Inside the American Rescue Plan, 2021

On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021 (ARPA). The $1.9 trillion Act provides pandemic-related relief for businesses and individuals through a variety of provisions, including another round of stimulus payments, funding for state and local governments, and tax relief.

Below is a summary of the key provisions included in the American Rescue Plan.

Business provisions

Paycheck Protection Program (PPP) loans

The ARPA provides an additional $7.25 billion of funding for the program and expands eligibility to include certain nonprofit entities and internet publishing organizations.

Restaurant Revitalization Grants

The ARPA establishes a $28.6 billion restaurant grant program that will be administered by the U.S. Small Business Administration (SBA). The amount of each grant is based on pandemic-related revenue losses calculated by comparing gross receipts in 2020 to gross receipts 2019 and additional limitations apply to businesses that received other financial assistance including PPP funding. The grants must be used to pay for certain allowable costs incurred from Feb. 15, 2020 to Dec. 31, 2021.
Eligible entities include restaurants, food trucks, bars, caterers, tasting rooms, taprooms, and other similar places of business in which the public or patrons assemble for the primary purpose of being served food or drinks.
The SBA will establish a 21-day priority period for entities that are owned and controlled by women, veterans, and socially or economically disadvantaged business owners.

Families First Coronavirus Response Act (FFCRA) paid leave credits

The ARPA extends and expands the payroll tax credit for employers providing paid sick and family leave under the FFCRA.  The credit is now available through Sept. 30, 2021 and the limit on applicable wages has been increased to $12,000 per employee (up from $10,000) for qualified amounts paid after March 31, 2021. The bill also expands the leave for which the credit can be claimed to include time off to receive a COVID-19 vaccine or to recover from a vaccine-related illness or injury. Unlike with the FFCRA mandate, employers are not required to provide the additional paid leave but, if otherwise eligible, may do so voluntarily.

Employee Retention Credit (ERC)

The ERC, which was set to expire on June 30, 2021, is extended by the ARPA through the end of the year. This will double the available maximum credit per employee in 2021 to $28,000 (up from $14,000). The ARPA also creates favorable eligibility rules for startup businesses. Employers that began operations after Feb. 15, 2020 and had $1 million or less in annualized gross receipts may now be eligible for the credit even if they do not satisfy all the other requirements. New provisions also exist for severely financially distressed employers that suffered a greater than 90% decline in gross receipts as compared to the same quarter in 2019.

Individual provisions

Direct payments

The ARPA includes another round of direct payments to individuals. Eligible persons will receive up to $1,400 for single individuals ($2,800 for married taxpayers filing a joint return). In addition, taxpayers will receive $1,400 for each qualifying dependent. The income phaseout for these amounts is narrower than the prior rounds of payments —it begins at $75,000 for single filers ($150,000 for joint filers) and fully phases out at $80,000 for single filers ($160,000 for joint filers). These limitations will be based on taxpayers’ adjusted gross income from their most recently filed federal tax return.

Unemployment benefits

The ARPA includes some significant changes to unemployment benefits. The enhanced $300 weekly unemployment relief is extended through Sept. 6, 2021. In addition, the Act excludes from 2020 taxable income up to $10,200 in unemployment benefits per individual. This exclusion is available to taxpayers with income below $150,000 and may require some individuals who have already filed their 2020 tax returns to amend to take advantage of the exclusion.

Child tax credits

The ARPA increases the 2021 child tax credit to a maximum of $3,000 per child ($3,600 for children under 6) and makes the credit fully refundable. Also, the maximum age of a qualifying child has been increased from 16 to 17. The Treasury and IRS have been instructed to establish a program to make advance payments to taxpayers eligible for the credit in the form of periodic payments during the year.

Child and dependent care credits

For 2021, the ARPA enhances the dependent care tax credit through increases in both the amount and the percentage of eligible costs allowed.

Student loan discharges

The ARPA excludes from taxable income eligible student loans discharged after 2020 and before 2026.

Excess business loss limitation extension

Under the Tax Cuts and Jobs Act, noncorporate taxpayers’ businesses losses were limited to $250,000 ($500,000 for married taxpayers filing a joint return) for tax years 2018 through 2025. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) passed in 2020 suspended these limitations for the 2018 through 2020 tax years. The ARPA extends the loss limitation rules through the 2026 tax year while still maintaining the 2018 through 2020 suspension rules under the CARES Act.

 

Please contact your Rehmann advisor today to discuss how the ARPA could impact you and your business.

Published in COVID-19

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