The West of the US Capitol Building prepared for the 59th presidential inauguration

American Rescue Plan Signed In To Law

On March 10th Congress passed the $1.9 trillion coronavirus relief known as The American Rescue Plan Act of 2021 (“the Act”), by a 220-211 vote after the passage of the Act on March 6th by the Senate. The Act was swiftly signed by the President, providing long-discussed relief provisions, with many tax law changes included. Details of some key provisions within the Act are discussed below.

Individual Provisions

Individual Recovery Rebate/Credit

The Act includes a third round of stimulus payments that will total $1,400 per eligible individual taxpayer. In order to qualify for the full amount, a single filer must have an Adjusted Gross Income (“AGI”) of $75,000 or lower, with the threshold increasing to $112,500 for heads of household, and $150,000 for couples married filing jointly. The payments will phase out completely when the AGI reaches $80,000 for single filers, $120,000 for heads of households, and $160,000 for couples married filing jointly. Payments will follow the same methodology as the prior two rounds of stimulus checks, with payments deposited directly into a taxpayers’ bank accounts if the Internal Revenue Service (“IRS”) has their direct deposit information on file, or mailed to the address the IRS has on file.

College students and other eligible dependents are eligible for this third stimulus, with payments paid directly to the parents.

The stimulus payment eligibility factors will be based on the most recent year’s tax information on record, meaning if your 2020 returns have already been filed the IRS will base eligibility on 2020, if you have not filed eligibility will be based on your 2019 information.

As was the case with the previous stimulus payments, if an eligible taxpayer is entitled to an amount larger than he or she receives, a credit for the excess will be available on the taxpayer’s 2021 individual income tax return, due on April 15, 2022. Amounts received that are higher than the allowable credit calculated on the 2021 individual income tax return will not have to be repaid.

Unemployment Benefits

Also included in the Act is an extension of the additional $300 per week in unemployment benefits, through September 6, 2021, and an exclusion from tax of up to $10,200 in unemployment compensation received during the 2020 tax year. This exclusion is limited to individuals with an AGI of less than $150,000. Taxpayers who qualify for this exclusion but have already filed their individual income tax returns may amend their returns in order to claim the exclusion and receive a refund of any taxes already paid.

Earned Income Tax Credit

The Act modifies the earned income tax credit (EITC), and increases the amount of the credit for the 2021 tax year. For filers without children, the credit is increased from $543 to $1,502, and the income limit at which the full credit can be claimed is increased to $9,820. The threshold for the phaseout of the credit for non-joint filers is also increased to $11,610, up from $8,880. The minimum age for filers without children claiming the EITC is reduced to 19 from 25 (except in the case of full-time students).

Taxpayers will be allowed to use their 2019 earned income amount instead of their 2021 earned income earned income amount if it is greater than 2021.

Other changes made that are permanent include eliminating the disallowance of the EITC due to lack of identification requirements; increasing disqualifying investment income to $10,000, adjusted for inflation after 2021; and adjusting the definition of “married” so that separated individuals who meet certain requirements can avoid filing jointly with an ex-spouse in order to claim the EITC.

Child and Dependent Tax Credits and Other Benefits

Another key provision in the Act is the modification of the Child and Dependent Care tax credit for qualifying taxpayers who have children under the age of 13 or other qualifying dependents. The Act modifies this credit so that it is fully refundable for tax years beginning in 2021, which could provide qualifying families with an additional tax refund. The maximum credit is up to $4,000 per qualifying individual, or $8,000 for two or more for tax years beginning in 2021. Taxpayers calculate the credit by taking up to 50% of the value of eligible expenses, subject to a phaseout to the extent the taxpayer’s AGI exceeds $125,000.

The Act also increases the Child Tax Credit for 2021 to $3,000 (up from $2,000) per eligible child and raises the age limit of qualifying children to 17. Married couples who have modified AGI up to $150,000, heads of the household up to $112,500, and single filers up to $75,000, would receive the full value of the credit. The credit then phases out as income increases. The Act makes this credit fully refundable.

In addition to these changes, the Act allows for an increase in the amount that can be set aside in a dependent care flexible spending account. The amount is increased from $5,000 to $10,500 for the 2021 year only. Note that employers have the discretion to allow this change, and therefore withholdings cannot be modified without employer consent. More guidance on this is expected in the near future.

Student Loan Forgiveness

The Act does not forgive any student loan debt, but it does pave the way for potential future forgiveness. The Act modifies the Internal Revenue Code to specify that any student loan forgiveness between December 31, 2020 and January 1, 2026 will not be taxable and amounts forgiven will not be included in the computation of a taxpayer’s AGI.

Business Provisions

Employee Retention Credit

The Act codifies the Employee Retention Credit (“ERC”) and extends the ERC through December 31, 2021. The ERC was originally enacted under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act passed in March of 2020, and extended through the Consolidated Appropriations Act (“CAA”) passed in December of 2020. Eligible employers are entitled to a credit in an amount equal to 70% of the first $10,000 wages per employee for each qualifying quarter in 2021. This means that an employer could potentially have up to $40,000 in qualifying wages, per employee, during tax year 2021.

Families First Coronavirus Response Act (“FFCRA”)

The FFCRA was established to establish mandatory obligations for employers to provide emergency paid sick and family leave. The FFCRA expired on December 31, 2020 but was temporarily extended through the CAA permitting employers to implement policies that would provide paid leave as a qualifying requirement of eligibility for a credit against payroll tax. This modification was set to be available until March 31, 2021. The current Act extends the tax credits for sick and family leave to September 30, 2021. The Act also adds additional reasons that employees qualify for paid sick leave and family leave including vaccine appointments and complications that may arise due to receiving the vaccine. Additionally, the Act resets the 80-hour per employee limit after March 31, 2020, and increases the limit on the credit for paid family leave to $12,000. Federal workers are now eligible for up to 15 weeks of paid leave for COVID-19-related absences for themselves and their families under the Act. Self-employed individuals are also permitted an increase from 50 days to 60 days of qualifying family leave absences.

