American Rescue Plan Act and the major changes it brings

The American Rescue Plan Act incorporates some significant improvements to the tax code, in addition to including stimulus tests, expanded unemployment insurance, grants for vaccination delivery and COVID-19 training and research, and relief to state and local governments

  • It extends the Section 162(m) cap on the deductibility of wages for publicly held company's highest-paid workers. The Tax Cuts and Employment Act (“TCJA”) reduced the deductibility of the salary of the CEO, CFO, and three highest-paid officers earned over $1 million for companies, and the American Rescue Plan Act extends this restriction to the next five highest-compensated workers earning over $1 million. Beginning in 2027, the continuation of this ban is estimated to yield $6 billion in sales.
  • It boosts the child tax benefit from $2,000 to $3,000 per child (and $3,600 for children under the age of six) for one year and makes it completely refundable in 2021. (For taxable years 2018-2025, TCJA made the income tax benefit refundable up to $1,400 per child.
  • It raises the annual earned income tax credit from $538 to $1,500 in 2021, which extends credit availability to all childless taxpayers over the age of 19, with the exception of full-time students between the ages of 19 and 25. Previously, this credit was only open to childless taxpayers between the ages of 25 and 65.
  • Democrats have also stated that they plan to keep both infant tax credit and earned income tax credit expansions permanent.
  • It sets the ceiling on noncorporate taxpayers' excess company expenses. The TCJA had set a cap of $500,000 per year on those taxpayers who hold unincorporated "pass-through" companies before 2025. It is anticipated that continuing this clause until 2026 would produce $31 billion in revenue.
  • It excludes Section 864(f) voting, which requires an affiliated group's interest cost to be distributed on a global basis. For the next ten years, the repeal of the taxpayer-favorable one-time election, which requires foreign groups of U.S. business representatives to delegate and apportion their interest payment on a group basis, is expected to collect $22 billion in tax revenue.
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