The $1.9 trillion American Rescue Plan Act (ARPA) or coronavirus relief bill was passed this week, delivering aid to needy Americans still recovering from the health and economic effects of the pandemic. This recent bill is in addition to the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 and the $900 billion stimulus included within the Consolidated Appropriations Act of 2021, passed in December 2020.
Highlights of the new ARPA bill include the following:
The American Rescue Plan offers the third round of Economic Income Payments or stimulus checks to qualifying Americans. Individuals earning less than $75,000 and couples earning less than $150,000 may qualify for direct payments of up to $1,400 per qualified persons, including dependents claimed on their tax return.[i]
The income thresholds will be based on the last filed tax return. Many realized the brunt of financial hardship in 2020, but have not yet filed their 2020 tax returns. Further, income from the 2019 tax return may have been higher, making tax filers ineligible for the most recent stimulus check.
Therefore, those who are eligible based on their 2020 income but did not automatically receive a stimulus check may claim the stimulus as a Recovery Rebate Credit. The application for the credit is built directly into the IRS tax Form 1040 when filing your 2020 tax return. If a person does not normally file a tax return and therefore did not get a stimulus payment they were otherwise qualified to receive, they will need to file a tax return for the 2020 year to generate the Economic Impact Payment.[ii]
The $900 billion COVID-19 relief package passed in December 2020 provided enhanced unemployment benefits that were set to expire on March 14th. To assist affected Americans, the federal government has extended unemployment benefits through September, and added an additional bonus payment of $300 per week on top of the state unemployment benefits. Previously, the federal unemployment bonus payment was $400 per week. The American Rescue Plan decreases the weekly bonus amount but extends the benefit payment period, allowing affected individuals more time to find alternative employment.
Additionally, a provision was added to allow the first $10,200 of unemployment benefits for individuals ($10,200 each, for joint tax filers) to be excluded from taxation if total household income was below $150,000 during the 2020 tax year. It is important to note that although the tax exemption is $10,200 per person, the household income threshold of $150,000 remains whether the tax filer is single or joint.
The act also provides a 100% subsidy of COBRA health insurance premiums so unemployed workers can remain on their employer healthcare plans through September 2021.[iii]
State & Local Governments
States have experienced an extremely difficult financial year. Expenses related to unemployment benefits and medical care have astronomically increased. At the same time, revenues from income taxes, sales taxes and property taxes have dramatically decreased, putting states in a financial deficit. The American Rescue Plan provides state, local, and tribal governments with $350 billion in stimulus funding. Approximately 18% of state expenditures are earmarked for public education costs, followed closely by public assistance programs for unemployment benefits and food assistance.[iv]
The current federal eviction and foreclosure moratoriums which end March 31, 2020 will not be extended under ARPA. However, California and Los Angeles County have each independently enacted a temporary eviction moratorium that extends through June 30, 2021. This could be further extended by the Los Angeles County Board of Supervisors thereafter.[v]
Child Tax Credit
The American Rescue Plan increases the Child Tax Credit to $3,000 per child age 6 to 17, and $3,600 for each child under age 6 for a single tax filer earning less than $112,500 or a joint filer earning $150,000 or less in annual income. Unlike prior years where the credit is applied at the time of tax filing, the Act will provide the credit on a monthly basis via direct deposit. The purpose is to help families paying for child related costs in real time.
The Paycheck Protection Program (PPP) will be allocated an additional $7.25 billion in funds to support small businesses with qualified expenses such as payroll, rent and utilities. The deadline to apply remains March 31, 2021. The American Rescue Plan also earmarks $25 billion in grants for restaurants and businesses hardest hit by the pandemic.
Approximately $50 billion in the Act is allocated for COVID-19 testing and contact tracing to aid in the fight against COVID mutations. An additional $16 billion is allotted for COVID-19 vaccine distribution and $19 billion is allocated to fund the public health workforce needed to fight COVID.
Although we have a long road to recovery, COVID vaccines appear to be the turning point towards recovery and a new “normal”. In response to COVID-19, the government has presented numerous legislative changes. If you could benefit from a consultation on how the new laws may affect you, reach out to your CPA or Certified Financial Planner™ timely.
[iii] U.S. Congress. “H.R. 1319: American Rescue Plan Act of 2021.” Accessed March 10, 2021