Wolters Kluwer highlights tax implications of the American Rescue Plan Act of 2021 signed into law
What: On March 10, 2021, the US House of Representatives passed the American Rescue Plan Act of 2021 after earlier passage in the US Senate, and the President signed the legislation into law on March 11, 2021.
Why: Many of the tax provisions in the American Rescue Plan Act of 2021 are extensions or expansions of existing provisions and are meant to provide some immediate assistance to individuals and businesses affected by the COVID-19 pandemic. With the focus on the pandemic, the provisions generally apply only for 2021 and include the following that have tax implications for taxpayers:
- Additional stimulus payments: providing economic stimulus payments of $1,400 that include both child and adult dependents, with a possibility for two rounds of payments; the first based on 2019 and the second based on 2020 tax return income
- Unemployment benefits: extending $300 per week additional unemployment benefits and making $10,200 of the benefits exempt from tax for 2020 tax returns
- Expanded Child Tax Credit: increasing the amount of the credit, extending the eligible age of children, making it fully refundable, and providing for advance payments as frequently as monthly from the IRS for 2021 only
- Expanded Child and Dependent Care Credit: increasing the dollar limit for the credit and for qualifying expenses, increasing the percentage of expenses used to calculate the credit, and increasing the income limit for eligibility for 2021 only
- Expanded Earned Income Tax Credit: decreasing the minimum age for childless individuals, eliminating the maximum age, increasing the dollar and percentage limits, increasing the investment income limit, and allowing taxpayers to choose to use 2019 rather than 2021 income
- Premium Tax Credits: increasing the premium tax credits under the Affordable Care Act for 2021 and 2022
- Student loan debt: excluding forgiven student loan debt from taxation for loans discharged after 2020 and before 2026
- Employee Retention Credit: extending the credit to December 31, 2021
- Paid Sick Leave and Family Leave: extending the credits to September 30, 2021, expanding what constitutes qualified leave, and a reset on qualifying days starting on March 31, 2021
- COBRA coverage: providing a 100 percent credit for employer payment of employee COBRA coverage
- Pension provisions: relief for single employer and multiemployer pension plans, extended amortization for single employer plans, and extension of pension funding stabilization percentages for single employer plans
- Worldwide interest allocation: repeal of the provision
Wolters Kluwer Tax Briefing: Wolters Kluwer Tax & Accounting published the updated American Rescue Plan Act of 2021 expert tax briefing that provides additional insights into the legislation signed into law by President Joe Biden.
Who: Tax expert Mark Luscombe, JD, LL.M, CPA, Principal Federal Tax Analyst at Wolters Kluwer Tax & Accounting, can help discuss the tax implication of the legislation.
PLEASE NOTE: The content of this alert has been prepared by Wolters Kluwer Tax & Accounting for general informational purposes only. The information is provided with the understanding that Wolters Kluwer Tax & Accounting is not engaged in rendering legal, accounting, or other professional services.
Contact: To arrange an interview with Mark Luscombe or other federal and state tax experts from Wolters Kluwer Tax & Accounting on this or any other tax-related topics, please contact Bart Lipinski.
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