On Thursday, March 11, President Biden signed into law the $1.9 trillion American Rescue Plan Act of 2021 (ARPA, PL 117-2). Following are selected individual provisions included in the Act.
Pandemic Unemployment Assistance
- ARPA extends the “pandemic unemployment assistance” (PUA) program for independent contractors, the self-employed, and other workers who normally do not qualify for regular state benefits to September 6. This is for people who have exhausted regular state benefits.
- Additionally, ARPA Extends the “federal pandemic unemployment compensation” program to September 6 at the current level of $300 per week.
- The Act also extends the “mixed-earner supplemental benefit” for people with at least $5,000 of self-employment income who do not qualify for PUA because they also have wage income that makes them qualify for some amount of regular state benefits to September 6.
- ARPA also adds a special rule for 2020 that the first $10,200 of unemployment compensation a worker receives is not included as gross income for tax purposes. This applies to households with incomes under $150,000.
2021 Recovery Rebates to Individuals
- A $1,400 refundable tax credit to individuals with up to $75,000 in adjusted gross income (AGI) (or AGI of $112,500 for heads of household and $150,000 for married couples filing jointly) is available under ARPA. For couples filing jointly, the credit is $2,800.
- The refundable tax credit will be paid out in advance like the Economic Impact Payments previously provided in the CARES Act and the Consolidated Appropriations Act, 2021.
- The credit will be phased-out entirely for those individuals with incomes above $80,000 (or $120,000 for heads of household and $160,000 for married couples filing jointly). The credit is reduced between $75,000 and 80,000 (or $112,500 and $120,000 for heads of household and $150,000, respectively and $160,000 for married couples filing jointly).
- The ARPA also provides for a $1,400 tax credit for both children and non-child dependents.
Child Tax Credit (CTC) Expanded for 2021
- The Act Increases the CTC amount to $3,000 per child for 2021, up from $2,000 under current law. For children under the age of six, the credit is increased to $3,600. The provision also broadens the definition of “qualifying child” to include children under 18 years old instead of 17 years old.
- Additionally, there is also a phase-out of the additional credit amount: $1,000 per child six years and over; $1600 per child under six years This applies to joint filers with a modified adjusted gross income above $150,000 ($112,500 for head of household filers and $75,000 for other filers).
- ARPA makes the CTC fully refundable in 2021. Currently, the CTC is only refundable up to $1,400 per qualifying child. With a refundable tax credit, taxpayers can generate a refund in excess of their income tax liability.
- The Act creates a new program at the IRS to make periodic advance payments of the CTC based on 2019 or 2020 tax return information, from July 2021 through December 2021. These payments would comprise half of the child tax credit for which the taxpayer is otherwise entitled for 2021, with the remaining half claimed on the 2021 tax return.
- Under the ARPA, the IRS will establish an online portal to allow taxpayers to opt-out of receiving advanced payments and provide information regarding changes in income, marital status, and number of qualifying children for purposes of CTC eligibility.
Earned Income Tax Credit (EITC)
- For 2021, the Act expands eligibility requirements for the EITC for taxpayers without dependents, reducing the minimum age from 25 years old to 19 years old and increasing the upper age limit to include taxpayers over 64 years old. Special age provisions for students, qualified former foster youth, and qualified homeless youth are applicable.
- For 2021, the maximum credit amount for taxpayers without dependents increases.
- ARPA also makes several permanent changes to the EITC, including increasing the amount of investment income that would disqualify a taxpayer from receiving the credit.
Student Loan Discharges
The Act exempts student loan forgiveness in years 2021-2025 from federal income tax.
- ARPA excludes from gross income certain discharges of student loans after December 31, 2020, and before January 1, 2026.
- The "student loan discharge" exclusion applies to these types of loans:
- Loans provided expressly for post-secondary educational expenses if the loan was made, insured, or guaranteed by a federal, state, or local governmental entity or an eligible educational institution.
- Private education loans.
- Any loan made by any educational institution qualifying as a 50% charity (for purposes of the income tax charitable deduction) if the loan is made under an agreement with any governmental entity (described in item 1) or any private education lender that provided the loan to the educational organization, or under a program of the educational institution that is designed to encourage its students to serve in occupations with unmet needs or in areas with unmet needs and under which the services provided by the students (or former students) are for or under the direction of a governmental unit or a tax-exempt charitable organization
- Any loan made by an educational organization qualifying as a 50% charity or by a tax-exempt organization to refinance a loan to an individual to assist the individual in attending any educational organization, but only if the refinancing loan is under a program of the refinancing organization which is designed as described in item 3).
- However, the discharge of a loan made by either an educational institution or a private education lender is not excluded under the above rules if the discharge is because of services performed for either the organization or for the private education lender.