On March 11, 2021, Congress signed into law the American Rescue Plan Act of 2021, the latest economic stimulus bill passed in response to the COVID-19 global pandemic. It provides various tax law amendments and relief for individuals and businesses. Some of the key topics addressed in this act are discussed below.
COBRA Continuation Coverage
- Provides COBRA Continuation Coverage premium assistance for individuals eligible for COBRA coverage through September of 2021.
- There is a penalty for failure to notify the health plan once no longer eligible.
- Taxpayers who receive this are not eligible for the Health Coverage Tax Credit.
Employee Retention Credit
- This credit, originally from the CARES Act, that allowed eligible employers to claim a credit for paying qualified wages, is extended through the end of 2021.
- It is allowed against Medicare tax after June 30, 2021.
Family and Sick Leave Credits
- This credit compensates employers and self-employed individuals for Coronavirus-related paid sick leave and family and medical leave. This is expanded to include time-off to receive or recover from the COVID-19 vaccination.
- Increase from 50 to 60 eligible days for self-employed individuals; the limitation on the overall number of eligible days for paid sick leave resets after March 31, 2021
- Increases the limit of qualifying wages to $200 per day up to $12,000 per individual.
- This payroll tax credit is extended through September 30, 2021, and is fully refundable.
- Economic Injury Disaster Loan grants received from the U.S. Small Business Administration are not included in gross income. This exclusion will not result in a denial of a deduction, reduction of tax attributes, or denial of basis increase.
- Expanded definition of covered employees under Sec. 162(m) for the cap on deductible compensation to now include the company’s five highest-compensated employees for years after 2026.
- Extends the limitation on excess business losses of noncorporate taxpayers for one year meaning the limitation applies for any taxable year beginning before January 1, 2027
- Temporarily delays the designation of multiemployer pension plans as in endangered, critical or critical and declining status.
Other individual provisions
- Recovery Rebate Credit: Provides individuals with $1,400 ($2,800 for married taxpayers filing jointly) and an additional $1,400 for each qualified dependent.
- Unemployment benefits: The first $10,200 of unemployment benefits are tax-free in 2020 if adjusted gross income is below $150,000.
- Child Tax Credit: Increases the credit to $3,000 per child with phase-out limitations and makes the credit refundable for 2021.
- Child and Dependent Care Credit: effective only for 2021, the credit is equal to 50% of eligible expenses up to certain income limitations. It also increases the exclusion for employer-provided dependent care assistance to $10,500 for 2021.
- Earned Income Tax Credit: increases the phase-out limits, makes the credit allowable for certain separated spouses, and allows the temporary use of 2019 earned income for the calculation.
- Premium Tax Credit: expanded eligibility via qualifying percentages and taxpayers do not have to repay any excess credits received in 2020. Any taxpayer who received or is eligible for unemployment during 2021 are applicable taxpayers.
For additional guidance and resources on this or other COVID-19 updates, visit our COVID-19 Hub or contact our COVID-19 Advisory Team at 240.364.2580.