The American Rescue Plan of 2021 was signed into law on Thursday, March 11, 2021, and will have major impacts on hundreds of millions of people and businesses across the U.S. The plan provides $1.9 trillion in financial relief in a number of areas.
Here are a few highlights of what is included in the new law. While this list is not exhaustive, the following areas are the ones that will likely affect our customers the most.
Please note that the American Rescue Plan is extensive, and many of the provisions are quite nuanced. The following information is not intended to provide specific financial or tax advice for you and your family. We’re happy to share general information about the plan, but if you have questions about if and how these will impact you, we recommend reaching out to your accountant.
Taxpayers who make up to $75,000 individually or $150,000 as a married couple filing jointly will receive $1,400 per person, including for each dependent, beginning as early as the week of March 15.
These payments quickly phase out above those income levels and are capped at $80,000 for individuals and $160,000 for couples. The IRS will use the most recent year’s taxes to determine eligibility, which will be 2019 for most people.
Child and dependent care tax credits
The new tax law significantly helps families with children.
The child tax credit will increase to $3,000 per child ages 6-17, plus $3,600 for children under 6. This increased amount is only for taxpayers with income up to $75,000 single or $150,000 married filing jointly. The phase outs are $85,000 and $170,000, but taxpayers who make $150,00-400,000 can still receive the existing child tax credit of $2,000 per child.
The credit also allows for up to 50% of dependent care expenses, up to $4,000 per child or $8,000 for two or more children, to be claimed as a refundable tax credit for 2021. This applies for taxpayers earning up to $125,000, but there are several nuances. Check with your CPA for details.
In addition, for 2021 only, the amount of pre-tax money you can set aside in a dependent care account is increasing from $5,000 to $10,500, which will be especially helpful for those who aren’t eligible for the dependent care tax credit above. Your employer must approve the change and adjust your paycheck withholdings.
Grants and loans for businesses
Restaurants and bars can apply for new grants to cover payroll, rent, utilities and other operational expenses.
The law also provides over $7.25 billion more for Paycheck Protection Program loans for small businesses and opens up more opportunities for nonprofits to apply.
Aid for schools
The K-12 schools we count on for our kids will be receiving money to reduce class sizes and modify classrooms for safety, and purchase personal protective equipment. The money can also be used to hire more staff to support physical and mental health (such as nurses, counselors, and janitors) and to provide summer school.
Colleges and universities will also receive funding to offset pandemic-related expenses and provide emergency aid to students who need help paying for things like food, housing, and computers.
Additionally, child care providers will have access to an emergency fund to help pay for staff, rent, and supplies.
For more information on the other aspects of this law and how it applies to your unique situation, reach out to your local accountant.