The health and economic crisis has negatively affected the well-being of millions of Americans. Most importantly, low-wage workers, certain minority groups, and immigrants are going through a deep economic crisis. The Covid-19 pandemic has resulted in more than 9.5 million workers losing their jobs, and 4 million have been out of work for more than half a year.
The American Rescue Plan Act of 2021 aims to reverse the effects of the pandemic and deliver direct relief to the workers and families affected by Covid-19. It is a $1.9 Trillion Covid-19 rescue package, making it one of the most expensive legislations in U.S history. The American Rescue Plan is part of Joe Biden’s Build Back Better Plan, which includes the American Families Plan and the American Jobs Plan.
Child Tax Credit
The Child Tax Credit has been expanded to reduce child poverty via supplementing the family earnings that receive the tax credit.
The changes to the tax credit include the following.
There is an increment in the amount of the tax credit. The Child Tax Credit has been increased from $2,000 to $3,000 per child ($3,600 for children under 6 years of age).
There is an expansion to the age scope. Children of 17 years and younger (as opposed to the previous 16 years and below) will be covered by the Child Tax Credit.
The credit is fully refundable. This will enable low-income households to be eligible to receive the full benefits of the credit. A refundable tax credit can result in a tax refund if eligible.
The credit has been expanded to include U.S Territories and Puerto Rico. Low-income families in new territories will (for the first time) benefit from the Child Tax Credit to support their children’s health, education, and development.
The credit will be made via advanced payments in 2021. Persons eligible for 2021 Child Credit Tax will receive advance payments made by the Bureau of the Fiscal Service and the IRS through the regular payments of July 1st to December 31st rather than waiting for the 2022 tax filing season.
Homeowner Assistance Fund
Millions of families were faced with difficult decisions regarding making mortgage payments and other financial obligations during the pandemic. This was especially difficult for low-income communities who felt a major impact from the pandemic.
The Home Owners Assistance Fund provides almost $10 billion for territories, states, and Tribes for relieving the country’s vulnerable homeowners. This includes:
- A minimum of $50 million for each state, including Puerto Rico and the District of Columbia.
- $30 million for the territories of American Samoa, the Commonwealth of the Northern Mariana Islands, Guam, and the United States Virgin Islands.
Unemployment Compensation
Millions of Americans lost their jobs in the wake of the pandemic and claimed unemployment benefits. Federal income taxes have been waived for the first $10,200 of unemployment benefits during the 2020 tax year for lower and middle-income taxpayers. Unemployment Compensation will allow millions of workers to focus their benefits on covering essentials.
State Small Business Credit Initiative
Covid-19 has impacted small businesses across the country. Some businesses have closed down, resulting in family members being laid off. Small businesses in the nation have been down by 32%, and 400,000 firms have been closed permanently.
This law provides critical assistance to small businesses in the United States, facilitating the deployment of capital for these businesses to recover.
This plan has provided $10 Billion to tribal governments and states to fund Small Business Credit Initiatives. This includes injecting capital into, capital access and support programs, facilitating loan participation, helping credit guarantee programs, and providing collateral support.
Economic Impact Payments
The IRS and Treasury Department are ensuring that Americans will receive direct and fast relief at the final phase of the pandemic. The American Rescue Plan needs a 2021 true-up payment based on the information that the IRS receives in 2021.
The additional Economic Impact Payment will ensure that Americans receive financial assistance during 2021 instead of claiming Recovery Rebate Credit in 2022.
The eligible persons will get an Economic Impact Payment of $1,400 for individuals, $2,800 for couples in addition to $1,400 per dependent. The IRS and Treasury Department are extending the outreach to the rural poor, the homeless, and disadvantaged Americans to receive the Economic Impact Payment.
State and Local Fiscal Recovery Fund
Local and state revenues have gone down due to the economic fallout of the pandemic. Employment in the public sector fell by 1.4 million jobs as compared to 750,000 job losses in the Great Recession.
The State and Local Fiscal Recovery Fund provides $350 Billion to states, territorial, local, and tribal governments to solve this inequality in falling revenue and rising costs. This will lay the foundation for an equitable and strong economic regeneration. It will also provide resources to states for infrastructures such as sewer, water, and broadband services.
Emergency Rental Assistance
The pandemic prompted many cities and states to expand or create rental assistance programs for at-risk households. The December bill provided $25 Billion federal relief to be administered by the ERA (Emergency Rental Assistance) to existing local government and state programs.
The American Rescue Plan provides $21.6 Billion for territories, states, and local governments to provide help to citizens that are unable to pay rent due to the pandemic. This will enable states and localities in the United States to provide relief and assistance to vulnerable households.
Employee Paid Leave Credit and Retention Credit Programs
The American Rescue Plan provides additional critical tax benefits to small businesses which help them maintain their payroll while still protecting the health of the employees. This plan extends through December 2021 and enables businesses to offset their payroll tax liabilities in the amount of $7,000 for every employee per quarter.
This credit goes up to $28,000 per employee and is available for small enterprises that have seen a decline in their revenue since Covid-19 started.
The American Rescue Plan extends the availability of Employee Paid Leave Credits and Retention Credit Programs for small businesses, which gives paid leave to quarantined, caregiving, or sick employees. Small businesses can take a dollar-for-dollar tax credit of $5,000 for offering paid leave to employees who are sick or quarantined.
Capital Projects Fund
Some communities were able to tackle the pandemic, while others could not since they did not have the infrastructure to do it. They lacked socially distanced alternatives for work, healthcare, and education.
One such infrastructure is the digital divide, where certain areas have lacked network connectivity to the internet. This circumstance has left many American families behind in terms of education since most schools switched to online learning.
To solve this problem, the American Rescue Plan has set aside $10 billion as a Capital Projects Fund for tribes, territories, and states to cater to the costs of capital projects such as broadband infrastructure. This is focused on rural America and low-income communities to enable internet access.
Conclusion
In summary, the Covid-19 pandemic has affected millions of people in the United States in various ways. Most importantly, small businesses, certain minority groups, and tribal communities.
The American Rescue Plan was designed by President Biden’s administration to assist the most affected people to get back to their feet after the pandemic. If you have questions on this plan or on any of the mentioned aspects of this plan, please do not hesitate to reach out to us. We are happy to answer your questions and concerns. You can trust Indiana’s tax expert.
