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Tax & Assurance Guidance

American Rescue Plan Act: Key Impacts

Posted on March 17, 2021 by

Sarah Russell

Sarah Russell

Margaret Amsden

Margaret Amsden

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On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (ARPA) into law. This is the third COVID-19 relief legislation to be passed since the start of the pandemic. It contains $1.9 trillion of economic relief through newly funded support programs, expansion of federal loan programs, extended unemployment benefits, another stimulus payment, changes to several business tax programs and much more. The comprehensive relief provided by the ARPA is designed to provide the funding needed to mitigate the pandemic in attempt to return to “business as usual”. To help clients, prospects, and others, we have provided a summary of the key details below.

Funding Programs

The ARPA includes funding for several programs designed to help remediate the fallout from the pandemic, including:

  • National Vaccination Program – $415 billion is allocated to the creation of a national vaccination program which includes testing, contact tracing, research and development, and manufacturing of pandemic related medical supplies.
  • School Reopening – To help parents and educators interested in reopening K-12 schools with the right processes and protections in place, the ARPA allocated $176 billion in funding to purchase personal protective equipment, hire support staff, upgrade facilities including ventilation systems, and maintain after school and summer learning programs.
  • State & Local Government Funding – $360 billion in funding is allocated to state and local government agencies to provide financial assistance to individuals, families, nonprofits, and small businesses. The funds can be used to offer premium pay to essential workers, and grants to employers and government services impacted by lack of revenue. These agencies can also use funds to make investments in sewer, water and broadband infrastructure.

Business Provisions

The ARPA’s impact on business provisions include amended and expanded programs, such as:

  • Expanded PPP Eligibility – While the ARPA did not extend the March 31 Paycheck Protection Program (PPP) application deadline, it did expand eligibility. Under prior regulations, only certain nonprofit organizations could receive a PPP loan. This has been expanded to “additional covered nonprofit entities” which includes most nonprofits. Certain exclusions apply to organizations involved in lending, selling life insurance or private clubs. In addition, the ARPA also creates access for larger 501(c)(3), 501(c)(19) and 501(c)(6) entities assuming they have no more than 500 employees per physical location. Finally, there are restrictions on eligibility based on whether certain lobbying activities are undertaken by the organization.
  • Employee Retention Tax Credit (ERC) – This popular payroll-based tax credit was extended by the Consolidated Appropriations Act, 2021, and was scheduled to expire on June 30, 2021. However, the ARPA has extended the expiration date to December 31, 2021. In addition, the credit has been expanded for severely financially distressed employers allowing them to treat all wages paid as qualifying wages, without concern for the number of full-time employees.
  • Multi-Employer Pension Plans (MEPPs) – A new financial assistance program was created to provide support to MEPPs facing solvency issues. The $85 billion fund will be administered by the Pension Benefit Guaranty Corporation (PBGC) and provide troubled plans with a means of covering benefit payments and plans expenses. While the application details have not yet been developed, the following eligibility criteria must be met in order to participate:
    • A plan must be in critical and declining status
    • For plan years between 2020 and 2022, the plan is certified to be in critical status, has a modified funding percentage of less than 40% and has a ratio of active to inactive participants less than two to three
    • Finally, any MEPP which was insolvent after December 16, 2014, but did not terminate the plan prior to the ARPA’s enactment
  • Family & Sick Leave Credits – While the ARPA did not renew the requirement for companies to provide paid family and sick leave benefits originally required under the CARES Act, it did extend available tax credits for companies that voluntarily participate. Credit availability was originally scheduled to expire on March 31, 2021 but has been extended to September 30, 2021.

Individual Provisions

A handful of individual provisions were also addressed, including:

  • Stimulus Payments – Another stimulus for qualifying individuals was approved and will be sent out within weeks. The amount of the payment is $1,400 for individuals, $2,800 for joint filers, and $1,400 for each qualifying dependent, which includes any full-time students younger than 24 and adult dependents.
  • Unemployment Benefits –The ARPA includes an extension of the federal unemployment benefit of $300 which was set to expire this month. The benefit amount was renewed at the current rate with a termination date of September 6, 2021. The ARPA also retroactively exempts the first $10,200 of unemployment benefits from income tax for the 2020 tax year. This applies to taxpayers with modified adjusted gross incomes of less than $150,000. For married couples, the $10,200 applies separately to each spouse.
  • COBRA Subsidies – The ARPA also provides a 100% subsidy of COBRA premiums for an employee or dependent arising from involuntary termination or reduction of hours. An individual who voluntarily terminates employment is not eligible to participate. The subsidy is available from April 1 through September 30, 2021. The subsidy provides welcome relief to those individuals struggling with a lack of employment or inconsistent work hours who still need healthcare coverage.
  • Child Tax Credit – The credit is available to taxpayers that support children/stepchildren under the age of 17. The ARPA increases the maximum credit amount to 50% of qualifying expenses limited to $3,000 per child for those between the ages of 6 and 17. It also increases the maximum to $3,600 for those under age 6. The phase-out rules have been lowered to $150,000 for those married filed jointly, $112,500 for heads of households, and $75,000 for other taxpayers.
  • Earned Income Tax Credit – The credit is designed to provide support to low- and middle-income taxpayers equal to a percentage of earnings. The ARPA raises the maximum credit amount for adults without children from $543 to $1,500 and lowers the eligibility age for taxpayers without children from 25 to 19. In addition, the rule prohibiting taxpayers from claiming children without a social security number has been eliminated.
  • Student Loan Forgiveness – The ARPA also changes the federal tax treatment of any student loan forgiveness received between 2021 and 2025 by excluding these amounts from gross income. To be eligible, the loan must have been issued to cover post-secondary education expenses that were made, insured, or guaranteed by the federal government, state government or private educational lenders. It is important to note that student loan forgiveness was not included as part of the relief bill.

Contact Us

The comprehensive relief offered through the ARPA provides an additional dimension of relief to individuals, families, organizations, and businesses. Subscribe to our newsletter or follow us on LinkedIn for more news and updates. If you need assistance, we can help. Contact us today for more information.

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Sarah Russell

Shareholder, Tax

As the leader of the firm's tax group, Sarah supports growth-driven domestic and international businesses with tax planning, consulting and compliance.

Margaret Amsden

Shareholder, Private Client Services

Margaret leads the firm’s private client services group as the point person for individual, estate and succession planning tax strategies.

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