On March 11, 2021, President Biden signed into law the controversial and long-awaited ARPA, 2021 legislation.  The legislation will provide a third round of stimulus checks, to qualifying individuals and families, among other tax benefits.  To summarize the impact of the legislation, which provides for $1.9 trillion of relief, the following categories will provide benefits to both individuals and businesses, and addressed below:

Individual Provisions

  • Recovery Rebates (Stimulus) –
    • Individuals with an Adjusted Gross Income (AGI) of $75,000 or less will receive a payment of $1,400. The Stimulus payment will be reduced for AGI between $75,000 – $80,000.  The Stimulus payments will not be available for individuals with an AGI above $80,000.
  • Individuals filing a joint tax return, with their spouse, will receive a payment of $2,800, if their AGI is below $150,000. The Stimulus payments will be reduced for AGI between $150,000 – $160,000.  The Stimulus payments will not be available for couples with an AGI above $160,000.
  • For individuals filing as Head of Household will receive a payment of $1,400, as long as their AGI is below $112,500. The Stimulus payments will be reduced for AGI between $112,500 – $120,000. The Stimulus payments will not be available for couples with an AGI above $120,000.
  • The Stimulus payments will be based on the AGI, as reported on the most recently filed tax return. In the event that the AGI for 2020 is higher than the amount reported in 2019, taxpayers may want to delay filing their 2020 tax returns, in order to qualify for the stimulus payment based on their 2019 AGI.
  • Unlike the prior stimulus payments, where the additional payments of $500 each, were limited each qualifying child, under the age of 16, under the ARPA, 2021, each qualifying dependent will also receive a $1,400 payment, subject to the parent AGI phaseout limits.
  • Unemployment Benefits –
    • The Act provides for an exclusion of the first $10,200 of Unemployment Benefits received, for households earning less than $150,000. Congress did not specify if this limit is applicable for all tax filing status’ or if it will be tiered for Single, Married filing Joint or Separate, or for Head of Household filers.  The IRS will be issuing further guidance in the days ahead.
  • The Act provides for an extension of the $300 weekly Federal Supplemental Unemployment Insurance Benefit through September 6, 2021.
  • Child Tax Credit –
    • The Act increases the Child Tax Credit from $2,000 per qualifying child to $3,600 for children under the age of 6 and to $3,000 for children between the ages of 6 through 17. The credit is fully refundable.
  • The credit is phased out once joint tax return filers reach an AGI of $400,000 and the phaseout limit is $200,000 for all other filing status’.
  • Starting on July 1, 2021, The Treasury and IRS will start to send out periodic advance payments of the Child Tax Credit through December. The advanced payments must reduce the Child Care Tax Credit on the tax returns filed for 2021.  The original House Tax Version of the Act specified that the Advance Payments be paid monthly, however in the Act signed by the President, the term Periodic Payments is not defined.
  • Dependent Care Assistance – the following enhancements were made for 2021 returns only.
    • The Act increases the credit from 20% of qualified expenses to 50%.
    • The credit will be reduced by 1% for each $2,000 of AGI above $125,000, but not below 20% until the AGI reached $400,000.
    • The eligible expenses that qualify for the Dependent Care Credit are increased to $8,000 for one individual to $16,000 for two or more qualifying individuals.
    • The maximum exclusion for employer provided day care assistance is increased from $5,000 to $10,500 and to $5,250 for married individuals filing separately.
    • The credit available for 2021 doubles the credit amount that is available for 2020 and prior years returns. The credit is fully refundable.
  • Earned Income Tax Credit – The Act included several enhancements to the credit, which were similar to the provisions included under the Consolidated Appropriations Act, 2021 (CAA, 2021).
    • For couples, with no dependent children, the EITC for 2021 increases from a maximum of $543 to $1,502. This also increases the maximum income limit, to qualify for the credit from $7,100 to $9,820.
    • The phaseout limit for non-joint return filers from $8,800 to $11,610.
    • The minimum age limit for filers with no qualifying children was reduced from age 25 to age 19.
    • The Act allows for the substitution of the AGI reported on the 2019 tax return, instead of the AGI reported on their 2021 return, if it will result in a larger EITC.
    • The EITC is available to married individuals filing separate returns. They can qualify as unmarried individuals as long as certain requirements relating to children are met.
    • The amount of investment income for purposes of calculating the EITC was increased for 2022 from $3,650 in 2021 to $10,000.00
  • Exclusion of Forgiven Student Loans –
    • For student loans that are discharged between 2020 – 2026, the Act has expanded the exclusion from income to apply to any student loans that have been discharged. Under prior law, the exclusion only applied if certain conditions applied, such as the death or disability of the borrower.
    • The exclusion also applies to private student loans, with the only stipulation being that no services are to be provided to the discharging lender.
  • COBRA Assistance Coverage – The Act includes a continuation of coverage through September 30, 2021, for premium assistance.
    • The premium reductions are excluded from income.  The Act also includes a penalty to be paid by employers in the event that they fail to provide adequate notice to their former employees that their COBDA continuation has lapsed.
  • Premium Tax Credits –
    • For 2020, the Act eliminates the requirement for individuals to recapture the excess premium tax credits that they may have received.
    • For the years 2021 and 2022, the affordability percentages that are used to calculate the Premium Tax Credit have been modified. Individuals with an AGI that is above 400% of the federal poverty line will now be eligible for the credit.
    • The Act also increases the credit amount for those individuals that had already qualified.
    • In 2021, individuals that are receiving unemployment benefits are now eligible for the Premium Tax Credit

