10/3/23 Update: Learn about how funding for the American Rescue Plan has expired.
The American Rescue Plan has been officially signed by President Biden—and there’s a lot in it. Here’s what families need to know about the new covid relief plan and how it will affect their lives in the immediate and long-term future.
Stimulus Checks
$1,400 direct payment to individuals making $75,000 or less.
- The payments phase out if you are making more than $80,000.
- Married couples with a combined income of up to $150,000 will receive $2,800 with those payments phased out at an income level of $160,000.
- Children (including full-time students younger than 24) will be eligible for $1,400 payments.
Reminder: if you’ve been paying your household employees “off the books,” they may not receive a stimulus check.
Support for Schools
$130 billion is dedicated to K-12 education, as well as a number of other provisions that will affect schools.
Where is the Money Going?
$122.8 billion of the total will be divided like this:
– 90% to school districts. The Title I formula determines how much each district gets.
– 9% to states:
- 5% to create resources to help schools address learning loss
- 1% to help create summer school programs
- 1% to help create after-school programs
- Remaining up to states to decide
- Less than 1% to the U.S. Department of Education ($800 million) to identify and support students who are homeless and also issue grants to states to do the same.
$2.58 billion is going to states to support students with disabilities.
$2.75 billion is set aside for private schools.
This money, distributed by governors, is for those schools serving a “significant” number of students from low-income families.
How Much Will My School Get?
School districts can expect approximately 2.2x whatever they got from the last federal aid package. The average new funding per public school student is $2,500, some high-poverty districts will get several thousand dollars more per student.
- Example: LA schools will be getting over $6,000 per student, while Chicago will receive about $5,200 per student.
What Can It Be Spent On?
- Cleaning supplies
- Education technology
- Mental health services
- Summer or after-school programs
- School building improvements that “reduce risk of virus transmission and exposure to environmental health hazards”
- Implementation of public health guidance
- “Other activities that are necessary to maintain the operation of and continuity of services … and continuing to employ existing staff.”
- “Activities to address the unique needs of low-income children or students, children with disabilities, English learners, racial and ethnic minorities, students experiencing homelessness, and foster care youth.”
Districts must use at least 20% of the money to address learning loss. Examples of this mentioned in the law include “summer learning or summer enrichment, extended day, comprehensive afterschool programs, or extended school year programs.”
Additional Provisions for Schools
- Unlikely that most states will have to cut budgets this year—$350 billion is for states and cities on top of the money for schools.
- States are barred from making deeper cuts to high-poverty school districts compared to other districts. States also can’t make any cuts at all, relative to 2019 funding, to its highest poverty districts.
- States cannot reduce the share of their budget devoted to education. However, they can seek a waiver from the U.S. Department of Education to do so.
- States don’t have to compete for any money, like they did with Race to the Top.
- An additional $7 billion will create an Emergency Connectivity Fund through a program known as E-Rate, which subsidizes internet access for schools and libraries. Schools that participate in the program can use the new money to help students and teachers access the internet at home.
Dependent Care FSAs
The expense limit for Dependent Care Flexible Spending Accounts (FSAs) will increase from $5,000 to $10,500 (from $2,500 to $5,250 if married & filing separately).
Families can fund FSAs – offered through their employers – with pre-tax dollars to reduce their taxable income. Money placed in an FSA is not subject to Social Security, Medicare, federal income, or state income taxes. Families are then reimbursed tax-free for permissible childcare expenses like wages paid to a nanny.
The Result
If you have at least $10,500 in child care expenses in 2021 and fund your FSA with the maximum allowed, it is estimated you could save between $3,700 and $4,800 depending on your tax bracket.
This provision is voluntary and businesses may retroactively amend their plans through the end of the year to permit the increased limit. Check with your human resources department to see if your employer will provide this increase to FSAs.
Child Tax Credit
The child tax credit gets a boost from $2,000 for eligible children (up to 16 years old) in 2020. Unlike previous welfare programs, parents will receive the child tax credit regardless of their employment status.
