On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (ARPA) into law to provide financial relief to individuals and businesses.  ARPA includes a number of tax provisions that may have implications for taxpayers in 2020 and beyond.  For details of the entire bill, please use link below:



Family and Sick Leave Credits

The bill extends these credits, which were established by the Families First Coronavirus Response Act (FFCRA), through September 30, 2021.  Additionally, it increases the limit on the credit for paid family leave, increases the number of leave days a self-employed individual can take, makes leave taken due to a COVID-19 vaccination qualify, creates a reset date for counting paid sick leave (March 31, 2021), and allows 501(c)(1) governmental organizations to participate.

Employee Retention Credit

The Act extends the employee retention credit, which was established by the Coronavirus Aid Relief and Economic Security (CARES) Act, through the end of 2021.

Dependent Care Assistance

The maximum limit for a dependent care assistance program will be increased under the Act from $5,000 to $10,500 for 2021 only.


Federal Unemployment Assistance

The bill renews federal unemployment benefits of $300 per month through September 6, 2021.  Additionally, it makes the first $10,200 of unemployment benefits for households with income at or below $150,000 non-taxable for tax year 2020.

COBRA Premium Subsidy

In addition to extended unemployment benefits, the Act includes a 100% subsidy of COBRA health insurance premiums.  This means laid-off workers can maintain health insurance through their former employer’s plan at no cost.  The subsidy cover premiums from April 1, 2021 through September 30, 2021.

2021 Individual Recovery Rebate/Credit

ARPA creates a new round of economic impact payments.  Recovery rebates paid in 2021 will be $1,400 per taxpayer and $1,400 per eligible dependent.   The rebates will be reduced for single taxpayers with an adjusted gross income of more than $75,000 ($150,000 for joint filers) and fully phased out by $80,000 ($160,000 for joint filers).

Child Tax Credit Expanded for 2021

For tax year 2021, the child tax credit is increased to $3,000 up from $2,000 (with a higher $3,600 credit for children under 6) and expanded to include children that are 17 years old.  The enhanced credit begins to phase out for single filers with modified adjusted gross incomes above $75,000 ($150,000 for joint filers).  The credit is fully refundable for 2021.

The ARPA also directs the IRS to estimate each taxpayers’ child tax credit and pay it in advance monthly payments from July-December 2021.  In order to distribute the monthly payments, the IRS will create an online portal where taxpayers can both opt out of the advance payments and provide information that modifies the amount of their payments.

Taxpayers will reconcile any advance payments received against the actual credit on their 2021 tax returns.  If the advance payments are greater than the actual credit calculated, the overage will be added to the taxpayer’s taxable income for 2021.

Expansion of EITC for Taxpayers with No Qualifying Children

For 2021, the bill expands the EITC to taxpayers without children from $500 to $1,500.

Child and Dependent Care Credit Enhanced and Made Refundable

Effective for 2021 only, the child and dependent care credit will be refundable.  The credit is worth 50% of eligible expenses up to $4,000 for one qualifying individual and up to $8,000 for two or more.  Phase out of the credit starts at $125,000 of income.

Student Loan Relief

Federal student loan debt that is forgiven in 2021 and through 2025 will be excluded from gross income.  The bill itself does not provide any type of student loan forgiveness.