The American Rescue Plan Is Law: A Practitioner's Map of the Tax Provisions in Pub. L. 117-2

Key takeaways

• ARPA (H.R. 1319, Pub. L. 117-2) was signed March 11, 2021, in the middle of the 2020 filing season — which means two of its provisions are retroactive to the 2020 tax year and will disrupt returns already filed.
• The headline relief: a $1,400 third-round rebate, an expanded and advanceable 2021 Child Tax Credit, and a one-time $10,200 exclusion of 2020 unemployment compensation.
• For employers: the Employee Retention Credit is extended through year-end 2021, and a 100% COBRA subsidy runs April 1 through September 30, 2021.
• Two date traps to flag now: the new $600 Form 1099-K reporting threshold does not take effect until 2022, and the § 162(m) expansion does not bite until 2027. Neither changes a 2021 return.

Why this is a map and not a verdict

ARPA does too much to absorb in a single read, and several of its provisions will be governed by IRS guidance that does not yet exist. The useful thing to do on the day a law like this passes is to inventory it accurately — separate what is settled from what awaits implementation, and separate what touches the return you are filing right now from what touches a future year. That inventory is below. Where a provision deserves its own treatment, we will give it one.

The provisions that touch the 2020 return you may have already filed

This is the part that demands immediate attention, because the law landed after the filing season opened and after millions of 2020 returns were submitted.

The $10,200 unemployment compensation exclusion (ARPA § 9042, adding IRC § 85(c)). For tax year 2020 only, a taxpayer with modified adjusted gross income under $150,000 may exclude up to $10,200 of unemployment compensation — $10,200 per spouse on a joint return where both received benefits. The $150,000 ceiling is a hard cliff, not a phase-out, and it is the same figure for every filing status. Because this is retroactive to 2020 and enacted mid-season, taxpayers who already filed are in an awkward position, and the IRS's handling of automatic corrections is its own subject. The short version: do not rush to amend before the IRS clarifies its approach, but understand that the exclusion can newly qualify some households for credits they did not claim.

No repayment of excess 2020 Premium Tax Credit (ARPA § 9662). For tax year 2020, taxpayers who received more advance Premium Tax Credit than they were entitled to do not have to repay the excess. This, too, is retroactive and affects 2020 reconciliation.

If a return reflecting either item has already gone out, it needs a second look — not necessarily an amendment, but a deliberate decision.

The relief aimed at individuals and families for 2021

Third-round economic impact payment (ARPA § 9601, new IRC § 6428B). A $1,400 payment per eligible individual, plus $1,400 for each dependent — including adult dependents this time. It phases out quickly: beginning at $75,000 (single) / $112,500 (head of household) / $150,000 (married filing jointly), and reaching zero at $80,000 / $120,000 / $160,000. Structured as an advance against a 2021 credit, it will be reconciled on the 2021 return.

Expanded Child Tax Credit for 2021 (ARPA § 9611). For 2021 only, the credit rises to $3,000 per child — $3,600 for a child under age six — and 17-year-olds qualify. It is fully refundable for 2021, and the law authorizes advance periodic payments of roughly half the credit during the second half of the year. The increased amount phases out starting at $75,000 / $112,500 / $150,000. The advance-payment mechanic introduces a genuine planning question for higher-income and shared-custody families, which we address separately.

Child and Dependent Care Credit (ARPA § 9631). For 2021, the credit is enhanced and made refundable: the maximum rate rises to 50%, eligible expenses rise to $8,000 for one qualifying individual and $16,000 for two or more, with the rate phasing down above $125,000 of income.

Earned Income Tax Credit (ARPA § 9621). For 2021, the credit for workers with no qualifying children is substantially expanded — the maximum roughly triples, the minimum age drops from 25 to 19, and the upper age limit is removed.

Premium Tax Credit expansion (ARPA § 9661). For 2021 and 2022, ACA premium subsidies are enriched and the 400%-of-poverty eligibility cliff is removed, so more households — including some previously over the income limit — qualify for assistance.

The provisions aimed at employers

Employee Retention Credit extended (ARPA § 9651, new IRC § 3134). The ERC is extended to wages paid in the third and fourth quarters of 2021. ARPA also codifies the credit in new § 3134 and introduces the "recovery startup business" category for newer ventures. The ERC remains one of the most valuable — and most misunderstood — provisions in the COVID relief architecture, and it is worth analyzing carefully rather than dismissing because of PPP participation.

COBRA premium assistance (ARPA § 9501). A 100% subsidy of COBRA continuation premiums for assistance-eligible individuals — those who lost coverage through involuntary termination or a reduction in hours — for the period April 1 through September 30, 2021. Employers front the premium and recover it through a refundable credit against the Medicare portion of payroll tax (new IRC § 6432). This carries near-term notice and administrative obligations for employers and plan sponsors.

Restaurant Revitalization Fund (ARPA § 5003), tax treatment at § 9673. ARPA establishes an SBA-administered grant program for eligible restaurants. The tax treatment matters as much as the grant: under § 9673, the grants are excluded from gross income, deductions for expenses paid with the funds are preserved, and tax attributes and basis are not reduced. The parallel provision at § 9672 gives the same tax-free-with-deductions-preserved treatment to Targeted EIDL advances.

Two provisions that do not change a 2021 return — and why naming them matters

It is as important to know what *not* to act on as what to act on. Two ARPA provisions have been widely reported in a way that invites premature reaction:

The $600 Form 1099-K threshold (ARPA § 9674) lowers the third-party payment reporting threshold from the old $20,000-and-200-transactions standard to $600, with no transaction floor. It does not take effect for 2021. It applies to returns for calendar years beginning after December 31, 2021 — meaning 2022 transactions reported on forms filed in early 2023. Gig workers and online sellers will feel it, but not on a 2021 return.

The § 162(m) expansion (ARPA § 9708) adds the five highest-compensated employees to the group whose compensation over $1 million is nondeductible. It is effective for tax years beginning after December 31, 2026. That is a 2027 planning item, not a current one.

What to do with this now

For most clients the immediate work is triage: identify anyone whose 2020 return is affected by the unemployment exclusion or the Premium Tax Credit relief; flag higher-income and shared-custody families for the Child Tax Credit advance-payment decision; and, for employers, calendar the COBRA subsidy obligations and revisit ERC eligibility for the quarters now in play. The provisions with their own deadlines and design traps — the unemployment exclusion, the advance Child Tax Credit, the extended ERC — are treated in their own pieces. This map exists so that nothing gets missed in the meantime.