Over the weekend, the Senate voted to approve its version of the American Rescue Plan. This bill will now head back to the House where House members will vote on the proposed tax changes and other amendments to spending provisions. With federal supplements and state unemployment due to expire soon, the heat is on for the House to act swiftly and send the approved bill to President Biden. Democratic leaders have signified that they intend to get the bill to the President before March 14, 2021. President Biden has indicated that he will sign the bill into law once it reaches him. If all goes to plan, then this last round of amendments will be what ultimately gets signed into law. 

The new bill still contains direct economic impact payments to individuals, temporary enhancements to certain family-focused tax credits, expanded tax relief for hard-hit businesses, and other provisions designed to provide immediate relief to families and businesses directly impacted by the COVID-19 Crisis. It also contains $15 billion in Emergency injury Disaster Loan program and gives severely impacted small businesses with less than 10 workers priority access to funding, $25 billion grant program for bars and restaurants, $7 billion for the Paycheck Protection Program and another $175 million for a Community Navigator program to help target eligible businesses. This article takes a look at the senate-approved changes as it relates to taxation. 

Senate Legislation Changes to Individuals 

The Senate legislation includes direct payments of up to $1,400 to certain individuals, $300 weekly boost to unemployment benefits through September 6, 2021, and an expansion of the child tax credit for one year. 

• In an effort to target individuals facing financial hardship, the legislation calls for a faster phase-out of the economic impact payments. “For single taxpayers, the phaseout will begin at an adjusted gross income (AGI) of $75,000 and the credit will be completely phased out for taxpayers with an AGI over $80,000. For married taxpayers who file jointly, the phaseout will begin at an AGI of $150,000 and end at AGI of $160,000. And for heads of households, the phaseout will begin at an AGI of $112,500 and be complete at AGI of $120,000.” (Journal of Accountancy)
• Unemployment assistance, including a $300 weekly supplement for state-level unemployment benefits through September 6, 2021
• Makes the first $10,200 in unemployment benefits tax-free for households earning less than $150,000 per year, retroactive to 2020.
• Stipulates that income due to the discharge of any student loans after December 31,2020, and before January 1, 2026 will not be included in the gross income amount.
• Removes the provision that would increase the minimum wage to $15 per hour. 
• Expands the child tax credit to $3,600 for each child under 6 and $3,000 for each child under aged 18. This credit would also become fully refundable. 
• Extends the Section 461(I) through 2026. In an effort to offset revenue loss, the provision will extend this excess business loss rule which limits certain losses to trades or businesses for non-corporate taxpayers to $250,000 (individuals) or $500,000 (joint filers)

Senate Legislation Changes to Businesses

• Expands the Employee Retention Credit. The additional measure would allow certain hardest-hit businesses to count wages paid to all employees as qualifying wages. It also provides clarification on rules for businesses who were not in business in 2019. 
• Expands list of Covered Employees under section 162 (m) Deduction Limitation. Intended to offset the expected deficit, this provision would include the CEO, CFO, and the next five highest paid employees in the list of “covered employees”. The current law prevents companies from deducting more than $1 million in compensation paid to the people on this list. 
• Expands Proposed Enhancements to Employer Payroll Tax Credits for COVID-related paid sick leave and family leave. The provision continues to offer tax credits to employers who voluntarily offer paid sick and family leave through October 1, 2021. 

The Senate Approved legislation is now on its way back to the House where Democratic leaders are expected to get the final bill to President Biden by March 14th. More guidance is expected to be forthcoming.