The CARES Act of 2020 and the American Rescue Plan Act (ARPA) of 2021 have both had a dramatic impact on your clients’ finances and taxes, but what exactly did each act do, and how do they intersect? While the two do overlap, there are significant differences as well. To help you keep the two straight for your clients, here’s a breakdown of the similarities and differences between the CARES Act and ARPA, especially as they relate to your clients’ taxes and personal finances.
How do the CARES Act and ARPA overlap?
Like the CARES Act, the ARPA is designed to provide economic relief and recovery from the impact of the pandemic. The ARPA continued or expanded many of the provisions put in place by the CARES Act, such as economic impact payments, increased unemployment benefits, and employer tax credits.
Stimulus Checks
Of course, both acts included economic impact payments. The CARES act provided the first stimulus check for a maximum of $1,200 per individual and $500 per child under 17. The second stimulus check was not associated with the CARES or the ARPA. It was approved in December 2020 for $600 per person.
The ARPA’s stimulus check (i.e., the third stimulus check) was worth $1,400 per person for those with an AGI less than $75,000. Whereas dependents over the age of 17 were not eligible for the first two rounds of economic impact payments, they did qualify for the third stimulus checks under the ARPA.
Unemployment
The expansion of federal unemployment assistance was one of the main components of the CARES Act. It expanded benefits primarily through three main programs: the FPUC, PUA, and PEUC.
- The Federal Pandemic Unemployment Compensation (FPUC) paid an additional $600/week on top of states’ usual unemployment benefits for weeks between April 5, 2020, and July 31, 2020.
- The Pandemic Unemployment Assistance program (PUA) allows independent contractors, part-time workers, and other workers who would not typically qualify for unemployment insurance to receive unemployment benefits.
- The Pandemic Emergency Unemployment Compensations program (PEUC) offered an additional 13 weeks of unemployment benefits after individuals had exhausted their normal benefits.
- The CARES Act also required states to waive or be flexible with the requirement that applicants must be “actively seeking work” if COVID-19 impacted their ability to search for work.
The ARPA extended many of the additional unemployment benefits of the CARES Act:
- Extends the additional payment of $300/week through September 6, 2021 (Some states have ended this additional benefit early)
- Extends PUA and PEUC until September 6, 2021
- Offers a tax break on the first $10,200 in unemployment benefits received in 2020 for those with an annual income less than $150,000
For more details, see our full comparison of Expanded Unemployment Benefits Under the CARES Act and ARPA.
Tax Credits for Employers
The ARPA extended the CARES Act’s Employee Retention Tax Credits for small businesses to December 2021, incentivizing them to keep employees.
The ARPA also extended the Families First Coronavirus Response Act (FFCRA) to September 30, 2021. (Note that while the FFCRA is its own bill and is separate from the CARES Act, the two often get lumped in together since they both passed early in the pandemic). Initially, the FFCRA required employers to provide paid sick and family leave to employees ill with COVID-19 or taking care of a family member who was sick with COVID-19. It also allowed employers to claim these costs as refundable tax credits. Now, employers no longer have to provide this paid leave, but if they choose to do so, they can still claim the FFCRA Paid Leave Credits for any qualifying leave paid before November 2021.
The Paycheck Protection Program
The CARES Act created the Paycheck Protection Program, an entirely forgivable loan that employers could use to pay their employees and cover certain other expenses. The ARPA created a second round of PPP funding, giving first-time applicants another chance to apply and allowing businesses who had already received a PPP loan to apply for a “second draw.”
What are the differences between the CARES Act and ARPA?
For all their similarities, there are significant differences between the two bills.
Tax Credits for Individuals
While both bills included tax credits for businesses, the ARPA created a significant amount of tax cuts for individuals as well. Most of this comes from the $88.49 billion dedicated to increasing the Child Tax Credit. Under the new CTC, families receive a fully refundable $3,000 credit per child ages 6-17 and $3,600 per child ages 0-5. An additional $57.62 billion expands other tax credits like the Earned Income Tax Credit and Child and Dependent Care Credit.
Emphasis on Funding for Businesses vs. Funding for State & Local Governments
While both bills provided support to businesses and local governments, the CARES Act emphasized funding for businesses while the ARPA emphasized funding for state, local, and tribal governments.
The CARES Act set aside $500 billion for distressed businesses and $350 billion for small businesses. By comparison, the ARPA offered only $49.79 billion in support to businesses. Conversely, the ARPA allocated $350 billion to state and local governments, while the CARES Act set aside $150 billion.
Infrastructure
Unlike the CARES Act, the ARPA sets aside significant funding to expand and improve American infrastructure.
Of course, with well over 300 pages in each bill, there are many more points of contrast between the CARES Act and the ARPA. Many of these differences lie in how money was allocated to local governments, non-profits, health care, and businesses, and therefore won’t directly impact your clients’ taxes.
The information in this article is up to date for tax year 2020 (taxes filed in 2021).
