On March 10, 2021, the House of Representatives passed the American Rescue Plan Act (ARPA), H.R. 1319. Below is a summary of key tax and benefit provisions included in the final legislation.
Unemployment Benefits
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The first $10,200 in 2020 unemployment benefits is tax-free for taxpayers with adjusted gross income (AGI) under $150,000.
Recovery Rebates (Third Stimulus Payments)
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Individuals receive a $1,400 recovery rebate credit, or $2,800 for joint filers, plus $1,400 per dependent, including college students and qualifying relatives.
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Income phaseout begins at:
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$75,000 for single filers (fully phased out at $80,000)
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$150,000 for joint filers (fully phased out at $160,000)
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$112,500 for heads of household (fully phased out at $120,000)
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Eligibility determined using 2019 AGI unless the 2020 return has been filed.
COBRA Continuation Coverage
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Provides premium assistance through September 30, 2021.
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Eligible individuals can receive 100% subsidy for COBRA premiums.
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Employers claim a refundable tax credit against Medicare payroll tax (Sec. 3111(b)).
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No income tax inclusion for COBRA premium assistance.
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Penalties apply for failure to notify cessation of eligibility (Sec. 6720C).
Expanded Child Tax Credit (2021 Only)
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Increases credit to:
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$3,600 per child under 6
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$3,000 per child ages 6–17
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Fully refundable and available to 17-year-olds.
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Phaseout thresholds:
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$150,000 (MFJ)
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$112,500 (HOH)
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$75,000 (others)
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Advance monthly payments to begin July through December 2021.
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Excess payments may need to be reconciled on 2021 return, with safe harbor protections for lower-income taxpayers.
Earned Income Tax Credit (EITC) Enhancements
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Expands eligibility for childless individuals:
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Lowers age to 19 (or 18 for certain youth); no upper age limit.
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Increases phaseout amounts and disqualifying investment income threshold to $10,000.
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Taxpayers may use 2019 income instead of 2021 income for a higher credit.
Child and Dependent Care Credit (2021 Only)
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Fully refundable for 2021.
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Credit covers 50% of eligible expenses up to:
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$4,000 for one qualifying individual
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$8,000 for two or more
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Credit begins to phase out at $125,000 household income.
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Employer-provided dependent care exclusion increased to $10,500.
Paid Sick and Family Leave Credits
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Extended through September 30, 2021.
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Employers may claim credits under Sections 3131–3133.
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Paid leave includes:
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COVID-19 illness, quarantine, testing, or vaccination
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Maximum credit for family leave increased to $12,000.
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Self-employed individuals may use up to 60 days.
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Leave reset for additional 10 days after March 31, 2021.
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Credits extended to 501(c)(1) government organizations.
Employee Retention Credit
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Extended through December 31, 2021.
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Credit allowed against Medicare tax (Sec. 3111(b)).
Premium Tax Credit (Health Insurance Marketplace)
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Enhanced for 2021 and 2022.
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No repayment of excess advance premium credits for 2020.
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Anyone approved for unemployment compensation in 2021 is treated as an applicable taxpayer for PTC eligibility.
Student Loan Discharge Exclusion
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Loan forgiveness between January 1, 2021, and December 31, 2025, is excluded from gross income.
Other Provisions
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Section 162(m): Expands $1 million deduction cap for executive compensation to include the five highest-paid employees (effective after 2026).
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Section 461(l): Extends the limitation on excess business losses for noncorporate taxpayers through 2027.
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Repeal of Section 864(f): Eliminates worldwide interest allocation election.
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Targeted EIDL Grants and SBA Restaurant Grants:
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Excluded from gross income
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No deduction denial, basis adjustment, or attribute reduction
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Multiemployer Pension Plans: Temporary relief for certain designation statuses and funding changes.
For assistance in understanding how these provisions impact your tax situation or business, contact our office to schedule a consultation.