Tax Facets of the Stimulus Act proposed by President Elect Biden

President-elect Joe Biden is only six days away from moving to the Oval Office. With the Democrats holding majorities in both the House of Representatives and the Senate, all of the former Vice President’s proposals are now in play.

WILMINGTON, DELAWARE – JANUARY 14: US President-elect Joe Biden takes off his mask when he arrives … [+] at the Queen Theater to unveil its plan to fight the coronavirus and boost the economy on January 14, 2021 in Wilmington, Delaware. President-elect Biden is expected to unveil a trillion dollar stimulus package, including a direct payment of $ 1,400 to people struggling with the economic turmoil caused by the COVID-19 pandemic. (Photo by Alex Wong / Getty Images)

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However, as promised, Biden is prioritizing one more round of COVID relief before moving on to tax reform, student loan easing, or other policy considerations. Today he unveiled the American Rescue Plan (ARP), a $ 1.9 trillion stimulus package designed to address the devastating economic and health effects of the ongoing pandemic.

If he were so inclined, Biden could try to get much of the bill passed using streamlined budget reconciliation, which would be particularly handy as it only takes 51 votes for it to pass in the Senate, where the Democrats currently have … 51 votes. However, Biden would prefer to pass the package bipartisan, which would require buy-in from ten Republican senators.

While the ARP contains a number of critical provisions – from raising the minimum wage to rent subsidies to developing a national vaccination program – our focus in this area is on tax law, and Biden’s plan contains several provisions that are implemented through the Internal Revenue pages Code.

Let’s take a look …

Additional stimulus payments

In March 2020, Congress passed the CARES Act, which provided eligible individuals with stimulus checks of $ 1,200. A few weeks ago, the Consolidated Appropriations Act of 2021 (CAA) sent a second round of payments, this time for USD 600.

The ARP would supplement the payments made last month with additional checks of $ 1,400, bringing the most recent sum to the $ 2,000 preferred by Biden and President Trump. Perhaps more importantly, Biden’s plan would extend eligibility to “adult dependents excluded from previous rounds of relief and all mixed status, although previous stimulus payments were only available to parents on behalf of a loved one under 17 households. “Presumably this would mean a payment to those who care for both college-aged and elderly loved ones.

Biden would also make the checks available to households with mixed immigration status. The previous rounds of controls excluded the spouses of undocumented immigrants who did not have a social security number.

Extension of the required family leave / sick pay

The First Coronavirus Response Act for Families, passed in February 2020, required employers with more than 50 and fewer than 500 employees to offer 10 weeks of family vacation and two weeks of sick pay for certain COVID-related situations. You can read all about it here. The employer would in turn receive a tax credit of the same amount. While the CAA extended loan terms through March 31, 2021, it did NOT extend employers’ obligation to pay family and sick leave.

Biden’s plan would extend the paid family / sick leave program through September 2021 while making some improvements, including:

  • Elimination of the exceptions for employers with fewer than 50 and more than 500 employees,
  • Increase in total paid vacation to 14 weeks with a maximum benefit of $ 1,400 per week,
  • Expansion of services to health care workers, federal employees and first aiders.

The wage credit would only be available to employers with fewer than 500 employees.

Unemployment is increasing

The CAA provided additional unemployment insurance of $ 300 / week through March. Biden’s plan would increase weekly payments to $ 400 and extend the program through September.

Child tax credit increased

Under applicable law, one parent is entitled to a federal tax credit of up to $ 2,000 for each eligible child under the age of 17. A tax credit is more valuable than a deduction because it represents a dollar-to-dollar reduction in your tax liability. Once you run out of tax liability, however, a credit is only useful to the extent that it is “refundable”.

As an illustration, if you have a $ 1,200 tax and are eligible for a $ 2,000 credit, and the credit is non-refundable, the only way you can use liability is to reduce your liability to zero. However, if the credit is refunded, not only would you cut the tax to zero, but the government would write you a check for $ 800. Currently, only $ 1,400 of the $ 2,000 child tax credit is refunded.

For 2021 only, Biden would expand the child tax credit up to $ 3,600 for children under 6 – $ 3,000 for children 6-17 years old – and fully refund the tax credit. While parents of two young children would only get a $ 4,000 loan under applicable law – with $ 2,800 of the loan refunded – the Biden plan would bring that total to $ 7,200, with the full amount of the loan refunded would.

Loan for children and people in need of care

Similar to the child tax credit, President-elect Biden is calling for the child and dependent care tax credit to be increased by one year. Under current law, if parents pay childcare costs for a child under the age of 13, they can claim a tax credit of between 20% and 35% of the cost, up to $ 3,000 per child ($ 6,000 per family). So the maximum credit for a family is $ 2,100 (35% * $ 6,000). However, none of the credits will be refunded.

Biden’s plan would increase the loan to a maximum of $ 4,000 for one child or $ 8,000 for two or more children in 2021. The loan would be fully repaid but would gradually “expire” once the family income exceeds $ 125,000 and would disappear completely once the income exceeds $ 400,000. However, for a low-income family with no tax liability, the change would pocket an additional $ 8,000.

Earned Income Credits

Biden’s plan would expand the earned income tax credit for 2021, increase the maximum credit for childless adults from about $ 530 to nearly $ 1,500, while increasing the credit income limit from about $ 16,000 to about $ 21,000, and widening the age range eligible through repeal the age limit for older workers.

It’s worth nothing that Biden’s proposals to increase Child Tax Credit, Dependent Care Tax Credit, and Earned Income Credit are only for 2021, but each provision has been included as part of his tax reform plan. Therefore, should the President-elect adopt a broader reform next year, we can assume that these three provisions will be permanent.

Small business relief

Biden’s proposal to allocate $ 15 billion in grants to over a million small businesses will certainly interest regular readers of the Forbes tax page.

What’s next

If the history of this country has taught us nothing different, it is that when one party regains control, the other immediately tensions its purses. The ARP follows several rounds of stimulus in 2020 that significantly increased the deficit, potentially making it difficult for Biden to find ten Republican senators willing to cross the aisle and endorse the bill. Of course, the budget vote process remains an option that would eliminate the need for Biden to get Republican votes.

While the future of the ARP is unclear, one thing is certain: for the president-elect, this is just the beginning. In a speech tonight, he said he would soon set out his plan to invest in infrastructure, jobs and the climate crisis.