Inside the American Rescue Plan of 2021

A look at what the $1.9 trillion stimulus package means for individuals, small businesses and not-for-profits.

On March 11, 2021, President Biden signed into law the American Rescue Plan, the latest in a series of economic relief packages passed amid the COVID-19 pandemic. The new legislation comes on the heels of the $866 billion Consolidated Appropriations Act of 2021, signed into law on December 27, 2020, and the $2 trillion CARES Act, signed into law March 27, 2020. In total, the federal government has provided approximately $5 trillion dollars in COVID-19 relief.

The latest legislation directs approximately $1.9 trillion in aid to address the impact of COVID-19 on individuals, small businesses, the health care system and state and local governments. The plan provides, in very broad terms, $750 billion towards efforts to contain COVID-19, $600 billion in direct aid to individuals, $400 billion for housing, health, and related human services and $150 billion for small businesses.

 Below, we summarize the implications for individuals and small businesses and not-for profits as they navigate:

  • Direct aid, income and tax benefits
  • The Paycheck Protection Program and additional programs for small businesses and not-for-profits
  • Healthcare and COVID-19 containment
  • Education

Individuals and Families

Under the new law, eligible individuals will receive a $1,400 stimulus check. An eligible individual includes the taxpayer and spouse, as well as any children under age 17 for whom a child tax credit may be claimed. The base refundable tax credit of $1,400 phases out for single taxpayers with income over $75,000 and joint filers with income over $150,000. This brings total direct payments, between the three stimulus payments, to $3,200 per eligible individual.

In addition, unemployment benefits have been extended, enhanced child and child care tax credits have been put in place, and the age and income limits for those benefiting from the earned income tax credit have been increased.

Enhanced health insurance provisions include COBRA subsidies, expanded tax credits for Affordable Care Act (ACA) premiums for coverage obtained on the health care exchange and premium caps (8.5% of earned income) on households with income levels previously excluded from current premium caps.

Specifically, under the ACA, premiums are capped at 8.5% of “household income” but only for incomes not exceeding four times the poverty income level. However, for 2021 and 2022, the Act removes this limitation and provides that all ACA premiums for all participants are capped at 8.5% of “household income,” which is generally defined as Adjusted Gross Income plus (i) excluded foreign earned income; (ii) excluded Social Security benefits; and (iii) tax-exempt interest income. For example, someone with an Adjusted Gross Income of $200,000 plus tax-exempt municipal bond income of $100,000 in 2021 and 2022 would have her ACA premium capped at $300,000 (AGI plus tax-exempt interest income) X 8.5%, or $25,500. After 2022, unless this special provision is extended, this individual would not qualify for the special ACA premium cap because her income as defined for this purpose would be well in excess of four times the poverty income level.

Small Businesses

The American Rescue Plan provides an additional $7.5 billion to the Paycheck Protection Program (PPP), bringing total PPP funding to approximately $814 billion. The program, which was established under the CARES Act, was established to provide loans to help businesses maintain their employees during the coronavirus crisis. Loan proceeds were to be used to fund payroll, meet debt obligations (interest) and other miscellaneous expenses. The program, which will continue through March 31, 2021, includes additional changes intended to reach small businesses with low and moderate incomes.

In addition, the plan expands coverage to more not-for-profits, including 501(c)(5), (c)(7) and (c)(8) organizations (i,e., labor organizations, social and recreational clubs, and fraternal benefit societies), as well as religious educational groups that might be prohibited given Small Business Administration requirements.

Furthermore, funding beyond the $7.5 billion has been allocated to expand grant and loan programs to businesses within the hospitality industry, such as restaurants, bars and shuttered venue businesses.

Healthcare and COVID-19 Containment

The American Rescue Plan provides significant funds to continue to fight COVID-19. The latest legislation provides funding for the establishment of community and module distribution facilities for vaccine distribution. Funds are earmarked for:                        

  • Increased testing
  • Purchasing of additional rapid tests
  • Helping schools, healthcare centers and tribal entities prepare for in-person learning and appointments.

In addition, the law provides for the funding of 100,000 new jobs for healthcare workers.

Education

The American Rescue Plan provides $35 billion for the support of teachers, administrators and volunteers in schools. This includes providing vaccines and personal protective equipment (PPE) as well as expanding testing capabilities to support the reopening of schools.

Adding to the $82 billion included in the December relief package, the legislation provides for an additional $130 billion to be directed to K-12 schools and $40 billion to be directed to colleges and universities for costs associated to prepare facilities for returning students.

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