The American Rescue Plan Act (ARPA) was signed into law on March 11, 2021. The legislation offers a wide range of funding and relief for businesses and individuals impacted by the COVID-19 pandemic. It includes direct payments to 145.5 million households, extended unemployment benefits, business grants, and more. Here’s how the ARPA will affect individuals and businesses in 2021.
Tax credits for adults and dependents
Eligible adults will receive a refundable tax credit of $1,400. Most married couples will receive $2,800 with an additional $1,400 given for each dependent claimed for tax purposes. Full-time students under the age of 24 and adult dependents are included in qualifying dependents. Eligibility is based on earned income. Credit disbursement has a threshold of $75,000 for single filers (and is phased out completely at $80,000) and $150,000 for joint filers (phasing out completely at $160,000). The credit will be sent in the same way the previous $1,200 and $600 stimulus checks were. You can check the status of your credit by using the IRS’ Get My Payment tool.
Extension of unemployment benefits
The ARPA also extends the federal unemployment insurance benefits that were first created in the CARES Act through September 6, 2021. This includes the additional $300/week payments on top of existing state benefits. Furthermore, the ARPA contains a provision that makes the first $10,200 of unemployment benefits received exempt from income taxes. This applies to individuals with income levels below $150,000. The provision is retroactive, applying to unemployment benefits received in 2020. Reach out to us with questions, or contact your state’s unemployment office for more information on benefits.
Expansion of the Child Tax Credit
The Child Tax Credit is also expanded by one year, and allows households to claim up to $3,600 for younger children and $3,000 for children ages 6 and older. The credit is fully refundable and will allow low-income households to receive the full benefit. This enhanced credit starts to phase out for single filers with annual incomes of $75,000 and joint filers with incomes greater than $150,000. The Biden administration hopes to have the credit dispersed as a monthly payment by July.
Health insurance assistance
The ARPA also includes assistance for different health insurance options. Premium tax credits available for plans purchased through the health insurance marketplace are increased for 2021 and 2022. Individuals with incomes exceeding 400% of the federal poverty level are now eligible. If you are receiving unemployment benefits in 2021, you may qualify for larger premium tax credits. Those who received premium tax credits in 2020 in excess of the amount they were entitled may not need to repay the excess credits.
Individuals who lost group health coverage during the COVID-19 pandemic will be eligible to have their COBRA premium costs fully subsidized from April 1, 2021 through September 30, 2021. The subsidized coverage will also be available to eligible workers and their dependents for a six month period if they lose coverage from between April 1, 2021 and September 30, 2021. The assistance is not subject to federal income tax and is not eligible for workers who had a voluntary termination of employment. Visit the Department of Labor’s website for more information on COBRA coverage.
The American Rescue Plan Act does not require employers to provide paid leave like the Families First Coronavirus Response Act (FFCRA) did. However, it does offer tax credits to encourage employers to offer the same kind of paid leave. These tax credits that were established in an extension of the FFCRA are now extended through September 30, 2021.
Starting on April 1, 2021, the ARPA resets the limit on tax credits available for emergency paid sick leave to a maximum of 80 hours in wages per full-time employee. At that point, employers can voluntarily provide employees up to 80 hours in emergency paid sick leave through September 30, 2021 (in addition to any previously provided leave) and be eligible for the tax credit. Additionally, the ARPA adds vaccination-related events to the list of eligible leave reasons. Wages covered by the paid family leave credit have been increased from $10,000 to $12,000 per worker. Nondiscrimination rules and a five-year statute of limitations were also implemented for the eligible paid leave credit. Finally, self-employed workers may be eligible for tax credits for paid sick and paid family leave.
Have any questions about the American Rescue Plan Act? Reach out to someone on your Chortek team today!