The $1.9 trillion American Rescue Plan Act of 2021 was recently signed by President Biden. Federal aid for the health and economic crisis now tops a record $6 trillion in the form of fiscal and monetary support and represents about 26 percent of gross domestic product (GDP). This is a brief summary of the new legislation. Some are extensions of last year’s CARES Act and some reflect changes in the tax law that should be discussed with your tax advisor. If you filed your 2020 return early, you might want to discuss filing an amended return. And as with any new legislation, patience is warranted. Additional planning issues and opportunities may emerge as the Act is studied and clarified.
About a quarter of the bill was focused on four elements – expanding vaccinations, containing the pandemic, reopening schools and extending unemployment benefits. A little over half was for state and local aid, broad rebates for many households, and other long-standing priorities. And the balance reflected a combination of tax and spending policies.
$1,400 Stimulus Checks
Third round of checks will be distributed to adults and dependents for people making under $75,000 ($150,000 for couples) and it’s estimated that 280 million people would receive full or partial payments. However, this round contains more restrictive cutoffs – there will be no checks for those with Adjusted Gross Income (AGI) over $80,000 (individuals) or $160,000 (couples).
Pandemic benefits of up to $300 a week are extended to September 6, 2021. The first $10,200 in benefits for 2020 is tax-exempt for families making $150,000 or less. And the Feds will subsidize COBRA health benefits through the end of this September.
Child Tax Credit
There’s a one-year expansion to $3,000 (from $2,000) for kids age 6 – 17 and to $3,600 for kids under 6. The AGI limits are $150,000 (couples) and $112,500 (single parents).
State and Local Governments
$350 billion in aid to cities, States, Tribal governments and U.S. Territories.
Schools and Childcare Block Grants
$130 billion for K-12 education, $40 billion for colleges for emergency student financial aid grants, $40 billion for childcare providers through the block grant program and $1 billion for Head Start.
$50 billion for COVID testing and contact tracing, $19 billion for public health workforce expansion and $16 billion for vaccine distribution.
Help for Businesses
$25 billion for pandemic assistance grants for bars and restaurants and an additional $7.25 billion into the Paycheck Protection Program (PPP). Hurry up because the PPP application deadline is the end of this month. A significant provision is the extension of the Employee Retention Credit through the end of this year – review the interplay between ERC and PPP with your CPA.
Federal Moratoriums Remain
These remain for evictions and foreclosures until the end of this month. However, they expanded housing assistance by about $32 billion.
Student Loan Forgiveness
While they didn’t forgive student loans, there is a provision that any student loan forgiveness passed between 12/20/2020 and 1/1/2026 will be tax-free. Normally, loan forgiveness is taxable income.
A global pandemic, shutdowns, new policies, and the reactions to all are good reminders that financial planning is a work in progress. May you secure your future wisely and always have sage advice.