The House approved the American Rescue Plan Act of 2021, H.R. 1319, a $1.9 trillion pandemic relief bill, early Saturday, February 27. The bill includes a third stimulus check of $1,400 to most taxpayers, extends emergency unemployment benefits through August, and increases tax credits for children, along with several other tax provisions. It has now been sent to the Senate. We will keep you updated on the final provisions.
Following are the top tax highlights included in the bill:
- $1,400 stimulus to most individuals, along with the same amount for each dependent;
- $400 per week unemployment supplement through August;
- COBRA continuation coverage premium assistance for individuals who are eligible;
- Special rules for the earned income credit for individuals with no children;
- An expansion of the child tax credit to give families $3,000 per child and $3,600 per child under the age of six;
- Increases the exclusion for employer-provided dependent care assistance to $10,500 for 2021;
- Extends the Families First Coronavirus Response Act (FFCRA), P.L. 116-127 to Sept. 30, 2021;
- Extends the employee retention credit through the end of 2021;
- Expands the Sec. 36B premium tax credit for 2021 and 2022 by changing the applicable percentage amounts;
- Introduces a $15 per hour federal minimum wage, which is not clear if it will be approved by the Senate.
Small Business Highlights
The bill also included the following highlights for small businesses:
- $15 billion for targeted Economic Injury Disaster Loan (EIDL) advance payments;
- $25 billion for restaurants and bars;
- $1.25 billion for venue operators;
- $175 million to create a "community navigator" pilot program to increase awareness of and participation in COVID-19 relief programs for business owners currently lacking access, with priority for businesses owned by socially and economically disadvantaged individuals, women, and veterans.
Other Tax Changes: High Income Individuals
During his campaign, President Biden supported tax increases on the wealthy, which he identified as individuals earning more than $400,000 a year. For these taxpayers, President Biden favors the following tax increases:
- A 12.4% social security payroll tax on earned income exceeding $400,000;
- An increase in the top marginal individual income tax rate to 39.6% for taxable income above $400,000;
- Phasing out the qualified business income tax deduction for taxpayers with taxable income above $400,000;
- Capping the benefit of itemized deductions to 28% of their value and restoring the ‘Pease” limitation on itemized deductions for taxpayers earning more than $400,000; and
- Taxing long-term capital gains at ordinary income tax rates on income above $1 million.
The bill is now in the Senate. Please stay tuned for more information regarding the pandemic relief bill.