The American Rescue Plan Act of 2021, which was signed into law on March 11, 2021, expands the Child Tax Credit (CTC), the Earned Income Tax Credit (EITC), and the Child and Dependent Care Tax Credit to provide more financial support for individuals and families throughout 2021.
Note: The American Rescue Plan Act of 2021 expands the Child Tax Credit for tax year 2021 only. Eligible taxpayers who do not want to receive advance payment of the 2021 CTC will have the opportunity to decline receiving advance payments.
Frequently asked questions about the 2021 Child Tax Credit and Advance Child Tax Credit Payments are available here.
Resources and guidance about the 2021 Child Tax Credit and Advance Child Tax Credit Payments are available here.
The American Rescue Plan Act of 2021 expands the EITC for taxpayers with no qualifying children for 2021 in the following ways:
The American Rescue Plan Act of 2021 makes enhancements to the Children and Dependent Care credit:
The American Rescue Plan Act of 2021 makes major improvements in access to and affordability of health coverage through the Marketplace by increasing eligibility for financial assistance to help pay for Marketplace coverage. Under the new law, many Wisconsinites who buy their own health insurance directly through the Marketplace will become eligible to receive increased tax credits to reduce their premiums.
Starting April 1, 2021, consumers enrolling in Marketplace coverage through HealthCare.gov will be able to take advantage of these increased savings and lower costs.
The Internal Revenue Service (IRS) recently announced that PPP loan recipients whose loans are forgiven are not required to treat the loan proceeds as taxable income and can deduct expenses paid with a forgiven PPP loan from their taxes. The Coronavirus Response and Relief Supplemental Appropriations Act of 2021 explicitly included this change, which was based bipartisan Small Business Expense Protection Act that Senator Baldwin supported.
Many businesses that have been severely impacted by coronavirus (COVID-19) will qualify for new employer tax credits.
The American Rescue Plan Act of 2021 allows small and midsize employers, and certain governmental employers, to claim refundable tax credits that reimburse them for the cost of providing paid sick and family leave to their employees due to COVID-19, including leave taken by employees to receive or recover from COVID-19 vaccinations. The ARP tax credits are available to eligible employers that pay sick and family leave for leave from April 1, 2021, through September 30, 2021.
For more details from the U.S. Department of the Treasury on how the paid leave tax credits from the American Rescue Plan will work for employers to enable employees to get vaccinated and recover from after-effects of vaccination, as well as for other purposes, click here.
An employee who is unable to work (including telework) because of coronavirus quarantine or self-quarantine or has coronavirus symptoms and is seeking a medical diagnosis, is entitled to paid sick leave for up to ten days (up to 80 hours) at the employee’s regular rate of pay, or, if higher, the Federal minimum wage or any applicable State or local minimum wage, up to $511 per day, but no more than $5,110 in total.
An employee who is unable to work due to caring for someone with coronavirus, or caring for a child because the child’s school or place of care is closed, or the paid child care provider is unavailable due to the coronavirus, is entitled to paid sick leave for up to two weeks (up to 80 hours) at two-thirds the employee’s regular rate of pay or, if higher, the Federal minimum wage or any applicable State or local minimum wage, up to $200 per day, but no more than $2,000 in total.
An employee who is unable to work because of a need to care for a child whose school or place of care is closed or whose child care provider is unavailable due to the coronavirus, is also entitled to paid family and medical leave equal to two-thirds of the employee’s regular pay, up to $200 per day and $10,000 in total. Up to ten weeks of qualifying leave can be counted towards the family leave credit.
Note: The emergency paid "sick leave" and expanded "family and medical leave" requirements of the Families First Coronavirus Response Act of 2020 are no longer mandated as of December 31, 2020. Under the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, the refundable tax credit for sick and family leave was extended until March 31, 2021 for employers who opt to provide it. If the employee has already used this leave in 2020, employers cannot claim the credit for that employee in 2021.
Employers should consult with an attorney and/or a tax professional if they have questions regarding leave requirements and tax credits.
Eligible employers are entitled to receive a credit in the full amount of the required sick leave and family leave, plus related health plan expenses and the employer’s share of Medicare tax on the leave, for the period of April 1, 2020, through December 31, 2020. The refundable credit is applied against certain employment taxes on wages paid to all employees. Eligible employers can reduce federal employment tax deposits in anticipation of the credit. They can also request an advance of the paid sick and family leave credits for any amounts not covered by the reduction in deposits. The advanced payments will be issued by paper check to employers.
Eligible employers can claim the employee retention credit, a refundable tax credit equal to 50 percent of up to $10,000 in qualified wages (including health plan expenses), paid after March 12, 2020 and before January 1, 2021. Eligible employers are those businesses with operations that have been partially or fully suspended due to governmental orders due to COVID-19, or businesses that have a significant decline in gross receipts compared to 2019.
The refundable credit is capped at $5,000 per employee and applies against certain employment taxes on wages paid to all employees. Eligible employers can reduce federal employment tax deposits in anticipation of the credit. They can also request an advance of the employee retention credit for any amounts not covered by the reduction in deposits. The advanced payments will be issued by paper check to employers.
The IRS has developed an online tool to help you determine if you or your business is likely to qualify for one or more of the tax relief options currently available.
IRS.gov/coronavirus is the official IRS source for information on relief related to COVID-19. Be on the lookout for scam artists trying to use this relief as cover to steal personal information and money. The IRS will not call, text, email or contact anyone on social media asking for personal or bank account information. Also, watch out for emails with attachments or links claiming to have special information on relief.
Downloadable materials from the IRS:
For more information about coronavirus relief for Wisconsin businesses and nonprofits, please click here.
Disclaimer: The information provided on this webpage does not, and is not intended to, constitute legal or tax preparation advice from Senator Baldwin. All information, content, and materials available on this page are for general informational purposes only.
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