American Rescue Plan Act of 2021 Overview (Mostly Expired)

Update: most of the the provisions of the American Rescue Plan Act of 2021 (e.g. economic impact checks, unemployment benefit increase, expanded Child Tax Credit, and Earned Income Tax Credit expansion) have since expired without renewal.  President Biden will sign a huge new COVID relief bill, officially named the “American Rescue Plan Act of 2021” (full text), into law very shortly. The new $1.9 trillion plan offers significant funding for assistance to low and middle income households and to battle the ill effects to public health and the economy caused by COVID. It includes funding for increased vaccine distribution, virus testing and tracing, direct relief payments to Americans, increased Child Tax Credits, enhanced unemployment insurance benefits, health insurance subsidies for the ACA and COBRA, aid for state and local governments, aid for schools reopening, aid for small businesses and non-profits, and more.

This new COVID bill is a huge addition to the growing list of COVID-relief measures that include the CARES Act legislation passed last March and a smaller 2nd COVID relief bill passed in December.

The bill has the rare broad public support of 76% of Americans, including large majorities of both Democratic and Republican voters. In addition to the popular vaccine and school re-opening assistance, much of the funding goes towards low and middle income households and it’s been said that this would be the largest form of public assistance since the LBJ presidency. It’s been estimated that the poorest 20% of Americans will see roughly a 20% boost in income from the plan, particularly due to the stimulus payments and expanded Child Tax Credits, while the richest 1% will receive an income boost of 0%. It’s also been projected that the bill would cut the childhood poverty rate in half, due to those same provisions.

A bullet point highlight breakdown of what is in the American Rescue Plan is included below.

Economic Impact Payments (Checks) – EXPIRED

The American Rescue Plan provides funding for a third round of relief payments to Americans. This time, eligible recipients will receive up to $1,400 per individual (including dependents). The $1,400 exceeds the $1,200 in the CARES Act legislation (which was also only $500 per dependent) and the $600 in the 2nd COVID Relief bill, but the income thresholds have been lowered slightly.

• “Individual” tax filers earning up to a $75,000, “Married Filing Jointly” earning up to $150,000, and “Head of Household” earning up to $112,500 in either 2019 or 2020 adjusted gross income (AGI) will each receive the full amount per person, and an additional $1,400 per dependent. An eligible family of 5 would receive $7,000, for example.
• Payments to individuals with an AGI above those levels will be reduced and phased out entirely at $80,000 for Individuals, $160,000 for Married Filing Jointly, and $120,000 for Head of Household.
• Adult dependents – including college students, disabled adults, and elderly being cared for – may qualify for the $1,400 dependent payment, which is a change from previous payments.

$300 Unemployment Insurance Benefit Enhancement – EXPIRED

The American Rescue Plan extends the federal unemployment insurance enhancement of an added $300 per week on top of state unemployment benefits through September 6, 2021.

It also makes the first $10,200 in UI benefits in 2020 non-taxable, to help avoid surprise tax liability for households with income below $150,000 (note: unemployment income is taxed as ordinary income, but not subject to FICA taxes). This is a significant benefit, but one possible downside here is that if you’ve already filed your taxes and are eligible for this benefit, you will likely need to (and should) file an amended tax return.

Affordable Care Act (ACA) Subsidy Expansion & COBRA Coverage

There are 2 big changes for 2021 and 2022:

1. Increased subsidies for everyone under 400% of the federal poverty level (FPL).
2. Elimination of the ACA subsidy cliff.

You might be able to take further advantage of these changes by possibly switching to a better plan, as a special enrollment period for the ACA was created and extended through August 15 (2021) for most states. If you haven’t enrolled in an ACA plan, but are eligible, check out my ACA enrollment guide for more info.

Also, the cost of COBRA premiums are covered through September for those who have lost their job.

Child Tax Credit & Expansion – EXPIRED

The Child Tax Credit is expanded for 2021 to $3,600 for children under age 6 and $3,000 for children age 6 to up to 17 (was previously 16). This expanded Child Tax Credit in 2021 is a huge amount of assistance, even larger than the direct payments, to lower and middle class families with children.

• The credit phases out for Individuals with an AGI exceeding $75,000, Married Filing Jointly exceeding $150,000, and Head of Household exceeding $112,500.
• The credit is now fully refundable, which means you get the credit even if owe zero tax and there is no earned income requirement.
• Payments will be made “periodically” (likely each month) starting in July 2021, with any remainder credited on 2021 tax returns.

Child & Dependent Care Credit Expansion – EXPIRED

The Child and Dependent Care Credit is expanded for 2021 from a maximum of $3,000 to $8,000 for households with up to $16,000 in care expenses.

• You must have earned income to receive the credit.
• The credit is 50% of expenses (vs. prior 30%).
• The credit is fully refundable.

Earned Income Tax Credit Expansion – EXPIRED

The Earned Income Tax Credit will see the maximum benefit increased to $1,502 (from $543) for childless adults for 2021 only. The upper age limit for workers without children was removed (previously age 65) and the lower age limit was reduced to age 19 (previously 25).

Student Loans

Under the plan, you would not need to pay income taxes on forgiven student loan debt, if you qualify for loan forgiveness or cancellation. This would apply to debt forgiven between Jan. 1, 2021, and the end of 2025.

Additional Details and Benefits

• Testing & vaccines: $170 billion for COVID testing, contact tracing, and vaccine distribution
• State, local, and tribal governments and schools: $350 billion, including $130 billion for K-12 schools to re-open safely, funding for transit, secondary education, housing assistance, child care providers, and food assistance.
• Broadband assistance: additional funding for a new FCC broadband subsidy of $50 per month (now $30/month under the ‘Affordable Connectivity Program‘).
• Restaurant & live event assistance: $25 billion in assistance for restaurants and live event venues.
• Multi-employer Pension Plan assistance: funding for plans with shortfalls.
• Energy assistance: $4.5 billion to assist low-income households for utility bills.
• Rental & mortgage assistance: $30 billion in emergency rental assistance and $10 billion for mortgage assistance.
• Paycheck Protection Program: $7.25 billion in additional PPP funds for businesses and non-profits.

Missing From the Bill: Minimum Wage Increase

President Biden wanted to include a minimum wage increase of $15 per hour in this bill, however, after the non-partisan Senate Parliamentarian ruled that the increase could not be included in the majority-vote budget reconciliation process, it was dropped from the bill. Most Senate Democrats wanted to include it in the final bill, with an amendment, but all 50 Senate Republicans voted to keep it out of the bill and 8 Senate Democrats joined them. As a result, those eagerly awaiting a long-overdue federal minimum wage increase will have to wait for another day, sadly.