The American Rescue Plan Act: What Does $1.9 Trillion Buy?

On March 11, following the record $2.2 trillion economic stimulus provided by the 2020 CARES Act, President Biden signed into law an additional $1.9 trillion of stimulus with the American Rescue Plan Act of 2021.

The American Rescue Plan Act is part of an unprecedented effort by the United States government to counter the adverse economic consequences of the COVID-19 epidemic.

The rescue package sends multiple billions of dollars in multiple directions. Here are just a few of the significant areas to consider with your financial planner in 2021.

1. Direct Payments to Taxpayers

Like the CARES Act of 2020, the American Rescue Plan Act provides direct payments to millions of Americans in the form of a one-time payment of $1,400 for individuals and $2,800 for couples filing joint returns.

The bill also provides $1,400 per dependent, including children and adults in a taxpayer’s dependent care. For example, a couple filing a joint return with three children and a parent they are providing dependent care for could receive a direct payment of $8,400 ($1,400 x 6).

Individual payments are subject to income limitations of $75,000 for single filers and $150,000 for those filing joint returns. For incomes above those thresholds, payments are reduced, and they are eliminated entirely for individuals making over $80,000 and persons filing joint returns making over $160,000.

The IRS will use your most recently filed tax return as the initial checkpoint for determining benefits, which may affect when you choose to file your 2020 tax return. On March 17, the IRS extended the filing deadline for 2020 tax returns to May 17.

We suggest consulting with your financial planner or tax advisor about the specific impacts of your federal tax return on direct payments under the American Rescue Plan.

Our fee-only Registered Investment Advisory firm in Topeka and Lawrence, Kansas, helps clients determine the effects of legislation like the American Rescue Plan as part of their ongoing financial planning.

2. Enhanced Child Tax and Earned Income Tax Credits

The act expands the child tax credit to $3,600 for children up to age 5 and $3,000 for children ages 6 to 17. Advance payments of these tax credits will be sent to taxpayers in regular installments commencing in the second half of 2021.

As with direct payments, the increased tax credits for children have income limits. They begin to phase out at $75,000 for individual tax filers and $150,000 for those filing a joint return at a rate of $50 for every additional $1,000 of adjusted gross income.

Additionally, the act increases the Earned Income Tax Credit and expands its eligibility to workers without children, adults ages 19-24 (non-students), and anyone over age 65.

3. Expanded Affordable Care Act and COBRA Premium Subsidies

For the next two years, those purchasing health insurance through the Affordable Care Act’s marketplace will have their premiums capped at no more than 8.5% of their income. This includes households more than 400% of the poverty level, which the Affordable Care Act previously excluded from subsidies.

This change will provide higher subsidies and lower premiums across the board for those who purchase insurance in the ACA marketplace.

For those who lose their jobs or have a substantial cut in their work hours, the act provides a subsidy of up to 100% that is paid by the federal government to cover COBRA premium payments.

The subsidy period will cover the six months commencing April 1, 2021, and qualified individuals will pay no premium costs for health insurance coverage.

4. Additional Help for Small Business

The act contains more than $50 billion in targeted assistance for small businesses.

This includes expansion of government-targeted economic injury loans, additional funds for the Paycheck Protection Program, and nearly $30 billion in grants for restaurants and bars that have suffered financial loss during the pandemic.

5. Expanded Government Assistance

In addition to all the above, the American Rescue Plan provides additional support for vaccination distribution, increases benefits for food stamps, extends federal support of unemployment insurance benefits through most of 2021, and provides billions of dollars to assist schools in returning students to the classroom.

The American Rescue Plan Act stands as the second-largest federal assistance plan ever passed. This massive bill includes a number of provisions not covered in this article. You should consult with your financial advisor to ensure that you maximize the benefits provided by the act.

 

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Clint Patty, J.D.

As Managing Partner, Clint serves on the management team providing leadership, supporting business development efforts and providing client consultation.