The American Rescue Plan Act of 2021 was signed into law by President Biden on March 11, 2021, coinciding with the one-year anniversary of the COVID-19 pandemic. The legislation is the sixth federal relief package signed into law since the onset of the pandemic in the United States last year and addresses the continuing economic and health impacts of the pandemic. The massive $1.9 trillion relief package includes extensions of enhanced unemployment relief, increased funding for COVID-19 testing and vaccination programs, aid to state and local governments, assistance to schools to help get students back into classrooms, rental assistance, nutrition assistance and much more.
The legislation also includes numerous tax provisions to provide relief to individuals and businesses, many of which are enacted only for the 2021 tax year, as well as several revenue-raising provisions. Below are highlights.
Individual Tax Provisions
Tax provisions to assist individuals include the following:
- Direct payments to eligible individuals (third round), this time in the amount of $1,400
- Enhanced Child Tax Credit for the 2021 tax year
- Enhanced Earned Income Tax Credit
- Enhanced Child and Dependent Care Tax Credit for the 2021 tax year
- Exclusion from gross income for up to $10,200 in unemployment benefits received in 2020 for households with income below $150,000
- Exclusion from gross income for student loan indebtedness forgiven after December 31, 2020 and before January 1, 2026.
Business Tax Provisions
Tax provisions to assist businesses include the following:
- Employee Retention Credit extended to December 31, 2021, and expanded to assist start-ups and severely financially distressed employers
- Paid sick and family leave credits extended from March 31, 2021 to September 30, 2021
Please click here for a full summary of significant tax provisions included within the American Rescue Plan Act of 2021.
The following are a few immediate steps to consider, depending on individual circumstances:
- Consider delaying filing your 2020 tax return until the filing deadline to maximize the amount of your stimulus payment if you will qualify for a higher payment based on your 2019 income and/or filing status compared to 2020.
- If your 2020 income was below $150,000 and you already filed your 2020 tax return which included taxable unemployment insurance benefits, the IRS posted a statement on March 12, 2021 recommending that you do not file an amended return until the IRS issues additional guidance.
- Consider if your business will now qualify for the Employee Retention Credit after reviewing the new provisions that have been added targeting start-ups and severely financially distressed employers.
We will continue to monitor legislative developments affecting our clients. For further questions regarding how the American Rescue Plan Act will impact your personal or business taxes, please contact your Bennett Thrasher tax advisor by calling 770.396.2200.
The above information is general in nature and should not be relied upon for any specific tax implication or investment decision. Actual results may differ, and readers are cautioned not to place reliance on these general observations. Consult with your adviser or counsel before undertaking any specific action.