On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (ARPA)
into law and on March 30, 2021 President Biden also signed the PPP Extension Act of 2021.
ARPA is a $1.9 trillion federal stimulus spending package intended to provide economic and other relief related to the COVID-19 pandemic as well as spending for other programs.
Below we provide more detail on the major tax-related benefits in the American Rescue Plan and the PPP Extension Act of 2021:
Third Round of Stimulus Payments
The American Rescue Plan Act provides a third round of stimulus checks of up to $1,400 for eligible adults and dependents. That means a couple filing taxes jointly gets $2,800 or a family of four could receive as much as $5,600 in total. Previously children over the age of 17 did not qualify, but this round they will.
Households with earnings of more than $80,000 for single filers, $120,000 for Head of Household filers, and $160,000 for married filing jointly will not receive any payment.
Extension of Unemployment Benefits for Certain Individuals
The American Rescue Plan extends the $300 per week for individuals collecting any form of unemployment compensation benefits previously scheduled to expire on March 14, 202 through September 6, 2021.
ARPA also permits an individual or each spouse to exclude $10,200 in unemployment benefits from federal income tax, as long as the household income is under $150,000. This means that if both spouses receive unemployment compensation and their total household income is under $150,000, up to $20,400 may be excluded from federal income tax.
Note: If you have already filed your 2020 income tax return before this change took effect, the IRS is planning to automatically provide you with a refund in May. There is no need to file an amended return.
Expansion of the Child Tax Credit
In addition to extending unemployment compensation benefits, ARPA greatly expands the Child Tax Credit by allowing households with children to claim up to $3,600 for younger children or $3,000 for children age 6 or older regardless of earned income. Major changes to the child tax credit when compared to 2020 rules include:
Allowing 17-year-old children to qualify for the credit
Increases the credit to $3,000 per child ($3,600 per child under age 6) for many families.
It makes the credit fully refundable and removes the $2,500 earnings floor.
It requires half of the credit to be paid in advance by having the IRS send periodic payments to families from July 2021 to December 2021.
Extension of PPP Loans and Other Benefits for Small Businesses
Finally, the deadline to apply for a PPP loan has been extended from March 31 to May 31, and the law extends authorization of loans to June 30 to give the Small Business Administration additional time to process applications.
If you have questions about how these things affect you feel free to reach out to us directly. You can schedule an appointment directly on the website.