It has been a very busy week this past week for our federal government. This past Thursday, the President signed into law The American Rescue Plan Act of 2021. We are presenting the provisions that will be of the most interest to you.
A new round of Stimulus Payments of up to $1,400 for each taxpayer, spouse, and dependents who’s family income qualifies. This is solely for households with earnings of less than $80,000 filing single, $120,000 filing has Head of Household, and $160,000 for those filing as Married filing Joint. These, like the 2020 stimulus, are an advance of a refundable credit that will be calculated as part of your 2021 Federal form 1040 Income Tax Return.
TAX FREE UNEMPLOYMENT BENEFITS FOR 2020
There is a waiver of federal taxation (not applicable to most states, including Arizona) for up to $10,200 for each person’s unemployment benefits that has been made retroactive to 2020. If a taxpayer had $15,000 in unemployment income and their spouse had $2,000, then the waiver total will be $10,200 for the taxpayer plus $2,000 for the spouse, or $12,200 waived for federal tax out of a total of $17,000 of benefits. This wavier is not available for those who’s income exceeded $150,000 for 2020.
To process returns with unemployment compensation, we must wait for our tax software provider to program the applicable pieces to properly calculate this waiver, thus we will be holding these to the side until that time. We will not be taking this waiver of taxation on Arizona returns as the state legislature must vote on the acceptance of conformity for this reduction of taxable income. The last time such a partial waiver of unemployment was included federally, Arizona did not conform, and as such, we will not take the position that we anticipate the state to do so this time.
For any of our clients with unemployment income that have already been e-filed, we will reach out to you directly to instruct you regarding the next steps.
EXPANDED CHILD TAX CREDIT
For 2021, Households with children can now claim up to $3,600 in credit for children under the age of six and up to $3,000 for other qualifying children. In addition, the age of those children that qualify has been raised from 16 to 17 years old.
These expanded credits are due to be paid out monthly to qualifying families as indicated in the bill. It is currently unknown how long it will take the IRS to build the system to provide these monthly payments despite the President’s desire to have these payments start by July 2021.
RESTAURANT REVITALIZATION FUND
The bill provides for a fund of $28.6 Billion allocated to this special fund to provide grants to restaurants who’s industry has been particularly hard hit during the pandemic. This includes restaurants, food stands, food trucks, caterers and bars to name a few. The grant amounts will be based on each entities “pandemic-related revenue loss” which has a multitude of calculation factors. These grants can be used for only eligible expenses including payroll, rent, utilities, principal and interest on a mortgage, maintenance, supplies, food and beverage, covered supplier costs, operational expenses, and sick leave.
The grant requires a certification in good faith by the business owner that attests to your eligibility.
During the initial 21 days of the program, the SBA is required to give priority to small businesses owned by women or veterans, and to socially or economically disadvantaged small businesses. After this 21 days, the SBA is required to fund grants on a first come, first served basis. While the time frame for applying is still unknown, we recommend that grant applications be submitted as soon as possible to secure your place in line.
We will continue to update you as we learn more about this and other new legislation that impacts our clients.
As always, thank you for allowing all of us at Phocus Companies to be your Trusted Advisors!