American Rescue Plan Act of 2021 – Summary of Major Provisions

Beth Misak |
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By Paul Hynes, CFP®
March 2021

President Joe Biden has signed into law the American Rescue Plan (ARP) Act of 2021. Also known as H.R. 1319, it’s a $1.9 trillion targeted spending package. The massive legislative package includes provisions for many programs and agencies that aren’t directly related to pandemic relief. We won’t cover all of the provisions. However, here’s a summary of the major provisions of the ARP Act affecting individuals and families. Please talk with us if you’d like to learn how some of these provisions might affect you.

Direct Stimulus Rebate Payments

The legislation provides a third round of direct stimulus rebate payments to eligible taxpayers. Single taxpayers with annual adjusted gross income (AGI) of $75,000 or less will receive checks in the amount of $1,400. The payment is phased out for AGI between $75,000 and $80,000, and completely phased out for AGI over $80,000. For married couples earning $150,000 or less, each spouse will receive $1,400. Payments are completely phased out for couples earning $160,000 or more per year. It is estimated that 89% of taxpayers will receive a payment.1

Payments are also made for each eligible dependent, including adult dependents who are claimed on the tax return. For example, an eligible married couple with three dependent children will receive a total of $7,000 in stimulus payments.

Child Tax Credit

The Act increases the amount of the child tax credit to $3,000 per child, or $3,600 per child under age 6. The credit phases out for married taxpayers with incomes over $150,000, and single taxpayers over $75,000. The credit is fully refundable and makes 17-year olds eligible as qualifying children. The IRS is directed to estimate a taxpayer’s child tax credit amount and pay monthly advances of one-twelfth of the annual estimated amount for the period July – December 2021. It remains to be seen if the IRS will be able to fulfill this directive.

What you can do: If your AGI for 2021 might be close to the income limits, look at increasing contributions to retirement plans, or other pre-tax plans, that could reduce your AGI. Talk with us to learn more about this strategy and ask your tax advisor whether it is right for you.

Child and Dependent Care Credit

The Act provides expanded tax credits for up to 50% of eligible child and dependent care expenses, up to $4,000 for one qualifying individual, and up to $8,000 for two or more, and is effective for 2021 only.

Extended Unemployment Insurance Benefits

The ARP Act extends three major unemployment programs that were created in previous Acts.

  • Pandemic Unemployment Assistance program provides benefits for workers who are not traditionally eligible for unemployment insurance, such as independent contractors. This has been extended to September 6, 2021.
  • Pandemic Emergency Unemployment Compensation provides additional weeks of benefits to individuals who have exhausted their state benefits. This has also been extended to September 6, 2021.
  • Federal Pandemic Unemployment Compensation provides a supplement of $300 per week, also extended to September 6, 2021.

While we’re on the topic of unemployment benefits, the ARP Act includes a retroactive provision that makes tax-free up to $10,200 in benefits received in 2020. This provision has sent the IRS into a tizzy, since millions of 2020 tax returns have already been filed. However, the IRS said they will figure out how to handle it, and asked taxpayers not to file an amended return.2

These are but a few of the many provisions in the Act. Consult your tax and legal advisors for more information about how you may be affected. And, talk with us. We’re here to help.


UPDATE

The IRS and Treasury Department announced that they are postponing the April 15 tax-filing deadline to May 17. Please note this applies to 2020 Federal and California tax filings.3 Check with your tax advisor about how this affects you.


Sources:

1The American Rescue Plan Act greatly expands benefits through the tax code in 2021, by Garrett Watson and Erica York, Tax Foundation, March 12, 2021.

2IRS Statement – American Rescue Plan Act of 2021

3Tax Day for individuals extended to May 17: Treasury, IRS extend filing and payment deadline

General resources if you’d like to read more about it:

American Rescue Plan Act Passes with many tax components, by Alistair M. Nevius, J.D., Journal of Accountancy, March 10, 2021.

6 Biden Stimulus Benefits that pack the biggest punch, by Rocky Mengle, Kiplinger, March 12, 2021.