Recent debt ceiling talks have raised concerns about the future of the American Rescue Plan Act (ARPA) funding. If the government fails to raise the debt ceiling, the Treasury Department will have to prioritize payments to creditors, leaving many government agencies, including ARPA, without the necessary funding to operate.
Many Americans want to know the potential consequences of a failure to raise the debt ceiling for ARPA funding and the broader implications for scientific research and development in the United States. Some also wonder if the said funding is taxable.
This representation photo shows a USA flag on pole as many people wonder if Feds would take back ARPA funding in debt ceiling talks and if the funds are taxable. (Photo by Dalton Caraway on Unsplash)
Is ARPA Taxable?
The Federal Revenue Service (IRS) amended its guidelines on payments from ARPA to individual taxpayers in mid-November 2021. The FAQs for towns wanting to distribute ARPA funding to community members include a number of crucial details, as shared by the Association of Washington Cities:
- Other cash transactions to people are not considered income, thus the IRS is not obliged to receive any Form 1099-MISC information returns from them or to provide them to the recipients.
- Employees’ premium pay sums are regarded as wages. Businesses are often required to deduct federal income tax from employees’ paychecks as well as social security and Medicare taxes. Federal unemployment tax on earnings is another possible obligation for employers.
- As payments made to people utilizing ARPA funding for utilities (or utility arrears) are NOT regarded as income, a Form 1099-MISC is not necessary.
- Even one-time payments (such a hiring “bonus”) that are given using ARPA money but are intended as payment for services are regarded as wages.
ALSO READ: Asheville City Council To Provide More American Rescue Plan Funds To Organizations
Debt Ceiling Explained
The debt ceiling is a legal limit on the amount of money that the United States government can borrow to fund its operations. This limit is set by Congress and is currently set at $$31.4 trillion, CNBC wrote.
When the government needs to borrow more money to meet its financial obligations, it must raise the debt ceiling. Failure to do so can lead to a government shutdown, a default on debt payments, and significant economic consequences.
ARPA Funding at Risk?
Planetizen reported that state and municipal officials are concerned that some funding provided to local governments as part of the $1.9 trillion American Rescue Plan Act (ARPA) might be revoked as part of Congressional discussions to increase the debt ceiling.
For instance, Democratic Mayor Michael Duggan of Detroit urged fellow mayors at a U.S. Although a House official made it clear that no funds already given to local governments would be taken back, the Conference of Mayors last month urged using the money right soon to avoid having it taken away. The 329 biggest local governments in the country have allocated 67.8% of the $44 billion in ARPA cash they are expected to receive, according to a Brookings Institute tracker.
Local authorities assert that the decision to reclaim funds still in the Treasury Department’s custody might erode confidence between officials at various levels of government, as reported by Kery Murakami in Route Fifty.
RELATED ARTICLE: See Whether You Qualify For RIP Medical Debt $240M One-Time Relief Payment.
