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ARPA in Depth: Unemployment Enhancements, Direct Payments, Child Tax Credits and Health Insurance Benefits

Chris Gaetano
Published Date:
Mar 17, 2021


President Joe Biden, earlier this month, signed into law the American Rescue Plan Act of 2021, (ARPA), the much-touted $1.9 trillion stimulus bill meant to address both the pandemic and its attendant economic chaos. The Trusted Professional will be providing a deep dive into various parts of this bill over the coming days. Today we begin with some of the benefits meant to provide direct assistance to individuals, especially workers who lose their jobs to the pandemic.

Unemployment Provisions

Subtitle A—Crisis Support For Unemployed Workers concerns the enhanced unemployment benefits that were a major feature of the ARPA. The latest bill supplements state unemployment payments with $300 extra dollars per week from the federal government, and it preserves the expanded eligibility for benefits implemented as part of the CARES Act (e.g. for self-employed workers). While the House version of the bill would have given people an extra $400 a week, the Senate version that ultimately became law reduced the benefit but, as a compromise, also extended the length of time in which people could collect it; the supplement is ordered to continue through Sept. 6, 2021. Considering the logistic issues involved with administering the enhanced payments, the Department of Labor (DOL) recently said that states might not be able to start the program until mid-April.

The bill also contains a new “hold harmless” provision for overlaps in the program. Generally, according to the DOL guidance, an individual must have exhausted all entitlement to regular unemployment and the Pandemic Emergency Unemployment Compensation (PEUC) before being entitled to the new Pandemic Unemployment Assistance (PUA) payments. Under ARPA, if someone who previously exhausted PEUC and is now receiving PUA, but, because of ARPA's Section 9016(b), becomes eligible for additional amounts of PEUC beginning on or after March 11, 2021, states may temporarily continue paying PUA to an individual currently receiving PUA who is newly eligible to receive PEUC due to the additional weeks of PEUC.

The ARPA further allows, for tax years beginning in 2020, the first $10,200 of unemployment payments to be tax-free, as long as the recipient makes less than $150,000 in annual gross income. The provision was inserted due to fears that unemployed people already in precarious situations would get hit with a tax bill that they'd be in no position to pay.

Stimulus Payments

Sec. 9601. 2021 recovery rebates to individuals details the $1,400 direct payments, another of the ARPA's landmark provisions. Full payments will generally go to Americans making under $75,000, at which point the size of the checks shrinks off until, at the $80,000 mark, it disappears entirely. For married couples the threshold is $150,000, at which point the payments disappear at the $160,000 mark; for heads of households, the threshold is $112,500 with the payments disappearing $7,500 later. Besides that, the only other taxpayers not eligible are non-resident aliens, estates and trusts, and those listed as dependents on someone else's taxes (though, recipients will get an additional $1,400 for each dependent they have themselves).

Generally, payments are calculated according to one's tax information, but if someone has not filed taxes in 2019 or 2020, the IRS will apply whatever information is available (likely via the Social Security Administration).

While provisions in previous stimulus bills protected the stimulus payments from garnishment, under the ARPA, they are protected only from the government over tax debts; private creditors will be allowed to take from the checks to pay past due bills. This is due to the fact that, this time around, the stimulus bill was passed via budget reconciliation rather than the traditional legislative process.

The Child Tax Credit

Section 9611. Child tax credit improvements for 2021 outlines major changes to how the child tax credit works. In general, the credit has been increased from $2,000 to $3,000 (or $3,600 for children under the age of six) per child and the older age limit of a qualifying child has been raised from 16 to 17. The amount of the credit will be decreased by $50 for every $1,000 by which a recipient's adjusted gross income (AGI) exceeds $150,000 for joint filers, $112,500 for heads of households, and $75,000 for everyone else. However, the lowest the credit can go will be either 5 percent of the applicable phase-out range (the excess of the threshold amount applicable to the taxpayer over the applicable threshold amount applicable to the taxpayer under this paragraph) or the applicable increase credit amount (the amount of the credit allowable over the amount of such credit as so determined), whichever is less.

Under a new Section 7525A of the Internal Revenue Code, the bill will also change how the credit is distributed; rather than all at once at tax time, half of it will come in the form of regular advance payments made throughout the year. The payments will happen on a monthly basis, with each one being an equal amount.

Generally, the amount of the credit allowed under this section will be reduced (but not below zero) by the aggregate amount of payments made under Section 7527A during the applicable tax year. If the aggregate amount of payments under Section 7527A during that year exceeds the amount of the credit allowed , the tax imposed by this chapter for such taxable year shall be increased by the excess.

Health Benefits

Sec. 9501. Preserving health benefits for workers contains provisions for people to retain health coverage in the event of hardship. Under the bill, individuals who either lost hours from their job or lost their jobs entirely, and who are qualified for COBRA [Consolidated Omnibus Budget Reconciliation Act of 1985] continuation coverage (or who are on it already), will have their premiums treated as fully paid for a period of time ending Sept. 30, 2021. Employers will then get access to a tax credit to make up for the unpaid premiums. Effectively, this will allow people to continue their health coverage without needing to contribute premiums during the applicable time period.

The bill applies even to those who previously had qualified for COBRA coverage but elected not to use it, so long as they're still within their the eligibility period; in such a case, they will get another chance to apply.

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