The American Rescue Plan (ARP) Act of 2021 - Part 1

As we work through the content and complexity of the American Rescue Plan Act passed on Wednesday, March 10^th, we decided to break our communication into two parts. Today will be about what this means to individuals and our states and local governments, focusing on what is applicable to our clients. There is a link at the end if you would like to read more about the details. Next week we will talk about how this will impact the economy, inflation, the stock market, and how we are going to pay for it.

The major difference between this stimulus package and the earlier ones in 2020 is this one focuses on aid to individuals and state and local government.

Individuals

Stimulus Checks/Rebate Checks

• $1,400 per individual and claimed dependents, depending on income eligibility.
  • Single (S) & Married Filing Separate (MFS): Adjusted Gross Income (AGI) under $75k (full rebate), AGI between $75k - $80k (reduced rebate), AGI over $80k (ineligible).
  • Head of Household (HOH): Adjusted Gross Income (AGI) under $112.5k (full rebate), AGI between $112.5k - $120k (reduced rebate), AGI over $120k (ineligible).
  • Married Filing Joint (MFJ): Adjusted Gross Income (AGI) under $150k (full rebate), AGI between $150k - $160k (reduced rebate), AGI over $160k (ineligible).
• Qualifying for the rebate will be based off the last tax return received. If the income on the last tax return made you ineligible, but your 2021 income will make you eligible, you will receive the rebate when you file your 2021 taxes (April 15, 2022).

Tax-Free Unemployment Compensation 2020

• $10,200 tax free unemployment compensation ($20,400 if MFJ) if AGI is under $150k (all filing statuses) for 2020. *If you have already filed your 2020 income taxes, you will have to wait for an IRS ruling how to amend your 2020 tax return.

Additional Federal Pandemic Unemployment Compensation

• $300 additional (on-top of state unemployment) through September 6, 2021.

Changes to Credits

• Earned Income Tax Credit: Raises the maximum Earned Income Tax Credit (EITC) for adults without children from $543 to $1,502. It would also lower the age eligibility for the childless EITC from 25 to 19 and eliminate the upper age limit, which currently bars the credit for childless people age 65 and older.

• Child Tax Credit

• New Rule (just for 2021): $3,000 credit per child under 18; $3,600 credit per child under 6. Refundable credit.
• The additional credit has a lower phaseout $75k (S & MFS), $112.5k (HOH), and $150k (MFJ). If your income is above the phaseout, but below the old rule phaseout, you would still qualify for the old rule.

• Child and Dependent Care Tax Credit

• New Rule: Lesser of 50% of dependent care expenses or $8,000 (one child) or $16,000 (more than one child). Refundable.
• New Rule Phaseout of $125k AGI (all filing statuses). Same as the Child tax credit, if you phase out on the new rule, you will still qualify for the old rule.

• Other Mentions

• Required minimum distributions (RMD) NOT waived.
• No student loan forgiveness, but bill includes if student loan forgiveness occurs between 2021 and 2025, tax-free.
• No minimum wage increase.

State & Local Governments

• $195.3B (of $350B) for states and DC and $130.2B (of $350B) to local governments for:  COVID-19 emergency and economic effects, premium pay to essential employees, government services affected by revenue reduction due to COVID, Investments to infrastructure.

Health & Human Services Provisions

• Vaccine distribution, COVID testing and tracing, health care work force, and nursing home facilities.
• Grants for childcare, behavioral health, abuse (physical and substance) treatment programs, older Americans, and low-income energy assistance.

Medicare/Medicare & Other Health Provisions

• Reduction in premiums for individuals using COBRA due to job loss (through 9/30/2021).
• Reductions to premium expenses for individuals on insurance through the Affordable Care Act Marketplace (depending on income).
• Increase in funding for nutrition assistance programs.

This is a recap, if you would like more details, please use the link below. Stay tuned for next week as we take time to make sense of it all, so we can go over the short- and long-term effects. Here is a link for more details:  https://www.ncsl.org/Portals/1/Documents/statefed/The-American-Rescue-Plan-Act-Provisions_v01.pdf

The Bond&Devick Team