBRA premiums increases to 100%. If required to notify a group health plan, failure to do
so may result in $250 penalty for each failure.
2021 recovery rebates for individuals
A 2021 advance recovery rebate or a third economic impact payment (EIP3) of $1,400 ($2,800 MFJ) will be issued
to each eligible individual plus $1,400 to each dependent (including adult dependents).
The payment will fully phase out when income reaches $80,000 for single filers, $120,000 for heads of household
with one child, and $160,000 for joint filers or surviving spouse.
An eligible individual is anyone except:
• Any nonresident alien individual
• Any individual who is a dependent of another taxpayer at the beginning of the calendar year
• An estate or trust
The recovery rebate credit is based on the 2019 or 2020 tax return and will be reconciled on the 2021 tax return.
For payments based on the 2019 return, the bill contains a provision that allows for an additional payment if the
advance of the recovery rebate is greater based on the taxpayer’s 2020 return.
Child tax credit
Special rules for 2021 include an expansion of the credit from $2,000 to $3,000 per eligible child under age 18
($3,600 per child under age 6). The fully refundable credit, with 50% of the credit issued as advance periodic
payments starting in July, will be reconciled on the 2021 tax return. For 2021, the increased credit amount
(additional $1,000 or $1,600 per-child in excess of the present-law $2,000 per-child) begins to be phased-out at
$75,000 ($150,000 for MFJ and SS and $112,500 for head of household). Once the increased credit amount is
reduced, the credit plateaus at $2,000, and the phaseout begins at $200,000 ($400,000 for MFJ).
Earned income credit
For 2021, the minimum age to claim the EIC for taxpayers without children (childless EIC) generally is reduced from
age 25 to age 19 (except full-time students). The maximum age limit of 65 for claiming the childless EIC has been
eliminated. The credit and phaseout percentage increases from 7.65% to 15.3% for an individual with no qualifying
children. Taxpayers may use their earned income from the 2019 tax year to determine their EIC for the 2021 tax
year if the 2021 earned income was less than the 2019 earned income.
The disqualified investment income limit also increases from $3,650 (2020) to $10,000.
Dependent care assistance
For 2021, the credit is fully refundable and the dollar limit for eligible expenses increases from $3,000 to $8,000 for
one eligible child, and from $6,000 to $16,000 for two or more eligible children. The maximum credit rate increased
from 35% to 50% and the AGI limitation increases from $15,000 to $125,000. Taxpayers with an AGI of $125,000
to $400,000 will receive a partial credit.
The exclusion for employer-provided dependent care assistance increases from $5,000 to $10,500 ($5,250 for MFS).
Paid sick and family leave credits
Extends the paid leave credits from April 1, 2021, through Sept. 30, 2021, for eligible employers providing sick
or family leave that otherwise would be required if the Families First Coronavirus Response Act applied after
March 31, 2021. Several new provisions also take effect after March 31, 2021. For example: allows paid leave
credits to obtain COVID-19 vaccine, restarts the 10-day limit for qualified sick leave wages and increases the
qualified family leave wages limit from $10,000 to $12,000 in total.
Employee retention credit
Extends the employee retention credit (ERC) through Dec. 31, 2021, for wages paid after June 30, 2021, and before
Jan. 1, 2022. After June 30, 2021, the ERC offsets the employer’s share of Medicare tax.
Premium tax credit
Reduces health care premiums for low- and middle-income families by increasing the Affordable Care Act’s (ACA)
premium tax credit (PTC) for 2021 and 2022. The affordability percentages to be used for the 2021 and 2022 tax
years:
For 2020, no repayment is required for taxpayers receiving excess advance PTCs.
The bill also provides that if a taxpayer receives unemployment compensation (UC), they can use the rates as if
their household income tier is 133% of the federal poverty line.
Modification of treatment of student loan forgiveness
Provides special rule for discharges in 2021 through 2025 that the discharge of student loans as cancellation
of debt is not included in gross income. Student loan borrowers who made qualified student loan payments
after March 13 could have those payments refunded if they notify their loan servicer. Tax refund and/or wage
garnishment has been suspended through Sept. 30, 2021, for those who have defaulted on federal student
loan debt.
Tax treatment of targeted Economic Injury Disaster Loan (EIDL) advances
Excludes amounts received under §331 of the Economic Aid to Hard-Hit Small Business, Non-profits, and Venues
Act from gross income and treats them as tax exempt income for partnerships and S corporations. Allows
deductions for expenses paid with targeted EIDL advances, does not reduce tax attributes and allows basis
increases.
Tax treatment of restaurant revitalization grants
Excludes amounts received from the Small Business Administration (SBA) under §5003 from gross income and
treats them as tax exempt income for partnerships and S corporations. Allows deductions for expenses paid with
such amounts, does not reduce tax attributes and allows basis increases.
Modification of exceptions for reporting of third party network transactions
(1099-K Reporting)
After 2021, the de minimis exception for reporting a transaction changes from $20,000 to $600. Clarifies that
reportable transactions only include those for goods and services, which will apply to transactions after the
enactment of this bill.
©2021 NATP | American Rescue Plan Act – H.R. 1319
