President Biden on March 11 signed into law the American Rescue Plan Act (ARPA), a nearly $1.9 trillion COVID-19 relief package containing several tax provisions.
The House approved the Senate-amended ARPA (HR 1319) by a 220-to-211 vote on March 10; the Senate passed it on March 6 by a 50-to-49 vote. Senate Democrats used a procedure known as budget reconciliation, which requires only a simple majority for approval instead of the 60-vote threshold required under regular order. No Republicans in either chamber voted for the measure.
The ARPA expands and extends many provisions originally enacted under the Families First Coronavirus Relief Act (FFCRA) (P.L. 116-127), Coronavirus Aid, Relief and Economic Security (CARES) Act (P.L. 116-136), and the Consolidated Appropriations Act, 2021 (CAA) (P.L. 116-260).
For members' convenience, correlating section numbers under the ARPA are provided below along with NSA's summary of the most noteworthy tax provisions.
Let’s jump in.
Section 9601. 2021 Recovery Rebates to Individuals
The ARPA provides for a $1,400 so-called stimulus payment to qualifying individuals and children. Similar to prior economic impact payments, individuals can receive the full $1,400 ($2,800 for a married couple) “recovery rebate” if their adjusted gross income (AGI) is no more than $75,000 ($150,000 for married couples filing jointly), with the amounts phased out above those levels. Under the ARPA, however, the phaseout occurs sooner so that an individual with an AGI of $80,000 (or $160,000 for married filing jointly) would receive no payment.
Notably, the legislation states that taxpayers who receive a larger payment than for which they are eligible would not be required to repay the difference; those who receive less than they are eligible may claim the difference on their 2021 tax returns.
White House Press Secretary Jen Psaki said on March 11 that individuals will begin seeing payments deposited into their accounts as early as this weekend.
Section 5001. Modifications to Paycheck Protection Program
The ARPA provides an additional $7.25 billion for forgivable PPP loans and expands eligibility to include additional nonprofit entities and small internet publishing organizations.
The new law did not extend the PPP, however, which is set to expire on March 31. House lawmakers on March 11 introduced the bipartisan PPP Extension Act; it would extend the March 31 deadline two months. Senate support of the measure is unclear at this time.
Section 2901. Unemployment Insurance
The ARPA extends through September 6 the weekly $300 federal supplemental unemployment benefit (FPUC). Additionally, it extends through Sept. 6 the $100 per week supplement established for workers whose income was largely non-wage earnings and thus qualified for little in traditional unemployment aid.
Most notably, however, is the retroactive change in tax treatment of the unemployment benefits for 2020: the first $10,200 of unemployment compensation received by the taxpayer is now nontaxable income so long as the individual’s adjusted gross income (AGI) is less than $150,000.
Section 9621. Earned Income Tax Credit (EITC)
For tax year 2021, the ARPA greatly enhances the EITC by expanding eligibility for the childless EITC and increasing the amount of the credit. For 2021, the legislation:
- makes individuals as young as 19 years of age generally eligible for the credit and eliminates the upper age limit;
- doubles the credit percentage and phaseout percentage.
- includes special rules regarding the credit for former foster youth and homeless youth.
Additionally, the ARPA provides for several permanent changes in EITC eligibility, including by making individuals who have children without Social Security Numbers eligible for the childless EITC and by allowing married but separated individuals to be treated as unmarried for EITC purposes if filing separately.
Further, it increases the amount an individual can earn from investments that is not counted toward income for purposes of EITC eligibility from $3,650 to $10,000, as indexed for inflation.
Section 9611. Child Tax Credit
For tax year 2021, the ARPA:
- increases the child tax credit to $3,000 per eligible child ($3,600 for each eligible child under the age of 6);
- allows children to remain eligible so long as they are under the age of 18; and
- makes the credit fully refundable for the 2021 tax year.
However, the additional $1,000 (or $1,600) on top of the ordinarily $2,000 tax credit would begin to phase out earlier than the usual, beginning at $75,000 for individuals ($150,000 for joint filers). *The phaseout for the usual $2,000 tax credit remains at its existing thresholds.
