The American Rescue Plan Act of 2021 has been passed by the U.S. Senate and House of Representatives, and the President of the United States has signed it into law. The latest stimulus package succeeds the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 and the Consolidated Appropriations Act of 2021, recently passed in December 2020. The Act extends some aspects of the previous bills while also creating new recovery plans.
At almost two trillion dollars, the plan is designed to facilitate the United States’ recovery from the economic fallout and health effects of the COVID-19 pandemic by mitigating the economic effects of the pandemic with strategies to fight the virus itself. It provides for direct financial payments to individuals (up to $1,400 per individual and dependent), extends unemployment benefits, continues housing assistance and provides funds for state and local governments to help schools re-open safely, and subsidizes COVID-19 testing and vaccination programs.
The new bill is nearly 600 pages long and includes many provisions. For your convenience, this email is to provide you with a high-level summary of the key highlights that have the greatest impact on both individuals and businesses.
- Direct Financial Payments: The legislation provides for a third economic impact payment to qualifying Americans. Individuals with adjusted gross incomes (AGIs) up to $75,000 and couples with AGIs up to $150,000 per year will receive direct payments of $1,400 per person. So will each of their dependents regardless of age. Payments to individuals with AGIs over $75,000 will be reduced until they phase out entirely at $80,000 ($160,000 for couples). Eligibility and benefit levels are based on 2019 or 2020 income tax filings. For households who have already filed their income tax return for 2020, the IRS will use that information to determine eligibility and size of payments. For households that haven’t yet filed for 2020, the IRS will review records from 2019 to determine eligibility and size of payment. That includes those who used the “non-filer portal” for previous rounds of payments.
- Extended Unemployment Benefits: The American Rescue Plan extends the current $300 per week supplement from March 14, 2021 to September 6, 2021. In addition, the first $10,200 in 2020 benefits is tax-free for families making $150,000 or less in adjusted gross income, thereby waiving taxes on up to $20,400 of unemployment benefits for married couples. Taxpayers who had taxes withheld from unemployment benefits in 2020 will be able to recover them when they file their 2020 taxes or through an amended tax return if they have already filed. If you are a client of QRGA, please know that we are handling this on your behalf. If you have already filed your 2020 taxes and are affected by this change, we will be contacting you to discuss amending your tax returns to take full advantage of this tax law change. For clients who have not filed but are affected, we will not finalize your tax return until we can incorporate the unemployment income exclusion of $10,200 for individuals or $20,400 for couples. If you have already filed your return this year and had unemployment benefits taxed, we will be in touch soon to file an amended return. The Act also provides a 100% subsidy of COBRA health insurance premiums so unemployed workers can remain on their employer healthcare plans through the end of September.
- Continued Housing Assistance: The national eviction moratorium which ends March 31, 2021 will not change under the plan but additional funding will provide relief to those behind on mortgages, rent and utility bills. The legislation includes $25 billion in emergency rental assistance and $10 billion for mortgage assistance.
- Expanded Child Tax Credit: The act provides monthly direct deposit payments totaling $3,000 a year for each child ages 6 to 17, and $3,600 for each child under age 6 for couples who make $150,000 or less and single parents who make $112,500 or less. For example, a family with one child under the age of 6 would receive $300 per month and $250 per month for children ages 6 to 17. As written, the bill provides for one year of credit payments.
- Tax-Free Student Loans: While the plan does not include student loan forgiveness, it does include a provision that any student loan forgiveness passed between December 30, 2020 and January 1, 2026 will be tax free. Under the current law, student loan forgiveness would be treated as taxable income.
- School Grants: The American Rescue Plan sets aside $130 billion for K-12 education. The money is allocated to assist schools in reopening safely by implementing measures such as reduced class sizes, improved ventilation, and the purchase of personal protective equipment.
- Pandemic Response: Approximately $50 billion will pay for continuing COVID-19 testing and contact tracing, $19 billion will help increase the size of the public health workforce and $16 billion will fund vaccination programs (vaccine distribution and supply chains).
- State and Local Government: The American Rescue Plan includes $350 billion in aid to state and local governments to help replace lost tax revenue due to the pandemic.
- Business Assistance: The Paycheck Protection Program (PPP) will receive an additional $7.25 billion and more non-profit organizations are now allowed to apply for forgivable loans to help cover payroll and other operating expenses. Additionally, the Small Business Administration gets $28 billion for a new, pandemic assistance grant program for restaurants and bars and another $15 billion for Emergency Injury Disaster Loans (EIDLs).
- No Change to Minimum Wage: Over the past several weeks there has been much debate over the gradual minimum wage increase to $15 per hour by the year 2025 that was included in the initial draft of the legislation. This measure has been removed from the final bill and the current federal minimum wage remains at $7.25 per hour.
In summary, the American Rescue Plan stimulus package provides welcome assistance to facilitate the country’s recovery from the devastating economic and health effects of the COVID-19 pandemic. While the bill has been passed by Congress and signed into law by the President, there may be additional informational information and analysis on the legislation. As always, we will keep you updated along the way. In the meantime, your NFS team is here to answer any additional questions you may have.