On March 11, the President signed the American Rescue Plan (ARP) into law. The unprecedented $1.9 trillion relief will fund COVID vaccines and testing and provide money for states as well as several additional projects.
Here is what you need to know about this massive spending bill and how it may affect your taxes.
A large facet of ARC is a third round of stimulus payments. This time, the checks will be $1,400 for each taxpayer and dependent. There are some differences between these payments, primarily:
- All dependents are eligible for stimulus payments, including children over the age of 16 and adult dependents.
- The income phase out range is much lower than before. Basically, anyone with income in excess of $80,000 (single) or $160,000 (married) will be ineligible for any stimulus money in this round.
The third round of stimulus payments are expected to go out in two phases, with some already received. The first phase is based on the data the IRS already has processed from the 2019 tax returns. If you qualify for an additional amount based on your 2020 income, the payment will NOT be in the first phase. The second phase of payments will go out to taxpayers who should have received a larger stimulus either 90 days after the tax deadline OR September 1 (whichever is earlier) after the IRS has processed 2020 returns.
So, make sure you file by August 15; however, filing early will not accelerate the payment.
Under the ARP, the first $10,200 in unemployment benefits are now non-taxable for taxpayers who made less than $150,000 in 2020. If you have already filed, do NOT file an amended return. The IRS is working on adjusting these returns and sending an additional refund.
Unemployment benefits that were set to expire on March 14 are now also extended through September 6, 2021. The additional $300 per week of unemployment assistance has also been extended.
Child Tax Credit
Taxpayers with a child under 17 typically receive a $2,000 Child Tax Credit. The ARP extends the credit to $3,600 for each child under 6 years old and $3,000 for each child between 6-17 years old. Like the stimulus payments, this credit is only available to qualifying taxpayers who earn less than $75,000 (single) or $150,000 (married). This change will not be in effect for 2020 tax returns but will go into effect for the 2021 tax year only.
There will also be a monthly payment for half of the extended Child Tax Credit from July to December 2021. Qualifying taxpayers will receive $300 per month for each child under 6 years old or $250 per month for each child between the ages of 6-17.
It is worth noting that taxpayers who make too much money in 2021 to qualify will be required to repay the credit.
Family and Sick Leave Credits
The FFCRA, the bill that provides tax credits to employers who pay employees affected by COVID-19, has been extended until September 30, 2021.
Employees who have already used the allowable 10 days of sick leave or 12 weeks of family leave will be able to start the count again on April 1, 2021. This means they will be able to claim sick leave credits as if they had taken 0 days.
If you are self-employed, you can take advantage of these credits. If you have been unable to work due to COVID-19 regulations, symptoms, quarantine, or caring for a child who is out of school/ daycare because of anything COVID-19 related, you are eligible to claim them.
Employee Retention Credit
The Employee Retention Credit has been extended once again through December 31, 2021.
Paycheck Protection Program
More funds have been allocated for PPP loans, but there are not other significant changes. Funding is still expected to end on March 31, 2021. If you are planning to apply for another round of PPP, you need to act quickly.
Restaurant Revitalization Fund
The ARP also allocated new grants to help assist with huge revenue losses for the restaurant industry due to COVID-19. We are still awaiting guidance from the Small Business Association (SBA) and we will provide updates as soon as they become available.
With so many factors to consider, you may want to seek the advice of a tax professional who can walk you through the steps needed to make the most of your unique tax situation. The team at Rodefer Moss is staying abreast of the constantly changing COVID legislation and will provide updates on the latest developments and guidance. If you have questions about the American Rescue Plan Act and how it may affect your situation, please contact your Rodefer Moss advisor.