On March 11, the American Rescue Plan Act of 2021 was signed by president Biden. It is a $1.9 trillion coronavirus relief package to boost the economy and tackle coronavirus. Due to this new law, a wide variety of taxes changed. It ranges from the third round of economic impact payments to the expansion of the employee retention credit.
Here to break down what's in the act and what it means for the tax community.
- It is more focused on the lower-income group. The tax law is an economic stimulus. It is called a demand-side stimulus. The government is trying to increase spending in the economy and get the unemployment rate down. This law is a relief in the form of a macroeconomics stimulant. This bill is tightly targeted to low-income folks. This law is quite the opposite of the Tax Cuts and Jobs Act, in which generally upper income get benefits. In terms of the number, this bill was $1.9 trillion, which is about 8.5 percent of GDP. It would be $5,500 for every American. Now not every American is getting that. A lot of that's going to the lower end of the income spectrum. We can see how large an effect this is having on lower-income families.
- This bill is great for business. Suppose we don't include fraud. A lot of people applied for the Paycheck Protection Program loans and the Economic Injury Disaster Loans. There were a lot of people that started a business to get this, exaggerated the business they had or didn't have one at all, and received some of these benefits. The problem is that people who need this may not be getting it. But overall, the intent is great for businesses.
- For individuals, unemployment was probably the only major thing that it did. It looks like the government will make some adjustments to something like the premium tax credit, which is also for lower-income. Even the business provisions are targeted toward the workers, so everything is for workers and people in need. The employee retention credit is to help the workers. Family leave and sick leave are to help workers. Those are business provisions, but they're targeted not to help the businesses. They're just transmitting benefits to their employees.
- The initial two payments were provided to the people who married and jointly made under $200,000. It started a gradual reduction of a tax credit that a taxpayer is eligible for as their income approaches the upper limit to qualify for that credit from $150,000 to $200,000. Hence, those people did not get the whole amount. And then for singles, it was $75,000 to $100,000. If they were under $75,000, they got the whole amount, and between $75,000 and $100,000, that would phase out. It means they would get a smaller amount as they went over that amount.
- The new bill or the recent one that just passed limited that to where now only people under $75,000 will get the full amount, and it phased it out at $80,000 for singles. For married filing jointly, it's $150,000 and phases out completely at $160,000. Anybody who made between $160,000 and $200,000 and filed married jointly is cut out, and anyone who made between $80,000 and $100,000 as a single filer is cut out of this.