Given ARPA’s extensive scope and the fact that it was signed only hours ago, we will provide a more detailed analysis for our readers soon; however, for now, we would highlight the following:
- In tax year 2020, for taxpayers earning less than $150,000 annually, the first $10,200 of unemployment benefits are tax-free.
- ARPA codifies various recent refundable credits against payroll taxes—specifically those sick and family leave credits implemented via previous pandemic relief measures. Additionally, the Act ensures a waiver of penalties for failure to deposit employment taxes—provided that failure is the result of anticipation of the credit.
- ARPA creates new economic impact payments (EIPs) available to qualifying individuals. Brand new IRC §6428B addresses these EIPs. Especially noteworthy now:
· $1,400 refundable tax credit to individuals ($2,800 for joint filers) with AGI up to $75,000; (or AGI up to $112,500 for heads of household and AGI up to $150,000 for married couples filing jointly)
· An additional $1,400 for each dependent (whether a child or a non-child)
· Like previous EIPs the credit is paid in advance using the most recent AGI in the IRS system (either 2020 or 2019)
- IRC §32’s Earned Income Credit is modified in various ways, including but not limited to: (1) special rules applicable to individuals with no children; (2) an increase to 15.3% for the phaseout amounts; (3) and an increased threshold for disqualifying investment income (from $2,200 to $10,000).
- ARPA expands the Child Tax Credit.
- The Employee Retention Credit (ERC), another COVID-19 relief measure enacted to allow eligible employers the ability to claim a credit for paying qualified employee wages is now codified and allowed against the Medicare tax. Furthermore, the ERC is extended through the end of 2021.
- ARPA provides that Economic Injury Disaster Loan (EIDL) grants from the SBA are excluded from gross income. Moreover, that exclusion will not precipitate any of the following: (1) a deduction denial; (2) a reduction of tax attributes; and (3) a basis increase denial.
Again, a more detailed analysis of the significant tax developments will be forthcoming.