On Feb. 8, House Ways and Means Committee Chair Richard Neal (D-MA) released text representing its portion of Democrats’ $1.9 trillion COVID-19 stimulus legislation, modeled after President Joe Biden’s American Rescue Plan.
The legislation includes the following priorities:
- Employee Retention Tax Credit
- $1,400 Economic Impact Payments
- Enhanced Child Tax Credit (CTC), Child and Dependent Care Tax Credit (CDCTC), and Earned income Tax Credit (EITC)
- Expanded sick leave and paid leave credits
- COBRA Subsidies
- Increase in the Premium Tax Credit
- Repeal of election to allocate interest on a worldwide basis
A minimum wage increase is included in the Education and Labor Committee’s section of the bill. The provision would gradually increase the minimum wage by 2025. It is unclear whether it will be able to survive procedural tests in the Senate.
The Ways and Means Committee began marking up the legislation today, and it is expected to last through Friday although the Republicans have said they do not intend to offer so many amendments that it consumes all of that time. The committee will only meet and conduct business during regular hours—ending each day at 6 p.m.
Once markups are complete, the House Budget Committee will combine the bills for a final vote. House Majority Leader Steny Hoyer (D-MD) said the House is aiming to pass the measure during the week of Feb. 22, so the Senate can vote on the measure before extended unemployment benefits expire on March 14.
On the Senate side, a markup of the bills is not expected due to the impeachment trial. The bills will instead receive a floor vote.
Congressional leaders kicked off the weeks-long budget reconciliation process last Monday when
H.Con.Res. 11 and S.Con.Res. 5 were introduced in the House and Senate, respectively. The resolutions issued instructions to House and Senate committees responsible for drafting components of Biden’s ARP. They also establish spending, revenue and deficit targets for fiscal year 2021 through fiscal year 2030. On Feb. 3, the House adopted H.Con.Res. 11 by a vote of 218 to 212. The Senate similarly approved its budget resolution 51-50.
Below are five key takeaways from this bill:
- Have a Child in 2021. The bill provides several benefits for households with children in 2021, including an increase in the Child Tax Credit to $3,600 for children under the age of 6 and to $3,600 to children ages 6 to 17. When combined with $1,400 Economic Impact Payments per dependent, taxpayers could receive up to $5,000 per child. Additionally, for working families with child care expenses, the bill increases the Child and Dependent Care Tax Credit, allowing for a 20% to 50% credit on $8,000 to $16,000 of qualifying child care expenses. The credit begins to phase out at $125,000 and is eliminated for Adjusted Gross Incomes (AGI) of $500,000 and over. Therefore, low- and middle-income working families could receive up to $9,000 in credits per child—about 75% of the average national cost of child care.
The bill also provides for advance payments of the CTC starting on July 1. Monthly payments can be no more than 1/12 of the total value of the credit and families may opt-out. The bill leaves it at the discretion of the secretary of the Treasury to determine whether a monthly credit is feasible, or whether less frequent payments might be more practical. It is unclear whether advance payments will survive the Senate Byrd Rule.
- Many Americans Will See a Major Tax Cut. If the bill is enacted without significant changes to the Economic Impact Payment amount of $1,400 and other refundable tax credits, it will implement a large tax cut for low- and middle-income taxpayers. Married taxpayers with AGIs less than $150,000 and individuals with AGIs less than $75,000 will largely have no income tax obligation.
For example, a family of four (a couple that is married filing jointly and two children ages 2 and 5) with AGI of $100,000 would receive $5,600 in economic impact payments, $7,200 in CTC. Assuming at least $16,000 in child care expenses, the taxpayer could receive up to an $8,000 credit. This totals about $20,800 in credits and rebates. This is before calculating additional benefits that taxpayers might now be entitled to, such as the Premium Tax Credit.
- Where There Is a Will, There Is a Way. While Democrats wanted to extend the Employee Retention Tax Credit and the Families First Coronavirus Response Act’s (FFCRA) sick and paid leave tax credits, both were previously structured as payroll taxes creditable against OASDI. As such, these credits flow to employers principally by allowing businesses to withhold Social Security taxes rather than making payments to the IRS. However, the Byrd Rule, which governs budget reconciliation legislation in the Senate, prohibits the inclusion of any provision that impacts Social Security. To circumvent a Byrd Rule challenge, drafters no longer allow taxpayers to credit wages for all three provisions against the 6.2% OASDI, instead only including a credit against the Medicare Hospital Insurance Tax of 1.45%. For most companies, it will take much longer to monetize the credit. Instead of simply withholding taxes, most businesses will have to file Form 7200 to receive payment since the amount of the credit will be more than the federal employment taxes the employer owes. It is unclear whether the Treasury Department will release guidance allowing a credit against income tax withholding.
- Surprise! At the very end of the Ways and Means section is a provision repealing the U.S. affiliated group election for the allocation of interest expenses on a worldwide basis for 2021 onwards. The provision raises $22 billion over 10 years, according to the Joint Committee on Taxation, though the provision never actually took effect, despite being passed in 2004. The offset is needed to cover the cost of the out-years under various tax provisions included in the reconciliation bill—mostly permanent earned income tax credit provisions.
- Health Care Is Important During a Pandemic. In addition to direct relief for individuals, Democrats prioritize providing or subsidizing various support systems for individuals as well. The bill would bolster the availability of Premium Tax Credits (PTC) for lower- and middle-income individuals, reducing premiums significantly. Specifically, it would expand the availability of the PTC to individuals with AGIs above 400% of the federal poverty level. It also eliminates the income cap on for PTC eligibility. As long as premiums exceed 8.5% of household income, individuals could qualify for the PTC.
The bill would also subsidize up to 85% of the cost of COBRA premiums for workers who have lost a job or have lost health insurance due to a reduction in hours.
Click here for a summary of the bill’s provisions.