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Saturday October 16, 2021

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American Rescue Plan Act Benefits

On March 11, 2021, the President signed the American Rescue Plan Act of 2021 (ARPA). This bill includes $1.9 trillion of stimulus funding. The three sections of greatest interest to individuals are the $1,400 stimulus checks, a forgiveness of tax on $10,200 of 2020 unemployment benefits and an increase in the child tax credit.

Third Round of Stimulus Checks


ARPA included a third round of stimulus checks, with a payment of $1,400 per individual. The payments are expected to be distributed by the IRS within the next two to six weeks. This will be a challenge for the IRS, given the need to process over 100 million tax returns during this same timeframe.

The stimulus check payments are limited to individuals with incomes up to $75,000 per year or couples with incomes of $150,000 per year. Above those levels, the check amounts will phase out. Individuals with incomes above $80,000 and couples with incomes above $160,000 will not receive a stimulus check.

Unemployment Benefit Tax Forgiveness


With the dramatic increase in unemployment in April of 2020, there were tens of millions of job losses for Americans. As a result, a record 40 million Americans received unemployment payments during 2020.

Congress determined that there should be a change in the normal tax rule that unemployment compensation is a replacement for income and therefore taxable. ARPA permits an individual to receive up to $10,200 tax-free in unemployment benefits. A married couple may receive up to $20,400 in tax-free unemployment benefits. However, the maximum for each person that would not be taxable is $10,200. The unemployment benefit applies to individuals with less than $150,000 in adjusted gross income.

The $10,200 of tax-free income could save substantial tax amounts. If a worker is in the 22% tax bracket, this may save $2,244.

Some individuals desired a prompt tax refund and have already filed their tax return. In order to benefit from the $10,200 tax-free payout of unemployment benefits, it will be necessary to file an amended return.

Child Credit Expanded Benefit


Families with children will benefit from another provision of ARPA. The child tax credit is increased from $2,000 per child in 2020 to $3,000 per child in 2021. If the child is less than 6 years old, the credit amount will be $3,600. The new tax credit will phase out for single taxpayers with incomes more than $75,000 and married couples filing jointly with incomes over $150,000. The child tax credit is available for children under age 18 with Social Security numbers who live at least six months per year with a parent.

Editor's Note: ARPA also includes many additional benefits. There is an expansion in the Paycheck Protection Program loan qualifications and funding for elementary and secondary schools, higher education institutions, libraries, arts and cultural organizations.

With Unprecedented Conditions, IRS Should Extend Tax Filing Season


In a March 8, 2021 press release, House Ways and Means Committee Chairman Richard Neal (D-MA) and Oversight Subcommittee Chairman Bill Pascrell, Jr. (D-NJ) called again for IRS Commissioner Chuck Rettig to extend the 2021 tax-filing season.

The press release stated, "We stand in the midst of the most important tax-filing season in recent memory, and taxpayers cannot get the help that they need from the IRS. Returns received by the IRS have fallen significantly behind last year's numbers. On top of all that, once it is signed into law, the American Rescue Plan will change the tax laws applicable to unemployment benefits received in 2020 and reported on returns filed during this filing season. Taxpayers need more time to file accurate returns and get their questions answered by the IRS."

Chairman Neal and Subcommittee Chairman Pascrell demanded that the IRS promptly announce an extension for the tax season. The request for an extended filing season was echoed by professional organizations. The National Society of Accountants (NSA) sent a letter to Commissioner Rettig and indicated it is "imperative" that tax season deadlines are postponed. The NSA letter stated, "It has become increasingly apparent that many practitioners and taxpayers are facing unparalleled challenges inhibiting successful preparation for the looming 2021 tax-filing season deadlines. In careful consideration of the mounting challenges that are presenting this filing season, NSA supports many of its members' calls for postponements."

The call for a postponement was also supported by the National Association of Tax Professionals (NATP). In a letter to Commissioner Rettig, they explained five reasons why there must be an extension. The IRS has not been able to give guidance to taxpayers and professionals due to COVID-19 staff shortages, the February 12 tax-season start date created a shortened timeframe, many professionals and tax preparers are still limited in their ability to meet with clients due to COVID-19 concerns, the IRS is still attempting to address the 2019 tax return backlog that occurred during the shutdown and the new stimulus bill creates further tax complications.

Editor's Note: Commissioner Rettig has been unwilling to extend the April 15, 2021 deadline. If there is no extension of the deadline, a higher-than-normal number of extensions to October 15 will be filed.

Incentivizing Charitable Giving During a Pandemic


Senators James Lankford (R-OK), Chris Coons (D-DE) and six cosponsors introduced the Universal Giving Pandemic Response and Recovery Act (UGPRRA). The bill is similar to legislation introduced previously that would expand the nonitemizer charitable deduction. For tax years 2021 and 2022, the above-the-line deduction for charitable giving would be increased to one-third of the standard deduction.

This increased charitable deduction would be over $4,000 for individuals or $8,000 for married couples. It would be available for those 90% of taxpayers who do not itemize deductions.

The bill has bipartisan support in the House and Senate. Senator Lankford stated, "In the last year, we have seen the powerful impact that nonprofits and houses of worship have on our communities and how they continue to help our neighbors in the toughest times. They are the local safety net when families need an extra hand. In a world that has changed significantly in the last year, we have seen more than ever the need to encourage giving to local nonprofits and houses of worship to support their selfless service to those in need."

Senator Coons also voiced strong support for the new bill. He stated, "Seeing the need in their communities, the American people have stepped up by giving to food banks, community groups, and other nonprofits. People of all means want to be part of the solutions in their community -- solutions often driven by charities and houses of worship -- but the tax code ignores the giving of most Americans."

Other Senators joined in this support. Senator Tim Scott (R-SC) stated, "Nonprofits, charities and houses of worship all across South Carolina and the nation have filled a void that many communities developed during the pandemic. They have been the hands and feet of their neighborhoods, going into places that need aid the most."

Finally, Sen. Amy Klobuchar (D-MN) continued, "Nonprofits are on the front lines of this crisis, but as demand for their services soars, many of these organizations are struggling to keep their doors open. This bill will expand the universal tax deduction for charitable giving to help nonprofits continue to serve their communities during the pandemic."

Editor's Note: This expanded above-the-line charitable deduction is not likely to be passed in 2021. However, it is important to show bipartisan support for charitable giving and philanthropy. The diversity of the House and Senate support base for philanthropy is an important element for future favorable tax treatment for nonprofits.

Applicable Federal Rate of 0.8% for March -- Rev. Rul. 2021-5; 2021-10 IRB 1 (16 February 2021)


The IRS has announced the Applicable Federal Rate (AFR) for March of 2021. The AFR under Section 7520 for the month of March is 0.8%. The rates for February of 0.6% or January of 0.6% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2021, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.

Published March 12, 2021
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