President Biden’s coronavirus relief plan offers help for families, individuals far more than just $1,400 checks

From increasing the child tax credit to helping out-of-work individuals stay on COBRA health plans, the recently passed American Rescue Plan Act of 2021 (ARPA) offers a wide range of assistance.

Additionally, in a nod to the tax complications the new measures add, this week the IRS pushed back the annual filing deadline by a month to May 17.  It is important to note this only applies to Federal individual income tax returns and related tax payment for the 2020 year.  2021 first quarter estimates are still due April 15, 2021.

The following is a look at some of the main ARPA features for individuals and families:

Checks and Children

ARPA’s headline benefit is $1,400 for individuals (making under $75,000 or $112,500 for those filing as head of household), $2,800 for joint filers (making under $150,000) and $1,400 for each dependent.

The legislation also increases the child tax credit to $3,600 for children under 6 and $3,000 for older children. The income threshold is the same for individuals and joint filers, as mentioned above.  For 2021 only, the definition of a qualifying child is broadened to include a child who has not turned 18 by the end of 2021, for purposes of the child tax credit.

ARPA also makes significant changes to dependent care assistance in 2021.

• The child and dependent care credit are increased to 50% percent of qualified expenses (35% in prior years) and increases eligible expenses qualifying for the credit to $8,000 for one child and $16,000 for two or more children (up from $3,000 and $6,000 respectively). The credit is subject to increased income thresholds.
• The maximum exclusion of employer-provided dependent care assistance is increased for 2021 to $10,500.

 

Unemployment benefits

Under ARPA, the first $10,200 in 2020 unemployment benefits are tax-free for families with incomes up to $150,000.  The IRS will automatically process refunds for individuals who paid taxes on their unemployment benefits before ARPA was passed.

ARPA also extended the Pandemic Unemployment Assistance and Pandemic Emergency Unemployment Compensation, providing workers with an additional $300 per week through Sept. 6.

Additionally, the legislation continues the $100 per week Mixed Earner Unemployment Compensation through the same time frame. Individuals with at least $5,000 in self-employment income during a tax year can qualify. 

Taking the bite out of COBRA

Consolidated Omnibus Budget Reconciliation Act – known commonly as COBRA – allows unemployed workers to continue on their employer’s health benefits for a certain period. However, there is generally an out-of-pocket expense.

Under ARPA, workers who lost their job or reduced hours can receive a 100 percent COBRA subsidy from April 1 through Sept. 30. Workers who dropped their COBRA coverage before April 1, but who would still be entitled to the coverage during the extended period can resume the insurance.

Employers, who have to pay part of an employee’s COBRA coverage, can receive a payroll tax credit against their quarterly Medicare taxes. However, to qualify for the credit, employers have to notify workers about the extended COBRA availability.

Bottom line

For more information on the benefits available to individuals and families under ARPA, the White House has an information page.

The guidelines on accessing and qualifying for the help can be confusing and, in some cases, may require amending already-filed returns. We recommend checking with your tax advisor or accountant to ensure you are taking full advantage of everything offered under ARPA.

Benjamin R. Bostic, CPA, is a director at Boyer & Ritter with experience providing tax and accounting services for closely-held businesses, individuals, not-for-profit organizations. Reach Ben at 717-264-7456 or bbostic@cpabr.com