The American Rescue Plan Act – Just the Facts

President Biden and Congress, in their continued efforts to offer additional relief to Americans, signed the American Rescue Plan Act (ARPA) into law on March 11, 2021.  As anticipated, the fiercely negotiated bill will deliver $1.9 trillion dollars of relief aid to people, businesses, schools and governmental agencies.  Just as the second stimulus bill was passed days before the expiration of benefits provided under the CARES Act, this relief bill arrived just in time to ensure continuation of benefits provided by the Consolidated Appropriations Act.

What should you know about the American Rescue Plan Act? First off, let’s recap what we covered in my last article:

  • $1,400 stimulus checks.Income limits are the same as under the second stimulus bill, but with accelerated phase-outs relative to previous bills.  Welcome news to taxpayers with college-age dependents is they will receive checks for those previous excluded kids.
  • Extension of unemployment benefits. ARPA extended through September 6th the $300 benefits that were being paid under the Appropriations Act (despite efforts by Democrats to increase those benefits to $400), which were set to expire March 14th.
  • Exclusion of unemployment benefits from 2020 income. Subject to income limits, taxpayers that received unemployment benefits during 2020 will be allowed to exclude up to $10,200 per person, provided they made less than $150,000 in 2020.  Married couples where both spouses earned unemployment would be allowed to exclude $20,400, provided they did not earn $150,000 or more.
  • Funding for schools. The third stimulus package delivered $170 billion of funding to schools. For K-12, the aim was to get kids back to school, keep them safe and help them make up for what they missed while being out of school during the pandemic. $130 billion have been dedicated to this mission.  For colleges and universities, the bulk of $40 billion in assistance will be invested in facilities, personnel and student grants.
  • Help for parents.ARPA includes provisions that dramatically increase the Child Tax Credit for qualifying parents.  For 2021, the credit jumps from $2,000 per child to $3,600 for children under age 6, and $3,000 for children ages 6 – 17.  Additionally, payments will be made monthly over the balance of 2021, which means parents will not need to wait until they file their 2021 tax returns to receive the benefit of this increase.  Parents also applaud the meaningful increase in the dependent care tax credit.  The credit for one child increases from $3,000 for one child to $8,000.
  • Relief for states and localities. The bill provides $350 billion of aid to state and local governments that have been hard hit during the pandemic. Included is $30.5 billion of assistance for public transit systems. The hope is funds will help make up for lost revenue and increased expenses resulting from Covid-19. 
  • Paid leave benefits.The bill does not require businesses to provide pay benefits to employees impacted by Covid-19 when they miss work. However, the bill does require that employers not discriminate between groups of employees if they do offer paid leave benefits.  Paid leave benefits are meant to help employees not only if they are suffering from Covid-19, but if they are required to miss work to attend the needs of a variety of other people.

Additionally, the Act includes:

  • Extension of the Employee Retention Tax Credit (ERTC) and additional PPP funds. Struggling business will have additional opportunities to receive aid during this critical time.  Programs like ERTC and PPP had life breathed into them by the American Rescue Plan Act.
  • Expenses related to containing Covid-19 and administering Covid-19 vaccines. ARPA allocated roughly $85 billion to Covid-19 testing, contact tracing and vaccination efforts.

Some items did not make the cut. These include:

  • RMD relief. Millions of seniors celebrated a holiday from Required Minimum Distributions (RMDs) during 2020.  There will be no such holiday in 2021.  It’s back to business as usual.  Except for qualified distributions to charity, taxpayers will once again be compelled to take taxable withdrawals from their IRAs.
  • Increased minimum wage.While there continues to be talk of pushing the national minimum wage to $15/hour, an increased minimum wage was not part of ARPA.  Progressives propose implementing the increase from $7.25/hour to $15/hour between now and 2025. Many factions argue such an increase could cripple small businesses. Recognizing the importance of this debate, Biden has conceded he is willing to delay resolution of the minimum wage discussion.
  • Student loan cancellation.The debate around student loan cancellation rages on. Progressives seek cancellation of up to $50,000 of education-related debt. Biden will settle for $10,000. Many groups continue to oppose it altogether.  Sadly, those who were holding their breath hoping for relief on this front did not get it—not yet.

The American Rescue Plan, which aimed to speed up the United States’ recovery from the economic and health effects of the Covid-19 pandemic and the ongoing recession, was a massive undertaking.  Time will tell if it provides relief to those who most need help.

Sources:

https://home.treasury.gov/news/featured-stories/fact-sheet-the-american-rescue-plan-will-deliver-immediate-economic-relief-to-families

https://rsmus.com/what-we-do/services/tax/federal-tax/president-biden-signs-american-rescue-plan-act-of-2021.html

https://www.lexology.com/library/detail.aspx?g=60c938d0-81b4-4ac9-a70c-9402805509eb

https://www.jdsupra.com/legalnews/american-rescue-plan-act-and-changes-to-4753861/

https://www.taxact.com/support/25710/2020/american-rescue-plan-unemployment-exclusion/

https://edtrust.org/resource/the-american-rescue-plan-act-of-2021-whats-in-it-for-equity/

 

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