American Rescue Plan Signed Into Law

On Thursday, March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021 (“ARPA”), a massive $1.9 trillion legislative package intended to address the extraordinary impact of the coronavirus pandemic over the past year.  The legislation, in part, provides, subject to specified conditions, for:

• Stimulus payments to individual taxpayers ($1400 per person for eligible recipients, subject to phase-out)
• Additional supplemental unemployment benefits ($300 per week through September 6, 2021)
• Aid to states and municipalities
• Rural hospital assistance
• Aid to schools
• Additional funding for the Emergency Injury Disaster Loan Program and the Paycheck Protection Program
• Vaccination and testing funding
• Aid to airlines/airports, restaurants and venue operators
• Nutritional assistance
• Housing/rental aid
• Health insurance subsidies

Contained within ARPA are a number of tax provisions, which will be summarized in greater detail in an EisnerAmper alert to be issued shortly.  Included within those provisions are the following highlights:

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.  This may cause a delay in the filing of impacted 2020 tax returns as the various tax preparation software will need to be modified to accommodate this change. 

Child and Dependent Care Tax Credit. For 2021 only, this credit is made refundable and is potentially worth up to $4000 for one qualifying individual and $8000 for two or more, subject to reduction based on a taxpayer’s adjusted gross income.  The full value of the credit is available to households with adjusted gross income of up to $125,000.

Child Tax Credit. For 2021 only, the credit, made fully refundable, is increased to $3600 for children under six years old and to $3000 for children six to seventeen, subject to phase-out.  Advance payment of 50% of that credit is provided.  The full value of this credit is available to married couples filing jointly (or a surviving spouse) with modified adjusted gross income of up to $150,000 ($112,500 in the case of heads of household and $75,000 in any other case). 

Paid Sick and Family Leave Credits. The paid sick and paid family leave credits for employers under the Families First Coronavirus Response Act are extended to the period April 1 - September 30, 2021.

Student Loan Forgiveness. Gross income does not include any amount which would be includible in gross income by reason of the discharge of eligible student loans in 2021-2025.

Employee Retention Credit. The employee retention credit is extended through December 31, 2021.  The credit is also extended to certain start-ups.  This will double the benefit of the already favorable 2021 employee retention credit rules. 

Extension of Limitation on Excess Business Losses for Non-Corporate Taxpayers (IRC Sec. 461(l)). The application of this loss limitation rule is extended one year, to include 2026. 

Limitation on Excessive Employee Remuneration (IRC Sec. 162(m)). In the case of taxable years beginning after December 31, 2026, the $1 million limit on the amount of deductible compensation that a company can pay to its CEO, CFO and the other three most highly paid executives is extended to the next five highest compensated executives.

Repeal of Election To Allocate Interest Expense on Worldwide Basis (IRC Sec. 864(f)).  This election is repealed, effective for taxable years beginning after December 31, 2020.   This provision, the extension of the limitation on excess business losses for non-corporate taxpayers and the limitation on excessive employee remuneration (above) are apparently included in ARPA to comply with the stringent budget rules mandated by the budget “reconciliation” process applied to this bill. (See also Will “Budget Reconciliation” Play a Role in 2021 Tax Legislation? and Budget Reconciliation -- Current Path to Tax Reform?)                             

Restaurant Revitalization Grants. Gross income does not include amounts received as restaurant revitalization grants.      

Treatment of Targeted Emergency Economic Injury Disaster Loans. Gross income does not include amounts received as a targeted economic injury disaster loan advance.