American rescue plan signed into law

On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021 (the “Act”), which provides $1.9 trillion for COVID-19 relief and stimulus funding. The key provisions of the Act are summarized below.

Individual provisions

  • Stimulus checks to individuals

The Act provides $1,400 in direct payments per eligible individual. Individuals earning up to $75,000 will get the full amount and payments phase out completely after $80,000. Married couples earning up to $150,000 will get $2,800 and payments phase out completely after $160,000. Dependents in each of those households are also eligible for $1,400 payments.

  • Unemployment insurance

The Act extends federal supplemental unemployment benefits that would have started to expire March 14th. A weekly federal unemployment benefit of $300 is extended through September 6, 2021.  Additionally, the Act excludes the first $10,200 of unemployment payments from tax in households earning less than $150,000 a year. To the extent taxpayers have already filed their 2020 tax returns they can file an amended tax return to take advantage of the exclusion.

  • Child tax credit

The Act increases the 2021 child tax credit amount to $3,600 for children under six, and to $3,000 for children ages six to 17. Further, the IRS will advance payments (making up 50% of the credits the household is entitled to) of the child tax credit to qualifying individuals from July through December 2021. The additional child tax credit of $1,000 or $1,600 per child (over the 2020 amount) is phased out for joint filers with a modified adjusted gross income above $150,000.

  • Child care tax credit

The Act makes the dependent care tax credit refundable for 2021. The maximum credit has increased from 35% of up to $3,000 qualifying expenses for one child and $6,000 for two or more children to 50% of up to $8,000 of qualifying expenses for one child and $16,000 for two or more children. The credit is phased out for households with incomes from $125,000 to $440,000.

  • Student loan forgiveness

The Act provides an exclusion from gross income for eligible student loan indebtedness forgiven after December 31, 2020 and before January 1, 2026.

Business provisions

  • Employee retention credit

The Act extends the employee retention credit through the end of 2021. It had previously been set to expire June 30, 2021. This allows eligible employers to claim a refundable credit of up to $7,000 per employee per quarter. Eligible employers during 2021 include companies that experienced a full or partial suspension of operations as a result of government orders, or those that can show at least a 20% reduction in quarterly gross receipts, compared with the same quarter in 2019.

  • Repeal of election to allocate interest expense on worldwide basis

The American Jobs Creation Act of 2004 provided for an election for US-affiliated groups to allocate interest expense between US and foreign sources to determine the foreign tax credit limitation.  After several delays, the election was scheduled to go into effect after December 31, 2020.  The Act repeals the election for taxable years beginning after 2020.

  • Tax treatment of targeted emergency Economic Injury Disaster Loan (“EIDL”) advances

Amounts received from the Small Business Administration (“SBA”) in the form of a Targeted EIDL advance shall not be included in gross income.  Deductions are allowed for otherwise deductible expenses paid with the proceeds of the EIDL advance.

  • Restaurant and venue assistance

Restaurants impacted by the economic fallout of COVID-19 may be eligible for a grant to cover eligible expenses for the period February 15, 2020 through December 31, 2021.  The amount of the Restaurant Revitalization Grant is equal to the pandemic-related revenue loss which is the difference between the 2020 and 2019 gross receipts.  Grant funds can be used for qualified expenditures related to the operation of the business.  Amounts received from the Small Business Administration in the form of a restaurant revitalization grant shall not be included in gross income.  Deductions are allowed for otherwise deductible expenses paid with the proceeds of the restaurant revitalization grant.

  • Economic Injury Disaster Loans & Paycheck Protection Program funds

The COVID-19 Targeted EIDL was signed into law on December 27,2020 as part of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act. The Targeted EIDL Advance provides businesses located in low-income communities with additional funds to ensure small business continuity. Advance funds of up to $10,000 will be available to applicants located in low income communities who previously received an EIDL Advance for less than $10,000 or those who applied, but received no funds, due to lack of available program funding.  The SBA will first reach out to EIDL applicants that already received a partial advance between $1,000-$9,000. Thereafter, the SBA will reach out to applicants who applied for EIDL assistance before December 27,2020 but did not receive an EIDL Advance due to the lack of funding. To be eligible:

  • The applicant must be located in a low-income community
  • The applicant can demonstrate a more than 30% reduction in revenue during an eight-week period beginning on March 2, 2020 or later
  • The applicant has 300 or fewer employees

The Act directs an additional $7.25 billion in Paycheck Protection Program (“PPP”) funds and also expands eligibility to more nonprofit entities.

  • Payroll credits for paid sick and family leave

The Families First Coronavirus Response Act (“FFCRA”), as amended and updated by the COVID-Related Tax Relief Act of 2020, enacted on December 27, 2020, provided eligible employers with fewer than 500 employees refundable tax credits that reimburse them for the cost of providing paid sick and family leave wages for leave related to COVID-19 for the period April 1, 2020 through March 31, 2021.

The Act further extended the credits through September 30, 2021.  The Act increases the amount of qualifying wages for which an employer can claim the paid family leave credit from $10,000 to $12,000 per employee.  The qualifying wages for the paid sick leave credit continue to be the same under the Act and apply to up to two weeks (80 hours) at the employee’s regular rate of pay up to $511 per day or $5,110 in total.

The Act also resets the 10-day limitation on the maximum number of days for which an employer can claim the paid sick leave credit with respect to an employee.  The new limitation applies to sick days after March 31, 2021.

Eligible self-employed persons may also claim the paid sick and family leave credit.  Under the Act, the number of days that a self-employed person may claim the family leave tax credit increases from 50 to 60 days.

  • Extension of excess business loss limitation under Sec. 461(l)

The “excess business loss” rule enacted under 2017’s Tax Cuts and Jobs Act (“TCJA”) limited certain current losses attributable to trade or business for noncorporate taxpayers to $250,000 ($500,000 in the case of joint filers) through 2025.  Subsequently, the limitation was suspended for taxable years beginning in 2018, 2019 and 2020 under the CARES Act.

The Act extends the excess business loss rule through the end of 2026.

  • Limitation on excessive employee compensation under IRC Sec. 162(m)

Effective for tax years beginning after December 31, 2026, the limit on deductions certain companies can take for compensation paid to certain employees is expanded.  Current law limits public companies from deducting more than $1 million in compensation paid to the CEO, CFO and the next three highest-paid officers.

Beginning in 2027, the Act expands the list of “covered employees” to include the aforementioned five employees as well as the next five highest-paid employees.

Other provisions

  • Vaccinations, testing spending

The Act provides funding for vaccine and testing programs for COVID-19, including the creation of a national vaccine distribution program, funding for community vaccination centers and mobile vaccination. The Act also appropriates funds to increase testing capacity and regimes.

  • State and local aid

The Act directs $360 billion to state and local governments. The funds are intended to help states and cities avoid cuts to public services due to decreased revenues and increased spending caused by COVID-19.

  • Schools

The Act provides $176 billion for education. The funds will be used to help K-12 schools add staff in order to serve decreased class sizes and purchase the necessary resources to open safely. The plan also directs funds to colleges and universities.

Please contact your Mazars USA LLP professional for additional information.

Published on March 12, 2021