What’s Included in the $1.9 Trillion COVID-19 Rescue Plan

March 19, 2021 | Article

By Jay Heflin and Mel Schwarz, JD, CPA

The $1.9 trillion COVID-19 rescue bill that cleared Congress and was signed into law by President Joe Biden contains several tax changes to existing law.

This legislation, in combination with the legislation passed at the end of last year, creates additional opportunities for businesses to access capital and reduce taxes. Here’s what’s included in the new relief bill.

Key Tax Provisions in the New American Rescue Plan Act of 2021:

  • $1,400 “recovery rebates” for each eligible taxpayer and dependent to be paid directly by the Treasury Department. Structured as a refundable tax credit, the rebate phases out between $75,000 and $80,000 for singles, $112,500 and $120,000 for heads of households, and $150,000 and $160,000 for couples filing a joint return. The rebate will be based on the return as filed for tax year 2019 (or 2020 if filed). If the rebate would be higher if based on the return for tax year 2021, the additional amount is taken as a credit on the tax year 2021 return. If the rebate would be less if based on tax year 2021, the difference need not be repaid to the IRS.
  • $300 enhanced unemployment payments extended to September 6, 2021.  The maximum number of weeks enhanced unemployment benefits may be received is increased to 79. 
  • The first $10,200 of the unemployment benefits is excluded from 2020 taxable income for people with adjusted gross income (AGI) of less than $150,000.  There is no phase out.  If AGI is $150,000 or greater, no exclusion is available.  If both spouses receive unemployment benefits, each spouse may exclude up to $10,200. Those who have already filed their 2020 tax returns reporting unemployment benefits will likely have to file an amended return.
  • Extension of the limitations on the business losses of noncorporate taxpayers (Section 461(l)), which are currently scheduled to expire at the end of 2025, through 2026.
  • Student loan defaults for taxable years 2021 through 2025 would not be included in gross income. This provision includes “any loan provided expressly for postsecondary educational expenses, regardless of whether provided through the educational institution or directly to the borrower.” It pertains to several types of loans, including those that were insured or guaranteed by the U.S., states, territories or possessions of the U.S., the District of Columbia, or an eligible educational institution.
  • Adds the next five highest paid employees of a publicly traded company to the list of employees whose deductible compensation is limited to $1 million, effective for tax years beginning after December 31, 2026. Deductible compensation to these additional employees is only limited in the year they meet the test. (It is important to note that the effective date for the provision is far enough out that it might be extended (or repealed) and may never take effect.)
  • The Employee Retention Credit  is extended through the end of 2021 and expanded to startup firms that opened a trade or business after February 15, 2020, with average annual gross receipts that do not exceed $1 million.
  • The election to allocate interest and other expenses on a worldwide basis (section 864(f)), which would have become available in 2021, is permanently repealed for tax years beginning after 2020.
  • Targeted EIDL loans and restaurant revitalization grants are to be treated in the same manner as forgiven PPP loans.  They are excluded from income, do not result in disallowed deductions, and are treated as tax-exempt income for the purpose of determining owners’ basis in a partnership or S corporation.
  • The de minimis exception excusing third party settlement providers (section 6050W(e)) from reporting payment transactions for goods and services is reduced to $600.
  • Extends the credit for the provision of paid qualified sick and family leave established in the Families First Act through September 30,2021.  Leave is not mandated but a credit is available if paid leave is provided.
  • Makes the child tax credit fully refundable for 2021 and increases the amount to $3,000 per child ($3,600 for a child under age 6). The provision also increases the age of qualifying children by one year for 2021, which means that 17-year-olds qualify for the credit.
    • Phase out of credit: The excess in the credit from current law ((i.e., the additional $1,000 or $1,600 per-child) is reduced by $50 for every $1,000 in modified adjusted gross income in excess of $150,000 for joint filers ($112,500 for head of household filers and $75,000 for other filers). Once the excess credit amount is so reduced, the credit plateaus at $2,000, and then phases out at the present law levels ($400,000 for joint filers, $200,000 for other filers).
    • Periodic payment:  Treasury is directed to develop a program to pay one-half of the expected credit in advance through periodic payments.

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