In 2020 only, the child tax credit will be:
- $3,600 for each child up to age 5
- $3,000 for each child ages 6-17
The full benefit is available if:
- Your income is $75,000 or less and you’re filing as single or head of household
- Your income is $150,000 or less and you’re filing as married filing joint
- The regular credit of $2,000 per child can still be taken as long as your adjusted gross income is below $200,000 for single filers or $400,000 for joint filers.
You may not need to wait until you file your tax return to see the full benefit. In July, the IRS is expected to start issuing half of that expected amount in periodic payments to families. You would receive the rest when you file your taxes in 2022.
Pandemic Paid Sick and Family Leave
Voluntary pandemic-related paid sick and family leave is expanded and extended through September 31, 2021.
Voluntary paid leave was previously set to expire on March 31, 2021. Families can provide paid leave to their employees for qualifying reasons related to the pandemic including time needed to get the vaccine. The dollar-for-dollar tax credit for paid leave also remains in effect.
Additional qualified reasons for paid sick and/or family leave include:
- Waiting for the results of COVID-19 testing or a medical diagnosis of COVID-19, if either the employee has been exposed to COVID-19 or the employee’s employer has requested the test or diagnosis.
- Obtaining COVID-19 immunization or recovering from any injury, disability, illness, or condition related to a COVID-19 immunization.
FFCRA vs. ARP
With one exception, calculating the amount of paid sick and family leave available to an employee and employer tax credits are the same as the Families First Coronavirus Act (FFCRA).
- The ARP removed the 10-day unpaid period for family leave that was part of the FFCRA. An employer may now provide paid family leave immediately and claim the credit.
–> If an employee previously took their allotted 10 days of paid sick leave under the FFCRA, the employer can provide an additional 10 days of leave. - The maximum amount of paid family leave is increased in ARP from $10,000 to $12,000.
- An employer may now claim the credit for up to 60 days of paid family leave. The FFCRA capped that amount at 50 days.
While federal paid sick leave can be offered voluntarily, states and cities may have their own sick leave laws that could be mandatory for household employees.
As always, if an employee isn’t paid legally, they aren’t eligible for paid leave and their employers can’t receive tax credits.
Unemployment Benefits
Expanded unemployment benefits from the CARES Act have been extended through September 6, 2021.
The Result
- $300 in weekly unemployment compensation on top of the amount provided by your state.
- Up to 53 weeks of additional unemployment insurance to those who have exhausted benefits available through their state.
- The first $10,200 in unemployment benefits are exempted from taxes for households earning up to $150,000.
- Typically, if you claim unemployment insurance you receive Form 1099-G and owe income taxes on benefits. If you have already filed your tax return this year, you may need to file an amended return to take advantage of the unemployment insurance tax break.
Child and Dependent Care Tax Credit
The Child and Dependent Care Tax Credit will increase from $3,000 to $8,000 for a family with one child and from $6,000 to $16,000 for families with two or more children.
This is the first time the Child and Dependent Care Tax Credit has increased since 2003.
The Result
The increase in your tax credit will be reflected when you file your tax return in 2022. The amount of credit gradually decreases based on the family’s household income, but most families should see some increased tax savings when applying the Child and Dependent Care Tax Credit.
Households with income of less than $125,000
50% tax credit of qualifying expenses
- $4,000 for 1 child
- $8,000 for 2+ children
Households with income between $125,000 – $185,000
21-50% tax credit (drops one% for every additional $2,000 in income)
- $1,680 – $4,000 for 1 child
- $3,360 – $8,000 for 2+ children
Households with income between $185,001 – $400,000
20% tax credit
- $1,600 for 1 child
- $3,200 for 2+ children
Households with income between $400,001 – $440,000
1-20% tax credit (drops one% for every additional $2,000 in income)
- $80 – $1,600 for 1 child
- $160 – $3,200 for 2+ children
Households with income of more than $440,000
The tax credit is phased out for households in this income bracket.
Get Household Employment Help
Have questions about what this means for your hired nanny or sitter? Get the expert guidance you need from our partner, GTM Payroll Services. They offer a complimentary, no-obligation consultation with one of their household employment experts—and Sittercity families get a free setup! Sign up online or call (833) 796-1515.
