What You Need to Know About the American Rescue Plan Act of 2021

On March 11, 2021, the American Rescue Plan Act of 2021 (ARP) was signed into law by President Biden. The contents of the $1.9 trillion bill are mostly in line with the plan set forth by President Biden before he was inaugurated on January 20. The package is intended to provide additional economic relief related to the ongoing COVID-19 pandemic, and the majority of funds are allocated towards enhanced unemployment relief, expanded funding for COVID-19 relief programs, aid to state and local governments, and assistance to schools.

From a taxpayer perspective, the bill included tax provisions that provide relief both to businesses and individuals through enhancements, and expansions of credits and programs that were put in place to keep families and small businesses afloat through the ongoing crisis. This includes an extension of payroll tax credits first instituted at the start of the pandemic for businesses. See details below on these important updates as they may benefit you and your business.

Relief for Businesses

Loans and Grants

Paycheck Protection Program (PPP): The ARP provides an additional $7.25 billion to the SBA.  The ARP bill expanded the types of not for profits that qualify for PPP, and included internet publishing organizations.  Although more funding was allocated towards PPP, the deadline to apply remains March 31, 2021. 

The Economic Injury Disaster Loan (EIDL): A total of $15 billion was allocated to the Small Business Administration (SBA) to provide additional $10,000 EIDL advances for qualifying businesses that have not yet received an EIDL grant beginning on the date that the law is enacted. 

The SBA will process additional $5,000 EIDL grants to certain businesses that are severely impacted by the pandemic. The bill clarifies that EIDL grants are not included in taxable income and do not reduce tax basis, result in the denial of any tax deduction, or decrease any tax attributes.

Shuttered Venue Operators Grant Program: The ARP adds $1.25 billion to the programs and provides that recipients are now eligible for PPP with restrictions on double dipping.

Restaurants & Other Food and Drinking Establishments: The restaurant industry was a major focus of the ARP.  $28.6 billion was allocated to create a Restaurant Revitalization Fund, which will aid qualifying businesses to continue operations. There is a $10 million per entity and $5 million per location cap.  These grants are not taxable, and do not reduce tax attributes, basis, or cause the denial of deductions.  This program is set to end on December 31, 2021.

Tax Credits

Employee Retention Credit (ERC): The ARP made some changes to the Employee Retention Credit. Amendments included in the ARP apply to tax quarters after June 30, 2021. The more significant changes are as follows.

The ARP extends the Employee Retention Credit, set to expire as of June 30th, through the end of 2021, thereby permitting the credit for two added calendar quarters.

Expansion of Qualified Businesses for the Employee Retention Credit:

Recovery Start-up Businesses

The ARP expands the Employee Retention Credit to “recovery start-up businesses,” businesses that began carrying on a trade or business after February 15, 2020 and that have annual gross receipts of $1 million or less, subject to rules similar to other employers. The maximum Credit that can be claimed by such a recovery start-up business may not exceed $50,000 during any calendar quarter.

Severely Financially Distressed Employer

Another change to the  Employee Retention Credit also includes changes for Qualified employers who are considered “severely financially distressed employers,” which is defined as employers that have a gross receipts reduction of more than 90 percent as compared to the same calendar quarter in 2019. If an employer satisfies this test, all wages paid to employees are qualified wages, regardless of the size of the employer and number of employees.

Families First Coronavirus Response Act (FFCRA): The ARP extended and enhanced the sick and family leave credits available under FFCRA, expanding the definition of someone experiencing symptoms of COVID-19 to include those individuals who received the vaccine and/or experienced symptoms from getting the vaccine. It also restarts the 10-day limit so that after March 31, 2021, the employer can receive the same credit for another 10 days. After March 31st, the credits can also be utilized against the Medicare portion of the employment taxes. The family leave credit under ARP, increases the overall wage limitation to take care of a COVID-19 affected relative or a child due to no daycare from $10,000 to $12,000. Both the sick leave and the family leave credit are extended until September 30th, 2021. The sick and family credits for self-employed was also extended and enhanced to 60 days from 50 days. Advance payments of these credits are also allowed.

