Last Thursday, the American Rescue Plan Act of 2021 (ARPA 2021) was signed into law by President Biden. This $1.9trillion package includes funds for direct payments to individuals and families, funds for state and local governments, and continued funds for vaccine development and testing. Key relief provisions are summarized here and, as always, we stand ready to discuss in further detail should you have questions.
Many individuals will receive another direct payment from the federal government. Technically a 2021 refundable income tax credit, the amount will be calculated based on your most recently filed tax return and sent automatically via check, direct deposit, or debit card to qualifying individuals. This stimulus payment is currently not protected from garnishment for unpaid debts, unlike previous payments that were protected.
The amount of the stimulus check is $1,400 ($2,800 if married filing a joint return) plus $1,400 for each dependent. The checks start to phase out for those with an adjusted gross income (AGI) exceeding $75,000 ($150,000 if married filing a joint return, $112,500 for those filing as head of household). Checks are completely phased out for those with an AGI of $80,000 ($160,000 if married filing a joint return, $120,000 for those filing as head of household).
Borrowers eligible for forgiveness under existing programs will see significant benefits for tax years 2021-2025. Previously, most forgiven loans were included in taxable income. The American Rescue Plan Act of 2021 excludes the amount forgiven from taxable income during that tax year. It also broadens the type of forgiveness to include “any”, where only certain categories of loans were specified in the past.
Child Tax Credit/Dependent Care Tax credit
Parents can look forward to an increased child tax credit for 2021: $3000 per qualifying child ($3,600 for qualifying children under age 6), subject to phaseout based on modified adjusted gross income. The legislation also makes 17-year-olds eligible as qualifying children for the first time.
In addition, the dependent care tax credit for 2021 is increased to $4000 for one qualifying individual and up to $8000 for two or more. The income phaseout begins at $125,000.
The federal COBRA continuation coverage program, which will generally pay the entire COBRA premium for those who’ve lost a job, will be extended from April 1, 2021, through September 30, 2021. Other healthcare initiatives include funding for state, local and territorial public health departments to support ongoing public health efforts (staff, technology, equipment, etc.)
Aid to businesses will include an extension of the employee retention tax credit, the tax credit for providing emergency sick and family leave, and tax advantaged loans/grants targeted toward small businesses.
For those collecting unemployment benefits, an additional $300 weekly benefit is added through September 6, 2021. Federal benefits were extended for 29 weeks to those who exhaust their state unemployment benefits.
What’s not in the Act
The much-discussed minimum wage increase was sidelined by Congress this time around. A hot topic during election cycles, this provision was left out mainly due to procedural issues with passing the stimulus. Another hotly debated item left out of the bill was student loan cancellation. That will also likely require a different process to enact change for student loan borrowers.
Have a plan!
Many Americans will start to see stimulus checks arriving in the coming days. Some will spend those dollars quickly, some will save or reduce debt, as they did with previous payments. We strongly encourage a discussion with your financial advisor to determine the best use of those funds, and how other ARPA 2021 provisions can impact your financial situation.
Patrick Gauthier | CFP®️, MSAPM