Business Provisions

  • Credit for Paid Sick Leave – The Act extends the credits through September 30, 2021. Under prior Acts and amendments, the credits were due to expire on March 31, 2021.  The Act also –
    • Increases the limit from $10,000 to $12,000 per employee on applicable wages that qualify for the Family Leave Credit.
    • Applicable wages can now include time off to receive the COVID-19 vaccine, or to recover from a vaccine related illness or injury.
  • Effective March 31, 2021, the Act allows the employer portion of the Social Security Tax (6.2%) in addition to the applicable wages, in calculating the credit.
  • Under the CARES Act, there was a 10-day limit in calculating applicable wages for any single employee. Effective March 31, 2021, the 10-day limit is reset.
  • For self-employed individuals that are eligible to claim the credit, the maximum number of qualifying days has been increased from 50 days to 60. This change is retroactively effective as of January 1, 2021.
  • Employee Retention Credit
    • The CAA, 2021 extended the period that is eligible for the ERC from December 31, 2020 through June 30, 2021. The CAA, 2021 also increased the qualifying wages from a limit of $10,000 annually to $10,000 per quarter.  In addition, the CAA, 2021 increased the credit from 50% of qualifying wages to 70% and also lowered the requirement for reduction in revenue of at least 50% in any quarter to 20%, as compared to the same quarter in the prior year.  Under the Act –
      • The ERC has been expanded to include qualified wages paid through December 31, 2021.
      • The Act also allows the employers share of the 6.2% Social Security Tax to be included in the qualified wage calculation, for wages paid after June 30, 2021.
  • Targeted Economic Injury Disaster Loans (EIDL) – Businesses that receive Restaurant Revitalization Grants, from the SBA will not be subject to income tax. In addition, these targeted payments will not result in the reduction of other tax attributes that may be available and will be allowed as increase to basis calculations.  The CAA, 2021 provided similar provisions in the EIDL grants that were available to entertainment venues and educational grants.
  • Affiliated Groups that were subject to the one-time election, to determine their foreign-source taxable income and apportioning interest expense of the domestic members, has been repealed. The election was to be effective for the first time in 2021.  Under the Act, the treatment will continue under the rules that were in effect in 2020.
  • Retirement Plan Funding –
    • The Act provides a longer amortizing funding period for single-employer plans. Under prior regulations, the amortizing period was seven years.  For plan years beginning after December 31, 2019, the amortization period has been increased to 15 years.  The Act also provides for an extension of funding stabilization measures.
    • For multi-employer plans, the Act provides a longer loss amortization period. The Act also provides delays in changes to providing a longer improvement or rehabilitation period for plans that entered a critical or endangered status in 2020 or 2021.
  • Excess Business Loss Limitation – Under the Tax Cuts and Jobs Act (TCJA), losses attributable to a trade or business loss were limited to $500,000 for non-corporate businesses, on a jointly filed tax return and $250,000 for other individuals. The CARES Act suspended the loss limitation rule for the years 2018, 2019 and 2020.  Under the Act, the loss rule has been extended through December 31, 2026.

Miscellaneous Provisions

  • Vaccines & Testing – The Act provides funding for COVID-19 vaccines and testing. This includes the creation of a national distribution program and funding for local community and mobile vaccination facilities, including testing for COVID-19.
  • The Act set aside $176 billion in funding for state and local governments to replace lost revenues and experienced an increase in costs of providing public services, which were the direct result of COVID-19. The funding was earmarked to avoid the states and local governments for cutting the much-needed public services.

Our professionals at BKC are well qualified to assist your business in determining if you qualify for the ERC.  Please contact us at 908-782-7900 or

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