Today, in one of his first major moves in office, President Biden signed the American Rescue Plan Act - a $1.9 trillion stimulus plan intended to extend, renew and implement relief for those affected by COVID-19.
Among the items of greatest interest to most Americans is a third round of stimulus checks—or IRS “recovery rebates”—of up to $1,400 for every “eligible individual.”
That’s the quick take. But what’s the fine print?
Below is a breakdown of some important components of this legislation, including what business owners, families, and individuals may need to know.
Eligible unemployed individuals may continue receiving an additional $300 in federal unemployment benefits through early September 2021.
Small Businesses & The PPP
Overall, the bill allocates around $50 billion toward assisting small businesses affected by COVID-19.
The Paycheck Protection Program will receive $7.25 billion, but the new legislation does not change the PPP’s end date of March 31, 2021. Bars, restaurants and entertainment venues heavily impacted by the pandemic will also be eligible to receive grants from the government.
Low-income communities have been some of the hardest hit financially during the pandemic. In response, the government will be allocating $15 billion toward Economic Injury Disaster Loan (EIDL) Advanced Grants. Eligible businesses in low-income communities may be able to receive up to $10,000 each.
Employee Retention Credit
The Employee Retention Credit (ERC) will be extended through the end of 2021. With this refundable tax credit, business owners may claim up to $7,000 per employee per quarter.
Similar to previous relief bills, and similar to previous checks, those with incomes up to $75,000 will receive $1,400 payments, while families with children will receive $1,400 per dependent. Married couples with an income of $150,000 or less will receive $2,800.
There will be a phase-out and income cap for individuals and couples who make more. Individuals earning between $75,000 and $80,000 will receive a lesser amount, with those making above $80,000 receiving no stimulus payment. The same applies for couples earning between $150,000 and $160,000 - with $160,000 being the cap.
How Much Will You Receive?
Each eligible individual in your household should receive $1,400. Eligible individuals include:
- You, as an individual taxpayer
- Your spouse (if you are filing a joint tax return)
- Any dependents you are claiming on your tax return, regardless of their age
For example: A married couple filing jointly and claiming three dependents on their tax return would be eligible for $1,400 x 5 = $7,000. This is the case even if the dependent is, say, an adult child in college, or a parent in assisted living.
The catch? Whether you receive a full, a partial, or no rebate depends on your Adjusted Gross Income (AGI) on your tax return:
|If you are …||You receive a full rebate if your AGI is:||You receive a partial rebate if your AGI is:||You won’t receive a rebate if your AGI is:|
|Single, or married filing separate||Under $75,000||$75,000–$80,000||Over $80,000|
|Head of household||Under $112,500||$112,500–$120,000||Over $120,000|
|Married, filing jointly||Under $150,000||$150,000–$160,000||Over $160,000|
All this begs the question: Which AGI are we talking about? Technically, the stimulus payment is a 2021 Recovery Rebate. But like our Great American Pastime (baseball), you actually get up to three “at bats,” or years in which to qualify for a full or partial rebate. Let's look at the three "pitches" you're likely to get.
Pitch #1: Your 2019 or 2020 Tax Return, Already Filed
Initially, the IRS will look at the AGI reported on the most recent tax return you’ve already filed, whether that’s your 2019 or 2020 return.
If your AGI falls within the “full rebate” parameters above, you can expect to receive your full 2021 Recovery Rebate. Where will the money go? If the IRS has a checking account on file for you, they should be able to issue a direct deposit into that account. Otherwise, they should mail you a check or debit card to your address on file.
Note: Even if you end up reporting higher income in subsequent years, you will get to keep the full amount of any payment you receive from Pitch #1. The IRS will not come after you, asking for you to pay it back.
Pitch #2: Your 2020 Tax Return, To Be Filed
What if you’ve not yet filed your 2020 tax return, but your 2019 income was too high to qualify you for a full rebate? Good news: You get another chance once you file your 2020 return. At that time, the IRS will perform an “additional payment determination.” If your 2020 return qualifies you for a higher rebate than your 2019 return did, the IRS will essentially send you the difference, again via direct deposit or mail. You could receive:
- A full or partial payment: If you received nothing based on your 2019 return, but you now qualify for one or the other based on your 2020 income.
- A second partial payment: If you already received a partial payment, but you now qualify for more based on your 2020 income.
- Nothing: If your AGI is still too high to qualify.
Note: To qualify for an additional payment determination, be sure to file your 2020 tax return on a timely basis, even if the filing deadline ends up being extended beyond April 15, 2021. We can provide additional information about specific deadlines as needed.
Pitch #3: Your 2021 Tax Return
What if neither your 2019 tax return nor your 2020 return qualify you for a full rebate? You still have one more chance. If your 2021 income is low enough to qualify, you will be able to file for a credit on your 2021 tax return for any amounts not already received.
Additional Ideas: What’s a Taxpayer To Do?
You may have noticed, the range for receiving a partial payment is very narrow, which means fewer taxpayers will fall into it. Most of us will either qualify for a full rebate … or none at all.
If you do fall into the partial-rebate range, the amount you’ll receive will be calculated based on a straight percentage.
For example: A couple filing jointly with no dependents reports an AGI of $155,000, smack in the middle of the $150,000-$160,000 range. This means half of their rebate will be phased out. Instead of receiving $1,400 x 2 = $2,800, they’ll receive half of that, or $1,400.
Also, the squeaky-tight gap between receiving a full payment versus nothing at all means a little tax planning could go a long way between now and year-end. Especially if your annual income is close to qualifying you for a recovery rebate, we should touch base soon to explore any 2020 or 2021 tax-planning opportunities that may help. Even if your income falls well within the “yes” or “no” recovery rebate ranges, please let us know if we can address any additional questions or comments.
Child Tax Credit
Previously, the child tax credit offered eligible families a $2,000 tax credit per child under the age of 17. With changes made under the new legislation, the child tax credit is temporarily expanding for 2021. Eligible families may receive up to $3,600 for children 5 and under and up to $3,000 for children ages six to 17.
Here is how the American Rescue Plan is changing conditions and stipulations regarding the child tax credit:
- The $2,500 earning floor will be waived.
- The credit will be fully refundable.
- The federal government will send eligible families credit in advance between July and December 2021
COVID-19 Vaccination Distribution & Testing
Similar to previous legislation, a portion of the American Rescue Plan will designate funding for COVID relief. Around $15.05 billion will go toward vaccine production and distribution, while $50.8 billion will go towards testing, contact tracing, genome sequencing and global health response initiatives.
The Federal Emergency Management Agency will receive a portion of the funds as well.
State & Local Government Assistance
States, tribal governments and cities will receive $350 billion in federal assistance.
In addition, this legislation includes a $10 billion infrastructure program to help local government continue capital projects.
FEMA Emergency Food and Shelter Program
FEMA’s Emergency Food and Shelter Program will receive $510 million to support initiatives for homeless and struggling families including:
- Shelter and meals
- One month’s rent
- Mortgage assistance
- One month’s utility payments
Wondering how this recent legislation and other COVID-relief initiatives may benefit you? Let's talk. It’s what we’re here for!
- Nonresident alien individuals, and estates or trusts are explicitly excluded.
This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.