The American Rescue Plan Act of 2021 has been approved by the House Budget Committee, and this is the bill that contains President Biden’s COVID-19 relief. You have probably seen parts of this in the media, but we wanted to provide some context to portions of this bill that will possibly have an impact on you.
There are some key tax and pension provisions in the bill that we wanted to highlight. Please keep in mind that these are still up for some debate and political back and forth. This is just the House version of the bill and we do not know for certain what the final bill will be when and if the Senate acts on it.
For Individual Taxpayers:
- Economic impact payment/recovery rebate credit. The payment/credit is a maximum of $1,400 for a single taxpayer ($2,800 for joint filers), in addition to $1,400 per dependent for qualifying taxpayers.
- Child tax credit. Makes the child tax credit fully refundable for 2021 and increases the maximum amount from $2,000 to $3,000 per child ($3,600 for a child under age 6).
- Earned Income Tax Credit. Various liberalizations. For example, the bill would expand the credit for taxpayers without children for 2021 by increasing the credit percentage and phase-out thresholds. It also would allow taxpayers ages 19 and older without children to qualify.
- Child and dependent care tax credit. Makes a number of modifications for 2021. For example, makes the credit fully refundable and increases the maximum credit rate to 50%. Amends the phaseout threshold to begin at $125,000 instead of $15,000.
- Premium tax credit. Increases credits for individuals eligible for assistance under current law and provides credits for taxpayers with income below 400% of the federal poverty line. Liberalizes the rules for taxpayers receiving unemployment compensation.
- COBRA. The bill would subsidize 85% of premiums for individuals eligible for COBRA continuation coverage if they lose their job. The employee would pay 15% of the premium, and the employer or health plan could claim a refundable tax credit for paying the remaining amount.
For Business Taxpayers:
- Employer-provided dependent care assistance. Increases the exclusion for employer-provided dependent care assistance from $5,000 to $10,500 (from $2,500 to $5,250 in the case of a separate return filed by a married individual) for 2021.
- Credits for paid sick and family leave. The bill would make a number of changes. Among them: extend through September 30 tax credits for employer-provided paid sick and family leave; and increase the wages covered by the paid family leave credit to $12,000 per worker, from $10,000.
- Employee retention credit. The bill would extend this credit through December 31, 2021.
- Corporate interest expense. The bill would eliminate the ability of companies to allocate interest expenses on a worldwide basis beginning in 2021.
We will continue to keep our finger on the pulse of these changes and work to relay them to you. We will also be working to better understand all of the coming changes, and incorporate them into our tax planning for our clients.