Other Significant Items Included in The ARP

Pensions: Funds were allocated towards multiemployer union pensions, particularly favoring those plans that are currently in the most danger of failing.  Minimum contributions are decreased for single employer pension plans and various other changes are enacted which ease certain restrictions.

The following tax increases were included to offset the cost of the bill. 

Excess Business Loss Limitation: Although the limitation on excess business losses for non-corporate taxpayers has been deferred from beginning until the 2021 tax year, it is scheduled to continue, and sunset through 2027 rather than in 2026.

Interest Allocation: The ARP states that affiliated groups can no longer elect to allocate interest on a worldwide basis.

Highly-Compensated Employees of Publicly Held Corporations: For tax years after 2026, the restriction on the ability of a public company to deduct the excess of salary of certain highly-compensated employees on over $1 million is expanded to include the next 5 highest compensated employees.

Relief for Individuals

Stimulus Payments: Each qualifying individual will receive $1,400 in direct stimulus payments. Families can now receive payments for dependents over the age of 16, college students, and elderly or disabled relatives. The payments are essentially credits against 2021 taxes, but fully refundable and payable in advance. The payments begin to phase out for single filers with Adjusted Gross Income (“AGI”) over $75,000, $150,000 for joint filers and at $112,500 for heads of households. The payments completely phase out at $80,000, $160,000, and $120,000 respectively. 

The government will use the 2019 tax information on file to determine eligibility, or the 2020 return if it has already been filed. Taxpayers who may qualify in one year, but not the other can decide whether to wait on filing their 2020 tax return until their stimulus check is issued. Taxpayers that do not receive payments, but qualify in 2021, will receive this credit when they file their tax return. Taxpayers who would not qualify for this credit in 2021 do not have to repay direct stimulus payments received.

Taxpayers that are just above the AGI threshold for this direct stimulus payment, should consider reducing their AGI by utilizing tax planning techniques such as IRA contributions to reduce their income.

Unemployment Provisions: The ARP extended  this benefit to continue through September 6, 2021 and the amount is reduced from $400 to $300 weekly.  Emergency unemployment compensation is expanded from 24 weeks to 53 weeks.

For 2020, up to $10,200 of unemployment per recipient is not taxable to households that earned less than $150,000 modified adjusted gross income. For couples that file jointly, that amount is not automatically doubled. Each spouse is limited to $10,200. 

Dependent Care Assistance: Employer Provided dependent care assistance is eligible for an exclusion from tax of up to $10,500 per year for married taxpayers, and up to $5,250 for taxpayers that file as single for tax years beginning after 12/31/2020. This amount is increased from $5,000.

Student Loan Forgiveness: The bill itself did not provide for student loan forgiveness, but instituted that student loan forgiveness issued between December 30, 2020 and January 1, 2026 will not be taxable to the recipient.

COBRA Premiums for Laid off Workers: These are 100% subsidized by the government for employees who lost their jobs because of the pandemic, along with their covered relatives, through September 30, 2021

Child Tax Credit:  The child tax credit for the 2021 tax year is expanded from $2,000 per child under the age of 17, to a fully refundable $3,000 per child over the age of six and through the age of 17.  The credit amount for children under the age of six at the end of the tax year is $3,600. Married Couples are eligible with household income of $150,000 or less, as are single taxpayers that earn $112,500 or less.

Child and Dependent Care Tax Credit: For the 2021 tax year, half of childcare expenses are eligible for this credit.  The credit for one child is maximized at $4,000, and is maximized at $8,000 for families with more than one child.  Phaseout begins at $125,000 instead of $15,000.

Earned Income Tax Credit: This credit is expanded for low wage workers both in amount, and age of eligible taxpayers, among other improvements.

The American Rescue Plan Act of 2021 is one of the largest economic rescue plans in U.S. history and it may impact you. For more information, please contact Richard Stieglitz, your Anchin Relationship Partner, or our Anchin COVID-19 Resource Team at [email protected].