The American Recovery Plan Act (ARPA) of 2021

April 14, 2021
By Greenshades Compliance Team

By Laura Detsch
Compliance Officer

The American Recovery Plan Act (ARPA) of 2021 was passed in early March 2021. The bill included many payroll modifications.  We at Greenshades want to be sure you understand how the changes could affect you.

Items that may affect your W-4, Section 3 adjustments (this form has not been updated yet to reflect the changes). You can choose to receive the credit in your paycheck rather than at year-end with your tax return: 

Child Tax Credit: In prior years, the maximum amount of child tax credit was $2,000 per qualifying child. For tax year 2021, this amount will increase:

  • From $2,000 to $3,000 per qualifying child aged 6 and older
  • From $2,000 to $3,600 per qualifying child under the age of 6

Also, a 17-year-old will now be eligible for the child tax credit, and the credit can now be fully refundable.

The qualifying Adjusted Gross Income has also changed. For tax year 2020, Married Filing Jointly started to reduce the credit at $400,000 annual income; for all other filing statuses, the credit went down starting at $200,000 annually. For tax year 2021:

  • For filing status of Married Filing Jointly or Qualifying Widow at $150,000
  • For filing status of Head of Household at $112,500, and Married Filing Separate and Single at $75,000

Earned Income Tax Credit: For a single person with no qualifying dependents, the lower eligible age will be 19 (down from 25 in 2020) and there will be no maximum age (in 2020, it was 65). The maximum EIC for single filers will increase to $1,502 from $543, and for Married Filing Separately, you can now claim EIC.

Child and Dependent Care Credit: The law increases allowable expenses to $8,000 for a qualifying individual and $16,000 for two or more qualifying individuals. The maximum employer-provided dependent care benefit exclusion is increased from $5,000 to $10,500.

FFCRA paid sick and family leave credits for employers:  The new law extends the credit to September 30, 2021, for employers who opt in. It also modifies the credit for leave taken after March 31, 2021. The maximum amount of wages is increased from $10,000 to $12,000 per employee, and the maximum number of paid sick days is reset after March 31, 2021. Additionally, the credit can now be used for leave related to the COVID vaccination, including time taken to get the shot and time taken dealing with the side effects.

State and Local governments are allowed to claim the FFCRA credit, as well. But wages paid with forgiven PPP funds or restaurant revitalization grants cannot be used for these credits. As for restructuring, the credit for family leave was restructured after March 31, 2021, as a credit against Hospital Insurance (HI) taxes rather than the OASDI taxes.

Employee Retention Credit (ERC). The law extends the availability of the ERC to December 31, 2021. After June 30, 2021, the credit will apply to the employer’s share of Hospital Insurance (Medicare 1.45%) tax rather than the OASDI (SS tax 6.2%). Severely distressed employers will be defined as having gross receipts less than 10% of the corresponding 2019 quarter and is for all qualified wages.