Biden Signs American Rescue Plan into Law
UPDATE: Federal and California April 15th tax deadline for individuals extended to May 17th
Earlier this month, President Biden signed the American Rescue Plan Act into law, which triggered the release of $1,400 economic impact payments along with tax breaks to stimulate the economy. Included in this $1.9 trillion legislation is a one-year expansion of child tax credit, up to $3,600 per child, extension of the employee retention credit, and the addition of more money to the Paycheck Protection Program. It promises to boost the economy substantially as it slowly recovers from the pandemic, which has left millions unemployed.
Employee retention credit. With the Employee Retention Credit that was introduced in the 2020 CARES Act, the goal was to keep workers on the payroll by providing tax credits to employers when the pandemic first started. This act was extended in December 2020 in the $900 billion Consolidated Appropriations Act. The main goal of Biden’s legislation is to extend the employee retention credit as well as the changes made due to the Consolidation Appropriations Act. The changes allow employers to claim a credit against 70% of qualified wages paid. Eligible wages went from $10,000 per year to $10,000 per quarter, and the recent legislation extends it until the end of the year. This means that businesses can get $28,000 per employee instead of the 2020 maximum of $7,000 per employee. This will allow businesses to put non-paycheck expenses towards PPP loan forgiveness since the required attributable wages went from 75% to 60%, giving businesses more potential employee retention tax credits.
Child Tax Credit. Huge benefits to taxpayers with small children, especially big families, are expected to be a result of the expansion of the child tax credit. Although it was used to reduce child poverty for a year, Democrats want to extend it further. The expansion of the child tax credit raised the amount for qualifying children from the 2020 $2,000 to $3,600 for children five and under, and $3,000 for children between six and seventeen. Many families will start to see payments this July. Families are also eligible for daycare expenses up to $4,000 after filing 2021 taxes.
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