Highlights of the American Rescue Plan Act of 2021

EITC (EARNED INCOME TAX CREDIT) for years beginning in 2021 (ARPA) – includes special rules for eligible individuals with no qualifying children and higher applicable phaseout amounts. A permanent provision is in place that the EITC is not available to taxpayers whose aggregate amount of disqualified investment income exceeds $10,000; this amount was $3,650. Inflationary adjustments will be applied for years beginning after December 31, 2021. Rev. Proc. 2021-23

PTC (PREMIUM TAX CREDIT) For 2021 and 2022 tax years, the ARPA amends the applicable percentage table for the PTC to provide temporary percentages that are listed in the revenue procedure. The taxpayers who purchase health insurance coverage through the exchange and whose household income is 400% or more of the poverty line would pay no more than 8.5% of household income in premiums. Rev. Proc 2021-23    CAUTION: Repayment of PTC received for 2020 was waived. 

CHILD TAX CREDIT – only for the year 2021, the ARPA increases the maximum child tax credit to $3,000 for qualifying children who have attained age 6 but not 18 by the end of the 2021 tax year, and $3,600 for qualifying children who have not attained age 6. The credit is generally fully refundable. Rev. Proc 2021-23

ADVANCED CHILD TAX CREDIT began July 15. (ARPA) Eligible families will receive up to $300 per month for each child under age 6 and up to $250 per month for each child age 6 and above.  Taxpayers may receive part of their credit in 2021 before filing their 2021 tax returns. Those who do not want to receive the advanced credit can decline. Excess advance payments above the allowable credit on the 2021 return will have to be repaid with the 2021 return. 

100% DEDUCTION FOR BUSINESS MEALS – IRS released guidance for this temporary 100% deduction for expenses paid or incurred after December 31, 2020 and before January 1, 2023, for food or beverages provided by a restaurant. “The Consolidated Appropriations Act, 2021” Deduction for entertainment, amusement, or recreation is still disallowed.  The term “Restaurant” means a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business’s premises. This does not include a business that primarily sells pre-packaged food or beverages not for immediate consumption, such as a grocery store, specialty food store, beer, wine, or liquor store, drug store, convenience store, newsstand, or vending machine or kiosk. The 50% limitation continues to apply from any of these non-restaurant businesses otherwise allowable under the business meal rules. Eating facility located on business premises of employer does not qualify for the 100% deduction. 

EMPLOYEE RETENTION CREDIT (ARPA) was extended through the end of 2021 and is taken against the employer portion of the IRC3111(b) Medicare tax.

SELECTIVE-BIDEN ADMINISTRATION’S TAX PROPOSALS – for fiscal year 2022 as referred to as “The Green Book” issues to be aware of: 

1. 1Increase top marginal individual income tax rate to 39.6% years beginning after 2021 (for 2022, this top marginal rate would apply to taxable income over $509,300 for married individuals filing jointly; $452,700 unmarried individuals(other than surviving spouses); $481,000 head of household filers; $254,650 married filing separate returns.
2. Capital Gains and Qualified Dividends of individuals would be taxed at Ordinary Rates if their Adjusted Gross Income exceeds $1 million ($500,000 if married filing separate) for gains and dividends recognized after the Announcement, which could be April 28, 2021. The proposal indicates if the higher rate increase applies to 2021, the tax rate on such capital gains and dividends would be 40.8%, including the net investment income tax (37% + 3.8%) Then for 2022 this would become 43.4% including the net investment income rate of 3.8%.   
3. Trigger gain on transfers of appreciated property by Gift or Property owned at death after 2021.  (Several exclusions apply and there would also be deferrals of taxes triggered on appreciation of certain properties)
4. Increase Corporate Income Tax Rate to 28%. Currently the rate is 21%. 
5. Impose a 15% Minimum Tax on worldwide book income of certain corporations with tax years beginning after 2021.
6. Expand tax incentives that encourage clean energy sources and efficiency after 2021.
7. Provide IRS additional resources and information to enforce the Tax Law and narrow the Tax Gap.
8. Provide more generous child tax credits, expand EITC, expand child and dependent care credits and make some permanent through 2025 as well as fully refundable.
9. Provide more generous Premium Tax Credits after 2021.
10. Give IRS the authority to regulate tax preparers.
11. Add reporting requirements to crypto asset exchanges and custodians after 2022.
12. Ensure that all pass-through business income of high-income taxpayers is subject to either the NIIT or SECA tax after 2021.
13. Disallow deductions for expenses paid or incurred in connection with offshoring a U.S. trade or business to be effective after date of enactment.

SUPREME COURT REJECTS CHALLENGE TO AFFORDABLE CARE ACT – ACA provisions remain intact.

The preceding “HIGHLIGHTS” and “OTHER ISSUES” are general information only and are not intended as a formal tax opinion. Any conclusions reached cannot be relied upon without an independent professional analysis of the facts, circumstances, and the law applicable to any situation.

Tax law changes constantly and we are doing our best to stay informed. If you have questions or concerns regarding a particular tax issue, please contact us.