The American Rescue Plan: What it Means for Households and Employers

The American Rescue Plan: What it Means for Households and Employers

After more than a month of negotiations, the $1.9 trillion economic stimulus package known as the American Rescue Plan Act of 2021 has been signed into law. After several revisions, a final amended bill was passed by the U.S. House of Representatives on March 10, 2021 and signed into law by President Biden on March 11 – on the first anniversary of COVID-19 being declared a global pandemic by the World Health Organization (WHO).

The sweeping plan addresses many aspects of the American economy and provides direct payments to individuals, extended unemployment benefits, extended tax credits for employers, funding for small businesses in hard-hit industries, vaccine funding and money for states and local governments.

A look at the key elements of the American Rescue Plan:

Stimulus Checks
The American Rescue Plan allocates funds for a third round of direct payments to qualifying Americans.

Direct payments of $1,400 will go to Americans with an adjusted gross income (AGI) of up to $75,000 for individuals, $112,500 for heads of household, and $150,000 for couples. Payments are reduced for those with income above those thresholds and are completely eliminated for individuals earning $80,000, heads of household earning $120,000 and couples earning $150,000.

One major change from earlier stimulus checks is that dependents of all ages are eligible for these payments. Previously, dependents had to be under the age of 17.

For taxpayers who already have their direct deposit bank account information on file with the IRS, payments could arrive by the end of March. Mailed debit cards and paper checks will take longer, arriving in April or May.

Unemployment Benefits
Expanded unemployment benefits from earlier stimulus packages were set to expire this month. The American Rescue Plan extends the $300 weekly supplement to unemployment payments through Labor Day, September 6, 2021.

In addition, the first $10,200 of unemployment benefits for 2020 are not taxable for households with incomes below $150,000.

Individual Tax Credits
The child tax credit has been expanded for the 2021 tax year to $3,000 per child up to age 17 and $3,600 per child under age 6. The amount is gradually reduced for couples earning over $150,000 and individuals earning over $75,000. This credit is now fully refundable and eligible families will get payments of up to $300 per child per month from July to the end of the year.

The child and dependent care credit is also now fully refundable with the maximum benefit increased to $4,000 for one individual and $8,000 for two or more eligible individuals.

The upper age limit has been removed from the earned income tax credit and the lower limit has been lowered to age 19. The maximum benefit for adults not claiming a qualifying child will be increased to $1,502.

Families First Coronavirus Response Act (FFCRA) Tax Credits for Employers
The FFCRA expired on December 31, 2020 and, with it, employers’ obligation to provide emergency paid sick leave and emergency family and medical leave. Shortly before the end of the year, Congress extended the tax credit for employers who voluntarily continued to provide paid leave through March 31, 2021. The American Rescue Plan extends the tax credit for voluntary provision of leave through September 30, 2021. Additional qualifying reasons for paid sick leave under this plan include an employee obtaining immunization related to COVID-19, recovering from a COVID-19 immunization and awaiting test results related to COVID-19.

Even though the current legislation does not extend the employer mandate to provide FFCRA leave, this is probably not the last word on this topic. There are implications that the Biden administration may attempt to resurrect this issue in additional legislation in the near future.

Employee Retention Credit (ERC) Expansion
The Employee Retention Credit (ERC) was set to expire on June 30, 2021 but has been extended through the end of the calendar year, permitting the credit for two additional calendar quarters.

Two new business categories have been added to the list of entities eligible for the ERC including “recovery start-up businesses” - businesses that went into operation after February 15, 2020 and have annual gross receipts of $1 million or less.

The other new category of eligibility is “severely financially distressed employers” – defined as companies with a gross receipt reduction of more than 90 percent as compared to the same quarter in 2019.

Relief for Small Businesses
Hard-hit industries like hospitality (specifically, restaurants and bars) are addressed in the American Rescue Plan. Over $28 billion in grant money is available to help meet payroll and other expenses in this category with individual businesses eligible for up to $5 million each.

$15 billion is earmarked for Emergency Injury Disaster Loans (EIDL) administered through the Small Business Administration (SBA) with priority placed on small businesses with fewer than 10 employees.

An additional $7 billion is being added to the Paycheck Protection Program (PPP) with an expansion of the eligibility criteria to some nonprofit organizations that were previously excluded.

Funding is also included under the Shuttered Venue Operators Grant (SVOG) program and includes live venue operators and promoters, theatrical producers, live performing arts organizations, museums, motion picture theaters and talent representatives. SVOG previously received $15 billion in the December 2020 stimulus package and this new funding adds another $1.25 billion.

Multiemployer Pension Plans
Many unionized employers were hoping for a comprehensive measure to address systemic problems that have plagued multiemployer pension plans for years. Instead, $86 billion has been designated for a rescue package for approximately 185 multiemployer pension funds that are close to insolvency.

Vaccine Efforts
Over $15 billion has been set aside in the American Rescue Plan to enhance, expand and improve the nationwide distribution and administration of vaccines, especially in underserved communities.

Additional Categories
Other areas of funding have been carved out in the American Rescue Plan including $350 billion for state, local and tribal governments, $130 billion for K-12 schools, $40 billion for colleges and universities, over $26 billion for rental assistance programs and $10 billion for the Homeowner Assistance Fund.

Summary
The American Rescue Plan is a vast economic stimulus package that builds upon previous COVID-19 relief packages and reaches across numerous industries and sectors. For full details, click here: https://www.congress.gov/bill/117th-congress/house-bill/1319 and reach out to your Herbein advisor for additional guidance.