COVID-19 Relief Package Advances in the House

The House Budget Committee has approved the American Rescue Plan Act of 2021, a bill to enact President Biden’s COVID-19 relief package. The bill includes another round of economic impact payments as well as several tax and pension changes. Its provisions are subject to change by the full House and/or the Senate.

The bill now goes to the House Rules Committee. It is expected to be taken up by the full House by the end of the week. The Senate will then either vote on the House bill or its own bill. It is expected to do so during the first or second week in March.

Senate Democrats have begun discussions with the Senate parliamentarian as to whether the entire bill, which includes the $15 per hour minimum wage, can be passed under the reconciliation process under which a simple majority is enough to pass the bill.

Here are some of the key tax and pension provisions in the bill that has been sent to the House Rules Committee.

Individual tax provisions

Economic impact payment/recovery rebate credit. The payment/credit is a maximum of $1,400 for a single taxpayer ($2,800 for joint filers), in addition to $1,400 per dependent for qualifying taxpayers.

Child tax credit. Makes the child tax credit fully refundable for 2021 and increases the maximum amount from $2,000 to $3,000 per child ($3,600 for a child under age 6).

Earned Income Tax Credit. Various liberalizations. For example, the bill would expand the credit for taxpayers without children for 2021 by increasing the credit percentage and phase out thresholds. It also would allow taxpayers ages 19 and older without children to qualify.

Child and dependent care tax credit. Makes a number of modifications for 2021. For example, makes the credit fully refundable and increases the maximum credit rate to 50%. Amends the phaseout threshold to begin at $125,000 instead of $15,000.

Premium tax credit. Increases credits for individuals eligible for assistance under current law and provides credits for taxpayers with income below 400% of the federal poverty line. Liberalizes the rules for taxpayers receiving unemployment compensation.

COBRA. The bill would subsidize 85% of premiums for individuals eligible for COBRA continuation coverage if they lose their job. The employee would pay 15% of the premium, and the employer or health plan could claim a refundable tax credit for paying the remaining amount.

Business tax provisions

Employer provided dependent care assistance. Increases the exclusion for employer-provided dependent care assistance from $5,000 to $10,500 (from $2,500 to $5,250 in the case of a separate return filed by a married individual) for 2021.

Credits for paid sick and family leave. The bill would make a number of changes. Among them: extend through September 30 tax credits for employer-provided paid sick and family leave; and increase the wages covered by the paid family leave credit to $12,000 per worker, from $10,000.

Employee retention credit. The bill would extend this credit through December 31, 2021.

Corporate interest expense. The bill would eliminate the ability of companies to allocate interest expenses on a worldwide basis beginning in 2021.

Pension provisions

Multiemployer pensions. The bill would: establish a fund for the Pension Benefit Guaranty Corporation (PBGC) to provide financial assistance to struggling multiemployer pension plans; permit plans to amortize investment and other losses incurred after February 29, 2020, over 30 years instead of 15.

Pension smoothing. The bill would extend and modify “pension smoothing,” which increases the interest rates used to calculate pension fund liabilities, allowing companies to contribute less money to pension plans in the short term.

Other pension provisions. The bill would: extended amortization for single employer plans; modify the special rules for minimum funding standards for community newspaper plans; and freeze cost of living adjustments