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.
