How the American Rescue Plan Act (ARPA) Can Help Taxpayers

Introduction

The American Rescue Plan Act (ARPA), signed into law on March 11, 2021, provides a number of tax relief provisions for individuals and businesses. These provisions are designed to help Americans recover from the economic impact of the COVID-19 pandemic.

Tax Relief for Individuals

Earned Income Tax Credit (EITC) and Child Tax Credit (CTC)

The ARPA expands the EITC and CTC for 2021. The EITC is a refundable tax credit for low- and moderate-income working individuals and families. The CTC is a refundable tax credit for families with children under the age of 17.

The ARPA increases the maximum EITC amount for 2021 to $1,502 for single filers and $5,980 for married couples filing jointly. The ARPA also increases the CTC to $3,600 per child under the age of 6 and $3,000 per child aged 6 to 17.

Unemployment Insurance Benefits

The ARPA extends the federal unemployment insurance (UI) benefits that were provided under the CARES Act. These benefits include an additional $300 per week in UI payments and the expansion of UI eligibility to self-employed individuals and gig workers.

The ARPA also provides for a temporary waiver of the federal income tax on the first $10,200 of UI benefits received in 2020. This provision applies to both regular UI benefits and the additional $300 per week payments.

Other Tax Relief for Individuals

The ARPA also includes a number of other tax relief provisions for individuals, such as:

• An increase in the standard deduction for 2021 and 2022
• A temporary increase in the child and dependent care tax credit for 2021 and 2022
• A temporary expansion of the earned income tax credit for workers without qualifying children
• A temporary suspension of the requirement to take required minimum distributions from retirement accounts for 2020 and 2021

Tax Relief for Businesses

Employee Retention Tax Credit (ERTC)

The ARPA expands the ERTC for 2021 and 2022. The ERTC is a refundable tax credit for businesses that keep employees on the payroll during the pandemic.

The ARPA increases the maximum amount of the ERTC to $7,000 per employee per quarter for 2021 and 2022. The ARPA also expands the eligibility for the ERTC to include businesses with up to 500 employees.

Other Tax Relief for Businesses

The ARPA also includes a number of other tax relief provisions for businesses, such as:

• A temporary increase in the net operating loss carryback period from 5 years to 10 years
• A temporary increase in the business interest expense deduction limit
• A temporary suspension of the limitation on excess business losses for non-corporate taxpayers

Conclusion

The ARPA provides a number of important tax relief provisions for individuals and businesses. These provisions are designed to help Americans recover from the economic impact of the COVID-19 pandemic. Taxpayers should review these provisions carefully to determine if they qualify for any of the available benefits.

Avc Tax Relief