Paycheck Protection Program

The Act further modifies the Paycheck Protection Program to include additional eligible organizations. Specifically, the following types of businesses are now eligible for PPP loans:

  • Certain 501(c) organizations with up to 500 employees per location.
  • Certain nonprofit organizations with no more than 300 employees and either less than 15% of receipts or activities resulting from lobbying or whose cost of lobbying activities did not exceed $1 million in the tax year before February 15, 2020.
  • Certain internet publishing organizations with a NAICS code of 519130, who have not more than 500 employees, and who will use the loans to support expenses related to supporting local or regional news.

The Act also adds $7.25 billion of funding for the PPP program but does not extend the period in which loans can be approved, which currently ends March 31, 2021.

Restaurant Revitalization Grants

Certain businesses, including restaurants, food stands, food trucks, food carts, caterers, saloons, inns, taverns, bars, lounges, brewpubs, tasting rooms, taprooms, licensed alcohol production facilities where visitors may taste, sample, or purchase products, or other similar businesses may now be eligible for a Restaurant Revitalization Grant. These businesses must have no more than 20 locations and cannot apply for a Shuttered Venue Operator Grant.

Grants, up to $10 million per business and up to $5 million per physical location will be calculated based on the difference in gross receipts between 2019 and 2020. Any relief received under the Paycheck Protection Program will be used in the gross receipts calculation, thus reducing the amount of the grant. Grant funds can be used for payroll costs (except those payroll costs used to obtain an Employee Retention Credit), mortgage payments, rent, utilities, and certain maintenance, supplies, food and beverage, supplier, or other operational expenses. Applicants must certify that economic uncertainty makes the grant request necessary to support the ongoing operations of the eligible entity.

Shuttered Venue Operator Grants

While the Shuttered Venue Operator Grant program, introduced in the Economic Aid Act portion of the Consolidated Appropriations Act, 2021, has not opened for applications, guidance continues to evolve. Earlier this month, additional frequently asked questions and guidance, were released by SBA.

Now, the American Rescue Plan Act of 2021 expands the Shuttered Venue Operator Grant program to eligible businesses who apply for or receive a Paycheck Protection Program loan. The amount of the Shuttered Venue Operator Grant will be reduced by the amount of the Paycheck Protection Program loan.

These are just some of the provisions included in the American Rescue Plan Act of 2021. HBK will continue to bring you in-depth analysis as additional information becomes available. If you have any questions please contact your HBK Advisor.

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About the Author(s)

Sarah N. Gaymon, CPA
Sarah Nicole Gaymon, CPA is a Senior Manager in the Tax Advisory Group at HBK CPAs & Consultants located in the West Palm Beach office providing trust and estate support services for the CPAs in all HBK offices. Sarah’s specialty and focus areas include tax compliance and tax consulting for high net worth individuals, family groups, trusts, estates, and gift tax issues. In addition, Sarah specializes in fiduciary accounting for trusts and estates. Sarah regularly consults on family wealth, succession and estate planning. She also has experience in US planning and compliance related to foreign trusts, foreign estates, and individual foreign tax compliance and residency issues.

Cassandra Baubie, JD
Cassandra Baubie is an Senior Associate at HBK CPAs & Consultants and is a member of its Tax Advisory Group (TAG). Cassandra joined HBK in 2017. She works in the firm’s Youngstown, Ohio office. She has experience in tax law research and writing. Prior to joining HBK, she worked for Jurist.org, a global legal news organization, and was a member of the University of Pittsburgh Tax Law Review Journal. Cassandra also worked for the University of Pittsburgh School of Law’s Low-Income Tax Clinic where she performed IRS litigation and Tax Court work and provided compliance work for low income individuals and businesses. Cassandra focuses on issues pertaining to State and Local Taxation (SALT), as well as flow through entity taxation. She has been involved in numerous sales and use tax, franchise tax, and corporate income tax audits, VDA’s, and refund requests. She focuses on complex sales and use tax compliance planning, nexus studies and on-site review and training for all SALT related issues, and has managed various engagements as the in-charge team member and has significant experience in multi-state tax issues.

Amy Dalen, JD
Amy is a Principal and the Chair of the Tax Advisory Group at HBK CPAs & Consultants. The Tax Advisory Group is a group of highly specialized professionals who provide tax training to our team members, oversee compliance with tax policies in order to mitigate risk to the firm, and provide tax planning and consulting services for our clients. Amy specializes in estate, gift, trust, individual, and nonprofit taxation. She is skilled at researching complicated tax issues, consulting on complex estate plans, and providing guidance for our clients to ensure they are in compliance with their tax filing responsibilities.

Ben DiGirolamo, CPA, JD
Ben DiGirolamo is a Principal in the HBK Tax Advisory Group and works in the Youngstown, Ohio office. He has been with the firm since 2009 and focuses on entity tax issues, entity planning and flow-through taxation. Ben can be reached at 330-758-8613 or by email at bdigirolamo@hbkcpa.com.

Amy M. Reynallt, MBA
Amy Reynallt is a Manager with the HBK Manufacturing Solutions Group in the Youngstown, Ohio office of HBK CPAs & Consultants. She is experienced in navigating the strategic and financial matters associated with manufacturing and works closely with manufacturers to help them plan, execute, and meet their short- and long-term financial goals. Amy can be reached at 330-758-8613 or by email at areynallt@hbkcpa.com.

Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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