Summary of the Major Personal and Business Tax Provisions of the American Rescue Plan Act | Murtha Cullina


On March 11, 2021, President Biden enacted the American Rescue Plan Act (the “Act”). The law provides $ 1.9 trillion in COVID-19-related stimulus and relief to individuals and businesses struggling with the challenges created or exacerbated by the coronavirus pandemic. The following summary highlights the personal and corporate income tax provisions included in the Act:

People

  • Cash back: Eligible individuals will receive a cash payment of $ 1,400 ($ 2,800 for married people filing jointly) with an additional cash payment of $ 1,400 for each dependent. Payments are phased out for single filers with Adjusted Gross Income (AGI) between $ 75,000 and $ 80,000 (between $ 150,000 and $ 160,000 for married people filing jointly). The individual’s 2019 income tax return (or the 2020 income tax return if it has already been filed when the IRS determines the refund amount) will be used to determine eligibility.
  • Extension of unemployment benefits: An additional amount of $ 300 / week in federal unemployment benefits (in addition to benefits provided by the state) will be available until September 6, 2021. In addition, for people whose AGI is less than $ 150,000 , the first $ 10,200 in unemployment compensation received in 2020 will not be subject to federal income tax. In the case of a joint return that reflects an AGI below the limit of $ 150,000, the exclusion of $ 10,200 applies to each spouse.
  • Increase in the child tax credit: The purpose of the Child Tax Credit is to provide tax relief to parents who have qualifying children under a certain age. For the year 2021, the child tax credit increased from $ 2,000 to $ 3,000 per child ($ 3,600 for children under 6 by the end of 2021) and expanded to include children under 17 . The credit is also fully refundable, which means it can generate a tax refund if it exceeds the amount of tax owed. The increase in the credit amount begins to be phased out for people with modified AGI over $ 75,000 and for married people filing jointly with amended AGI over $ 150,000.
  • Increased credit for child and dependent care: The Child Care and Dependents Credit provides assistance to working parents who have to pay someone to care for their children or other dependents. For the year 2021, the child care and dependents credit is increased to a maximum of $ 4,000 for one eligible child and $ 8,000 for two or more children. The increases begin to disappear for taxpayers whose AGI exceeds a certain threshold.
  • Tax Free Student Debt Remission: Partial or total cancellation of certain student loans that occurs between 2021 and 2025 will not be included in the gross income of the borrower. The provision applies to student loans insured or guaranteed by the federal government, state governments and qualifying educational institutions, as well as certain private student loans as defined in the Truth in Lending Act.
  • Rental assistance: Financial assistance is provided to help eligible low-income households affected by COVID-19 with the payment of rent, rent arrears, utilities and other specific housing-related expenses.

Companies

  • Eligibility for the Expanded Paycheque Protection Program: The categories of borrowers eligible under the Paycheque Protection Program (“PPP”) are expanded to include additional categories of non-profit organizations and digital news and periodical services (c ‘ i.e. Internet only). An additional non-profit organization is now eligible for PPP loans if (1) it does not employ more than 300 employees; (2) does not receive more than 15% of its revenue from lobbying activities; (3) lobbying activities do not represent more than 15% of the total activities of the organization; and (4) the cost of lobbying activities does not exceed $ 1,000,000 in the last taxation year that ended before February 15, 2020. In addition, the Act eliminates the membership rules for not-for-profit organizations, allowing organizations with 500 or fewer employees per physical location to be eligible.
  • Changes to sick leave and paid family leave credits: The Act makes sick leave and paid family leave credits available until September 30, 2021 and allows employers to claim paid leave credits to allow employees to undergo a COVID-19 test or to receive or receive recover from a COVID-19 vaccination. In addition, the salary amount for which an employer can claim the Paid Family Leave Credit is increased from $ 10,000 to $ 12,000 per employee and allows a credit on the employer’s share of 1.45% of Medicare tax ( in addition to the social security tax).
  • Extension of the employee retention tax credit: The law makes the employee retention credit available until December 31, 2021 and allows a credit on the employer’s share of 1.45% of Medicare tax (in addition to Social Security tax). In addition, “recovery start-ups” (businesses that started after February 15, 2020 and have annual gross revenues of $ 1 million or less) are eligible for the credit (capped at $ 50,000 per quarter). .
  • Targeted loan advances in the event of economic disasters: Amounts received as a targeted economic disaster loan advance will not be included in gross income and deductions are allowed for otherwise deductible expenses paid with amounts excluded from income.
  • Restaurant revitalization grants: The law creates a $ 25 billion restaurant revitalization fund to provide tax-free subsidies to restaurants, food trucks, caterers and other businesses “in which the public or customers gather for the primary purpose of being served food or drink ”that have been economically affected by the pandemic. Grants of up to $ 10 million per entity (or $ 5 million per physical location) are available. Amounts received as a grant will be excluded from gross income and deductions are allowed for otherwise deductible expenses paid with amounts excluded from income.
  • Subsidies to operators of closed sites: The law provides an additional $ 1.25 billion for closed venues such as theater operators, theatrical productions, performing arts organizations, museum operators and theater operators. An entity that receives a grant from a closed site operator cannot also receive a grant from the Restaurant Revitalization Fund but can apply for a PPP loan.
  • Extension of the salary deduction limits for executives: The law extends the prohibition on a public company’s ability to deduct executive compensation greater than $ 1 million to the next eight highest-paid employees (instead of the next five), plus the CEO and the Chief Financial Officer, starting in 2027.
  • Extension of the limitation on excess business losses: The $ 250,000 limit for excess business losses ($ 500,000 for married people filing jointly) which prevents unincorporated taxpayers from deducting excess losses from business income, and which was due to expire on December 31 2025, is extended until December 31, 2026.
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