American Rescue Plan Act of 2021
On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (“ARPA,” “Rescue Plan Act,” or “Act”). This latest round of stimulus legislation is a $1.9 trillion package intended to address the extraordinary impact of the coronavirus pandemic over the past year.
The Rescue Plan Act adds $7.25 billion in new funding for the Paycheck Protection Program (PPP). It also makes additional Section 501(c) nonprofit entities eligible to receive first- and second-draw loans, subject to certain conditions. ARPA also appropriates $15 million in additional funding for targeted Economic Injury Disaster Loan (EIDL) advances and provides that amounts received from the Small Business Administration in the form of these advances shall not be included in the gross income of the person receiving such amount.
Along with the additional funding provided by the Rescue Plan Act, there are a number of provisions impacting both individuals and small businesses. We have highlighted some of the more notable provisions below.
Provisions for Individuals
- Stimulus Checks/Recovery Payments. ARPA provides for $1,400 ($2,800 in the case of a joint return) of cash assistance to eligible individual taxpayers, with an additional $1,400 for each of the taxpayer’s dependents. The one-time stimulus payments begin to phase out for higher-income individual taxpayers with an adjusted gross income (AGI) of $150,000 in the case of a joint return or surviving spouse, $112,500 for heads of household, and $75,000 for single filers.
- Unemployment Assistance. For any taxable year beginning in 2020, the first $10,200 of unemployment compensation is tax-free for taxpayers with annual income of less than $150,000.
- Earned Income Tax Credit. ARPA introduces special rules for individuals with no children and expands the age limits of eligible children.
- Child and Dependent Care Tax Credit. For 2021 only, this credit is made refundable and is potentially worth up to $4,000 for one qualifying individual up to a maximum of $8,000 for two or more children, subject to reduction based on a taxpayer’s AGI.
- Child Tax Credit. For 2021 only, the credit, made fully refundable, is increased to $3,600 for children under 6 years old and to $3,000 for children ages 6 to 17, subject to phase-out.
- Student Loan Forgiveness. Clarifies that any student loan forgiven or discharged will not be considered income for income tax purposes for tax years 2021–2025.
Provisions for Businesses
- Employee Retention Credit. The employee retention credit is extended through December 31, 2021 (was June 30, 2021).
- Paid Sick and Family Leave Credits. The paid sick and paid family leave tax credits for employers under the Families First Coronavirus Response Act are expanded and are extended to September 30, 2021 (was March 31, 2021).
- Restaurant Revitalization Grants. The Rescue Plan Act established a new Restaurant Revitalization Fund to provide grants for qualifying restaurants and bars to help cover pandemic-related revenue loss. Gross income does not include amounts received as restaurant revitalization grants.
UPDATES TO INCOME TAX RETURN FILING DEADLINES
Federal: The Internal Revenue Service (IRS) announced Wednesday, March 17, that the federal income tax filing due date for individual income tax returns for the 2020 tax year will be automatically extended from April 15, 2021, to May 17, 2021. The IRS Commissioner noted that this postponement is to help taxpayers navigate the unusual circumstances taxpayers are continuing to experience with the ongoing COVID-19 pandemic.
As currently promulgated, this deadline relief DOES NOT apply to 1st quarter 2021 estimated tax payments that are due the IRS by April 15, 2021. These estimated tax payments remain due by April 15. From a practical perspective, if you are subject to quarterly estimates, much of the tax return work for the 2020 individual tax returns will need to be prepared by our firm to appropriately calculate your 1st quarter 2021 estimated tax payments. Consequently, we strongly recommend that you do not delay providing your 2020 tax information to your accountant given the current deadlines.
In addition, this extension of time DOES NOT apply to other federal tax or federal informational returns due by April 15 (e.g., C-corporations and trust returns).
States: The extension of time granted by the IRS for individual federal income tax returns DOES NOT automatically extend the time to file individual state income tax returns. However, several states, like California, have already agreed to conform to the IRS’s revised deadline of May 17, 2021 for individual income tax returns.