Since the start of the pandemic one year ago, the Federal Government has provided about $6 trillion in total economic relief to individuals, businesses and state and local government, including the $1.9 trillion approved when President Biden signed the American Rescue Plan (ARP) Act into law on March 11. This represents 27% of U.S. total economic output for 2019.
Much of the economic relief in the American Rescue Plan is administered through the tax code in the form of direct payments (stimulus checks) and expanded Child Tax Credit in 2021. The size and method of relief will revive debate over the proper role of spending in the tax code and whether the temporary benefits should become permanent after the economy has recovered.
While several provisions in the American Rescue Plan are targeted to the pandemic, like the extended unemployment insurance (UI) benefits, other aspects, like the expanded Child Tax Credit, are unrelated and not well targeted toward the pandemic. Overall, about $850 billion is directed to individuals with $65 billion is directed to businesses and $1 trillion to state and local government.
Most provisions are temporary expansions for 2021 to combat the pandemic. But some policymakers are already considering making permanent several newly expanded benefits like the Child Tax Credit later this year, which would have a budgetary cost of well over $1 trillion over the next 10 years.
Below, I provide more detail on the three major tax-related benefits in the American Rescue Plan: a third round of direct payments, extended UI benefits and a $10,200 UI income exemption for 2020, and an expansion of the Child Tax Credit.
$1,400 Stimulus Payments
(Economic Impact Payments)
The American Rescue Plan provides a third round of stimulus payments up to $1,400 for adults and dependents. Households with earnings of more than $80,000 for single filers, $120,000 for Head of Household filers, and $160,000 for married filing jointly will not receive any payment. The payments begin to phase out at $75,000 for single filers, $112,500 for Head of Household filers, and $150,000 for joint filers – meaning about 89 percent of filers will receive a payment.
The American Rescue Plan also extends through Sept. 6, 2021, the three federal unemployment insurance expansions created by the CARES Act. The American Rescue Plan increases the total number of weeks of benefits available to individuals who cannot return to work safely from 50 weeks to 79 weeks, matching the expiration of the broader UI benefits.
The law maintains the federal supplement at its current level of $300 a week for weeks beginning after March 14 and before Sept. 6, 2021. The American Rescue Plan provides 53 weeks of federal UI benefits after the state benefits end, up from 24 weeks.
The American Rescue Plan contains a new provision to exempt $10,200 of unemployment benefits received in 2020 from income taxes. The exclusion is retroactive, applying to unemployment insurance benefits received last year, largely to reduce the issue of surprise tax bills. It only applies to individuals with incomes below $150,000.
Expanded Child Tax Credit
Finally, the American Rescue Plan greatly expands the Child Tax Credit by allowing households with children to claim up to $3,600 for younger children or $3,000 for children age 6 or older regardless of earned income.
This column appears in the April issue of InMaricopa magazine.