posted by: Radnor Financial Advisors
On March 11th, President Biden signed the American Rescue Plan Act of 2021, a $1.9 trillion COVID‐19 relief
package, which includes a number of provisions to support individuals, schools, small businesses, infrastructure,
and state and local governments. The legislation also includes provisions to bolster the nation’s COVID‐19 health
care response with additional resources for vaccines, treatment, personal protective equipment (PPE), testing,
contact tracing and workforce development.
The American Rescue Plan (ARP) is also referred to as the 3rd round of stimulus checks, following passage of the
CARES Act in March 2020 and the second round of Economic Impact Payments in late December 2020. Qualified
individuals are eligible based on 3 earning “checkpoints” (based on your most recently filed tax return adjusted
gross income (AGI)) with those earning less than $75k/$150k for individual/married filing joint able to qualify for
$1,400 checks for all dependents in the household (a change from the prior checks that excluded dependents
over age 17). Qualification for the checks phases out so earners with AGIs above $80k/$160k MFJ will not be
eligible. The payments will be made by direct deposit to checking accounts on file with the IRS or by mail via
In addition to the $1,400 per qualifying individual stimulus checks, the new act considerably expands child tax
credits. The child tax credit increases from $2,000 to $3,000 (and up to $3,600 for age 6 and younger children), is
fully refundable for 2021 income taxes, eligibility age expands from 16 to 17, and can now be directly paid to
qualifying taxpayers over the second half of 2021. The same phaseout AGI limits apply as for the new $1,400
stimulus checks ($75k/$150k MFJ) for the enhanced amounts of the tax credits (although individuals earning less
than $200k or families earning less than $400k are still eligible for the original $2,000 credit). In addition to the
expansion of child tax credits, the act also increases the Child and Dependent Care Credit, increasing the eligible
expense limits and applicable rate expenses that qualifying taxpayers can claim for credit.
Given the ongoing pandemic and desire to shore up health insurance coverage, the act expands support for
premium assistance via tax credits for lower income households buying market‐based health insurance plans
(for the 2021 and 2022 tax years). For the premium tax credits, the premium percentages are updated so that
individuals earning up to varying levels of the poverty line are now eligible for tax credits at lower levels of
expenses (for instance, those earning 150% of the poverty line or less will have the entire cost of eligible
coverage paid for via the tax credits where previously they would have to spend up to 4% of their income for a
similar tax credit. Additionally, where the normal rules limit the tax credits to individuals who have household
income no higher than 400% of the poverty line, under the ARP the cost to higher earning tax payers of an
eligible market‐based plan is capped at a maximum of 8.5% of household income (which essentially eliminates
household income limits for Premium Assistance Tax Credits for 2021‐2022).
The act also includes several further measures designed to help support individuals and businesses as we
transition to a post‐pandemic future. The act extends the additional unemployment benefits ($300 increase
until September 6, 2021), makes up to $10,200 of unemployment compensation tax‐free in 2020, and seeks to
increase health insurance enrollment and coverage by providing subsidies for employers to supplement costs of
COBRA insurance to employees who were involuntarily laid off.
Notably not included in the current act are the ability to skip IRA/401k required minimum distributions (which
was permitted under terms of the CARES Act of 2020), elimination of annual COLA adjustments for retirement
plan contributions and an increase in the minimum wage to $15 per hour (these provisions were included in the
House‐passed version of the bill but not in the final bill).