The President signed the $1.9 trillion relief bill, known as the American Rescue Plan Act (ARPA). Here is an executive summary of items that pertain to small business owners and tax filers. For other recent COVID-related updates please read this article.

Listen to the interview in Yiddish given by Jacob Oberlander for Kol Mevaser discussing the new bill.

Stimulus Payments - Round 3

• $1,400 per eligible individual
• All dependents are eligible even above the age of 17 (unlike the previous 2)
• The phase-out range is significantly smaller
  • Singles earning up to $75,000 will get the full amount, with the payments phasing out entirely by $80,000 in income
  • Couples making up to $150,000 will get the stimulus, with the payments declining at higher incomes and zeroing out altogether at $160,000
  • Tip: If you're somewhat above the limit, it's a good idea to contribute money into an IRA
• The new stimulus is a 2021 advance credit
• Timing of the Economic Impact Payments
  • Many taxpayers received their direct deposit on March 17th

  • The next batch will be issued on March 24

  • A large number of this latest batch of payments will also be mailed, so taxpayers who do not receive a direct deposit by March 24 should watch the mail carefully in the coming weeks for a paper check or a prepaid debit card, known as an Economic Impact Payment Card, or EIP Card.

  • You can check payment status here
• Unfortunately, at this time, there is no way to update or add a bank account for the IRS
• The IRS will distribute payments in three phases;
  1. The IRS is basing the stimulus on your most recently filed return; 2019 or 2020 
  2. If you didn't file a 2019 tax return, or if you are not eligible based on 2019 but you are eligible based on 2020, you have until August 16, 2021(=90 days after May 17) to get your 2020 return filed and get your stimulus 
  3. When you file your 2021 tax return
• US Citizens living abroad were eligible for the first and second stimulus payments and will be for the third payment as well, so long as they meet other eligibility criteria
  

Unemployment Insurance - Extended

• The legislation will extend supplemental unemployment benefits that were scheduled to run out on March 14. The bill extends the weekly federal benefit of $300 a week through September 6
• The package also extends benefits for self-employed individuals and gig workers, along with those who have exhausted their regular jobless benefits

Unemployment Insurance Benefits are Now Partially Non-Taxable

• There is now tax relief on the first $10,200 in unemployment payments for workers in households earning up to $150,000 a year
• For married couples filing jointly whom both had unemployment insurance, the tax-free amount is $20,400, but combined adjusted gross income must still be less than $150,000
• For  purposes of determining the AGI of $150,000, you can exclude the $10,200
• Caution: The exclusion instantly disappears once income exceeds $150,000, regardless of filing status. As a result, don't forget to check the married filing separately math when at least one spouse had unemployment income in 2020. Each spouse is eligible for their own $10,200 exclusion, and because the limit is $150,000 per taxpayer, there might be scenarios where filing separately provides a benefit
• For those who already filed, the IRS will automatically process your refund starting in May. You won't have to take extra steps to reclaim the taxes you paid
• New York State is not following the IRS and is taxing the full amount of the unemployment insurance received so an adjustment to income is required. The Unemployment Compensation Exclusion add-back should be included on Form IT-558 New York State Adjustments due to decoupling from the IRC and has been designated as A-011.
• To learn more about other states check here
  

Child Tax Credit - Increased

• Under the legislation, CTC has increased for 2021 to the following;
  • $3,000 a year for each child ages 6 to 18 (Currently, $2,000 per child)
  • $3,600 for each child under age 6 (Currently, $2,000 per child)
  • Dependents who are 18+ will remain at $500 credit
• The IRS is will pay out half of the child tax credit on a monthly basis from July 2021 to December 2021, via direct deposit if they have the banking information on file. Meaning, if you qualify, you will receive as follows:
  • $300 per month per child under the age of 6
  • $250 per month per child between ages 6/17
• This credit will be fully refundable (Currently, only $1,400 is refundable)
• If you don't get your payment through 2021, you will be able to claim it on your 2021 tax return
• The phaseout range is the same as the stimulus payment phaseout 
  • To that point, the IRS will set up a portal for people to be able to opt-out of getting the advanced Child Tax Credit unlike the stimulus, the IRS will get the money back if you made too much money when you file your 2021 tax return 
  • The regular Child Tax Credit will still phase out after $400,000 for MFJ
• The Child Tax Credit Expansion is only for 2021
• US Citizens living abroad are not eligible for the expanded Child Tax Credit 

Earned Income Credit - Expanded 

• For tax filers without children, the EIC has nearly tripled for a maximum credit of $1,502 (current max is $543)
• Also, new EIC is now available for those who are at least 19 years of age (currently there is a minimum of 25)
• Full-time students are not eligible for the new lower age limit

• Temporarily, taxpayers would be allowed to use their 2019 income instead of 2021 income in figuring out the credit amount

Child and Dependent Care Credit - Expanded for 2021 Only

• The credit will be fully refundable 
• The credit will be worth 50% of eligible expenses, up to a limit based on income, making the credit worth up to $4,000 for one qualifying individual and up to $8,000 for two or more
• The act also increases the exclusion for employer-provided dependent care assistance to $10,500 (Currently $5,000)

Affordable Care Act Boost

• Temporarily increases subsidies for people buying insurance through ACA marketplaces. This tax credit will only be realized when you file your 2021 tax return
• IRS suspends requirement to repay excess advance payments of the 2020 Premium Tax Credit

• Special enrollment period through August 15, 2021. In New York, you can apply here

• Covers the entirety of COBRA costs through September for those who lost their jobs

Employee Retention Credit - Extended

• Recovery Startup
  • ARPA also adds a third category of eligibility for the ERC for “recovery startup businesses”
  • For businesses that started up after February 15, 2020,
  • Had less than $1 million in average gross receipts over a specified period, was not subject to a shutdown order, and did not have a decrease in gross receipts.
  • The ERC is limited to $50,000 per quarter
• ERC has been extended through December 2021
• Read more about the ERC here

Other Odds & Ends

• EIDL emergency grant for small businesses will be funded with $15 billion for grants up to $5,000
• There are also big changes to restaurants, which we may cover in another article
• Other items in the bill: Aid to state and local governments, Housing assistance, School support, $10 billion infrastructure program for local governments

If you have any questions that we didn't address, please let us know by posting in the comments section so we can assist. 

Make sure to check out our COVID-19 Resources for Business Owners.