On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021, the first significant piece of legislation of his Presidency.
This legislation marks the third “stimulus” bill signed into law in the past twelve months, all designed to aid people struggling to pay bills until things get better.
Much of the assistance in this law centers around additional stimulus checks for people whose adjusted gross incomes are below a certain threshold. It also includes an extension of Federal enhanced unemployment benefits to September 6, 2021 (originally scheduled to expire on March 14).
The Act provides stimulus checks of $1,400 for individuals earning up to $75,000, and $2,800 for joint filers (earning up to $150,000). These amounts begin to phase-out as adjusted gross income increases and will phase-out completely for individuals who make more than $80,000 and joint filers who make more than $160,000. Children and adult dependents in qualifying households are also eligible for $1,400 payments per dependent. The inclusion of adult dependents is a change from the past two rounds, although the stimulus check is paid to the parents and not the dependent.
For example, a married couple earning $100,000 with two young children is entitled to receive $5,600 (4 times $1,400) in stimulus payments. If they also care for a parent who qualifies as a dependent, the amount of stimulus payments would be $7,000. There is no cap on the amount of stimulus money you can receive if you qualify.
An area of major confusion is the measuring year for determining eligibility for the stimulus checks. The measuring year is 2021. This is where the confusion is since the 2021 tax year has not ended yet. Obviously, Congress is aware of that but wants to get this money into people’s hands as quickly as possible. To do that, Congress will send out advance payments to people who qualify based on either their 2019 or 2020 income tax return, whichever one is the latest one filed.
So, if you have not already filed your 2020 income tax return and qualify based on your 2019 tax return, you will receive a stimulus check. If your income in 2019 was above the threshold, but your income for 2020 would qualify you, then you will receive a check when you file your 2020 return. Lastly, if you do not qualify based on your income in 2019 or 2020, you have one last bite of the apple for tax year 2021. If your income for 2021 is below the threshold, you will be entitled to the stimulus. You will have to wait until you file your 2021 income tax return next year to receive the money.
The CARES Act, passed on March 27, 2020, provided an extra $600 weekly benefit from April 5, 2020, through July 31, 2020, for people collecting unemployment benefits. This Federal benefit was in addition to any state unemployment benefits people were receiving. That benefit expired on July 31. It was revived on December 26, 2020, with the passing of the Consolidated Appropriations Act of 2021, which again provided a Federal unemployment enhanced benefit, this time in the amount of $300 for December 26, 2020, through March 14, 2021.
The American Rescue Plan Act of 2021 extends this $300 benefit until September 6, 2021, while also increasing the maximum number of weeks someone can collect unemployment to 79 weeks.
The other significant change to unemployment benefits is the exclusion of up to $10,200 of unemployment benefits from Federal taxation. This applies to unemployment benefits received beginning in 2020 for households with an adjusted gross income of less than $150,000. For taxpayers who already filed their 2020 income tax returns and included the full amount of unemployment benefits as taxable, an amended return will need to be filed to recoup those taxes.
Other Areas the Stimulus Bill Addresses
Other areas of focus were the beefing up of the child tax credit, the dependent care credit, and the earned income credit, all of which should help families who have been financially impacted by COVID-19.
In addition to the above, the Act provides the following:
- $50 billion in funding to state and local governments
- Business assistance:
- $10 billion for a State Small Business Credit Initiative to provide funding to states to lend money to small businesses hurt economically by the pandemic.
- $15 billion for Economic Injury Disaster Loans
- $28.6 billion to a Restaurant Revitalization fund for payroll, rent, utilities, supplies, etc.
- $60 billion towards various COVID-19 issues, such as testing, contract tracing, vaccine purchase and distribution
- A 100% subsidy for COBRA benefits for people who lost their jobs due to the pandemic for the period beginning April 1, 2021, through September 30, 2021
What’s Not in the Law
Absent from the American Rescue Plan Act is any change made to the Federal Minimum wage, as well as any changes to marginal tax rates, capital gains rates, and itemized deductions. Congress will likely take up all these issues in the future, and resolutions to these issues may well be passed as stand-alone laws.
As always, we will bring you that analysis as it unfolds. Please contact us if you have any questions about any of the above.