Section 9631. Child and Dependent Care Tax Credit
For tax year 2021, the ARPA:
- makes the child and dependent care tax credit fully refundable;
- the maximum percentage of dependent care costs that can be claimed is increased from 35 to 50 percent; and
- it increases the income level from $15,000 to $125,000 at which the percentage that can be claimed begins to decrease.
Additionally, the legislation increases the amount of dependent care costs that can be used in calculating the tax credit, increasing it from $3,000 to $8,000 for a single dependent and from $6,000 to $16,000 for two or more dependents.
Further, for tax year 2021, the ARPA increases the amount that employees may deposit into a tax-favored Flexible Spending Account (FSA) for dependent care expenses from $5,000 to $10,500 (for a joint filer).
Section 5003. Support for Restaurants
The ARPA establishes the Restaurant Revitalization Fund, authorizing the SBA to award grants of up to $10 million to eligible restaurants and other food-service establishments that have a “pandemic-related revenue loss.”
Restaurants that are ineligible for aid under the new program are:
- operated by a state or local government;
- owned by a publicly-traded company;
- has a pending application for a Shuttered Venue Operators grant; or
- owns and operates more than 20 locations as of March 13, 2020.
Grants awarded to an eligibility entity may not exceed $10 million and shall be limited to $5 million per physical location.
Notably, for the first 60 days of the program, $5 billion is set aside for smaller food-service providers whose gross revenue in 2019 did not exceed $500,000. During the first 21 days, priority is to be given to applications from restaurants owned and operated by women, veterans, or socially and economically disadvantaged individuals.
Section 5005. Shuttered Venue Operators
The ARPA provides an additional $1.25 billion for Shuttered Venue Operators (SVO) grants, which were created as part of the December relief package. Qualifying businesses are permitted to apply for both SVO grants and PPP loans, but the maximum grant size a venue may receive will be reduced by the amount of a PPP loan received on or after December 27, 2020.
Note: The SBA has said that it expects to begin accepting applications for the SVO program by early April. Revised SVO grant FAQs are expected in the coming days.
Section 9601. Credit for Paid Sick and Family Leave
The legislation also extends through September 30, 2021, the refundable payroll tax credits for employers who provide paid sick and family leave to their employees. The credit was set to expire on March 31. The legislation expands upon eligibility and increases the amount of wages an employer may claim in a year per employee from $10,000 to $12,000.
Employers will be ineligible to receive a payroll tax credit for sick leave wages that were covered by:
- A loan under section 7(a)(37) or 7A of the Small Business Act;
- An SVO grant; or
- a restaurant revitalization grant under section 5003 of the ARPA.
The legislation states that Treasury will issue guidance providing that payroll costs paid during the covered period will still qualify as sick leave wages if a covered small business or PPP loan is not forgiven.
Section 9651. Extension of the Employee Retention Credit
The ARPA expands and extends through Dec. 31, 2021, the Employee Retention Credit (ERC); the credit was previously set to expire on June 30. Eligible employers will continue to be allowed as a credit against applicable employment taxes for each calendar quarter an amount equal to 70 percent of the qualified wages with respect to each employee for such calendar quarter, and $10,000 in qualified wages for any calendar quarter. The amount of the credit received for any calendar quarter cannot exceed $50,000.
Under the ARPA, the ERC is expanded to include “recovery startup businesses” that began after February 15, 2020, by allowing them to calculate a drop in gross receipts from closures or limitations related to the pandemic by comparing revenues from any quarter rather than the corresponding quarter from a prior year. These would only be eligible, however, if their average annual gross receipts for the previous three years are less than $1 million, thus allowing the business to earn more than $1 million per year and remain eligible because those earnings are averaged with years in which there were no earnings.
Also, “severely financially distressed employers” whose revenues have declined by more than 90 percent of the comparable quarter from a prior year will now receive a more substantial credit.
Section 9041. Extension of Limitation on Excess Business Losses of Noncorporate Taxpayers
Lastly, the ARPA extends for one year the Section 461(l)(1) excess business loss limitations for non-corporate taxpayers. The Tax Cuts and Jobs Act (TCJA) (P.L. 115-97) provision that limits losses to $250,000 ($500,000 married filing jointly) is now scheduled to expire on January 1, 2027.