President Biden Proposes Certain Tax Benefits in the “American Rescue Plan”

President Joe Biden is pushing forward with a major expansion of the child tax credit and earned income credit as part of his newly unveiled Coronavirus (COVID-19) relief initiative.  The American Rescue Plan is part one of an emergency legislative package covering the following:

• Mounting a national vaccination program, safely reopening schools and containing COVID-19 (including performing additional testing), eliminating supply shortages of the vaccine and investing in high-quality treatments.
• Sending additional checks to certain households bearing the brunt of the crisis, providing direct housing and nutrition assistance, expanding access to child care and affordable health care, increasing the minimum wage to $15 per hour and extending unemployment insurance benefits to over five million Americans whose benefits have ended, while providing a $400 per week unemployment insurance supplement to impacted workers through September 2021.
• Supporting struggling communities by providing support for the hardest hit businesses, especially those owned by minority entrepreneurs; protecting the jobs of essential workers; and providing $130 billion of support to help schools to safely reopen. In addition, the President is calling upon Congress to extend the eviction and foreclosure moratoriums and continue application for forbearance on federally-guaranteed mortgages until September 2021.  For those lower income Americans struggling to pay rent, the relief package would help renters and small landlords by providing an additional $30 billion in rental and critical energy and water assistance for hard hit people. The package also addresses the hunger crisis in America by extending the 15% Supplemental Nutrition Assistance Program (SNAP), providing additional funds to help woman, infants and children get the food they need.

Part two of the President’s ‘Build Back Better’ Recovery Plan will focus on major aspects of his overall agenda, including making historic investments in infrastructure, manufacturing, innovation, research and development, and clean energy.

A major aspect of the plan is to expand access to high-quality affordable child care. An emergency stabilization fund will help certain child care providers with a $25 billion fund and to further supplement the Child Care and Development Block Grant with an additional $15 billion in funding for those who experienced a job interruption during this pandemic and cannot afford child care.

In addition to funding special programs to help struggling families, the program contains several tax proposals including the following:

• Cash payments of $1,400 per person for certain individuals in addition to the $600 payment provided by the 2020 year-end COVID-19 relief legislation, presumably through the tax credit mechanism
• Extending the refundable credit for certain paid leave programs
• Temporarily expanding and making refundable child care tax credits
  • Families would get back as a tax credit as much as half of their spending on child care for children under age 13, so these families would receive a credit of up to $4,000 for one child and $8,000 for two or more children. The full 50% reimbursement would be available to families making less than $125,000 a year, and those making between $125,000 and $400,000 would receive a partial credit.
• Temporarily making the child tax credit fully refundable for the year (under current law $1,400 is refundable)
  • Proposal would make 17-year olds qualifying children for the year and increase the child tax credit to $3,000 per child ($3,600 for a child under age 6).
• Temporarily raising the maximum earned income tax credit for childless adults from roughly $530 to approximately $1,500, raising the income limit for the credit from about $16,000 to approximately $21,000 and expanding the age range that is eligible including by eliminating the age cap for older workers and expanding eligibility for younger workers.
• Expanding and increasing the value of the health insurance premium tax credit to increase enrollees while reducing insurance premiums.

This proposal is likely to be modified as it works its way through the legislative process.  EisnerAmper will provide updates as further developments warrant.