With the Biden administration settling into the White House, the season changing from winter to spring (some days more spring-like than others) and as we come to terms with the fact that we have lived an entire year ultimately defined by the COVID-19 pandemic, we have a third installment of relief focused tax legislation: The American Rescue Plan Act of 2021. This $1.9 trillion stimulus package is one of the most expensive in U.S. history and is a direct result of the economic effects of COVID-19. The Act is not only an extension of some aspects of the previous CARES Act passed last March and the second stimulus package passed in December 2020, but also creates new measures as well. The provisions included in the Act are numerous and extensive, but we will highlight the main points here.
Another Round of Stimulus Checks
Taxpayers will receive up to a $1,400 payment for themselves and per dependent. In the previous rounds of stimulus, only dependents under the age of seventeen were included so this is a welcome update for families with children in college or who are caring for elderly family members. This amount will be phased out for single taxpayers with an Adjusted Gross Income (AGI) of more than $75,000 and married couples filing joint with an AGI of more than $150,000. Payments will be based on either 2019 or 2020 tax returns, whichever is most recently on file, meaning it may be advantageous to delay filing if one’s 2019 income was lower than 2020.
Expanded Child Tax Credit
The current annual credit of $2,000 per child younger than seventeen will be increased to $3,600 per child under the age of six and $3,000 per child aged six to seventeen. These payments will be provided on a monthly basis and the credit is refundable, meaning taxpayers that qualify will receive the payment no matter their tax situation.
Vaccines and Testing
The measure provides $91 billion for the Department of Health and Human Services, to be used for several coronavirus related activities. This will go towards the production and distribution efforts of the vaccines as well as further testing and contact tracing.
State and Local Government Relief
Governments at various levels will have funds available through 2024 to continue their efforts to mitigate the economic effects of the pandemic. The funds are to be used to cover costs relating to the assistance of households, small businesses, essential workers, infrastructure, etc. Essentially, the funds can be used as an aid or a stimulus at local and state levels to the extent that the cause or reason was a result of the current health crisis.
Relief to Businesses
The Act establishes the Restaurants Revitalization Fund, providing relief solely for small and mid-sized restaurants. Additional funds will also be added to the Shuttered Venue Operator Grant to provide aid to music venues, concert halls, museums, and theaters. The bill also expands the Paycheck Protection Program eligibility to include more nonprofits and allows certain previous recipients to apply for a second PPP loan.
There are provisions within the law aiming to make health insurance more affordable. With many people losing their jobs, they too have lost their health coverage and have been forced into COBRA or a marketplace plan. Although temporary, the Act expands eligibility for the Affordable Care Act premium tax credit while also increasing the amount. It will also subsidize the premiums for COBRA for April 2021 through September 2021, and additional Medicaid coverage will be provided for the most vulnerable Americans.
This is a brief snapshot and overview of what is included in the American Rescue Plan Act. The actual legislation is hundreds of pages long, including many other provisions and greater detail. A few items were left off the final iteration of the bill. There is no mention of further RMD relief as was the case with the CARES Act, meaning retirement account owners at their RMD age (which is now 72 per the SECURE Act passed at the end of 2019) will need to take their 2021 Required Minimum Distribution as usual. Also, the minimum wage increase to $15 per hour was removed from the final iteration. It should also be noted that the deduction limit on contributions to public charities for taxpayers who itemize is still lifted per the CARES Act. Charitable individuals can gift up to 100% of their AGI in cash for 2021 and be able to fully deduct the amount. Whether these items and others are included in a future stimulus package is unknown at this point.
As we at Becker Capital reflect back on more than a year of navigating the COVID-19 pandemic, one thing that was made clear is that we are so grateful to you, our clients, colleagues and trusted professionals. We anxiously await the day when we can gather again and see you in person.
If you have any questions about how a certain provision could potentially impact you or would like to review your wealth plan, the Becker Wealth Planning Team would love to hear from you. Please do not hesitate to reach out.