The American Rescue Plan Act: What’s In It For You?
As the COVID-19 pandemic and its economic devastation continues, the $1.9 trillion American Rescue Plan Act of 2021 (ARPA), which was signed into law March 11, 2021, expands relief provisions first introduced in the Coronavirus Aid, Relief and Economic Security (CARES) Act from March 2020 and introduces new measures to help businesses and individuals.
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The Ericksen Krentel team has summarized the main provisions included in ARPA:
Employee Retention Credit
ARPA extends the employee retention credit through the end of 2021. The act also allows the credit to be used against the Sec. 3111(b) Medicare tax.
Restaurant Revitalization Grants
The Restaurant Revitalization Fund provides $28.6 billion for qualifying restaurants or food and drink service locations impacted by the COVID-19 pandemic between February 15, 2020, and December 31, 2021. Rep. Earl Blumenauer (D-Oregon) said in a press conference with the Independent Restaurant Coalition on March 11 that the U.S. Small Business Administration likely will begin accepting applications for Restaurant Revitalization Grants “within weeks, not months.”
Of the $28.6 billion set aside, $5 billion will be available for eligible entities with gross receipts of no more than $500,000 during 2019, while $23 billion will be available for eligible entities of different sizes based on annual gross receipts. The SBA may adjust distribution of funds as necessary based on demand and the relative local costs in the markets in which eligible entities operate.
Grants will be capped at $5 million per physical location or $10 million per eligible entity for less than 20 locations. The SBA will award grants in the order it receives applications. However, the SBA will prioritize small businesses owned and controlled by women, veterans, or those that are socially and economically disadvantaged during the initial 21-day period.
Family and Sick Leave Credits
COVID-19-related family and sick leave tax credits are extended to September 30, 2021, and the limit on the credit for paid family leave was increased to $12,000. Credits are now allowed for leave because of a COVID-19 vaccination.
The number of days a self-employed individual can take in calculating the qualified family leave equivalent amount for self-employed individuals also increased from 50 to 60.
These fully refundable credits against payroll taxes compensate employers and self-employed people for coronavirus-related paid sick leave and family and medical leave. ARPA also expanded eligible entities to include 501(c)(1) governmental organizations.
Under ARPA, eligible small businesses may receive targeted economic injury disaster loan (EIDL) advances from the U.S. Small Business Administration that are excludable from gross income.
Paycheck Protection Program (PPP)
ARPA allocates an additional $7.25 billion for PPP funding; however, the law does not extend the application period, which expires March 31, 2021.
For years after 2026, corporations can add the five highest-compensated employees (besides the employees already covered by Sec. 162(m)) to the list of individuals subject to the $1 million cap on deductible compensation.
ARPA makes the first $10,200 in unemployment benefits received in 2020 tax-free for individuals making less than $150,000 in 2020.
The act provides individuals with a $1,400 recovery rebate credit ($2,800 for married taxpayers filing jointly) plus $1,400 for each dependent for 2021. As with last year’s economic impact payments, the IRS will send out the advance payments of the credit.
For single taxpayers, the credit and corresponding payment begins to phase out at an adjusted gross income (AGI) of $75,000, and the credit completely phases out for single taxpayers with an AGI of more than $80,000. For married taxpayers who file jointly, the phaseout begins at $150,000 and ends at $160,000. For heads of household, the phaseout begins at $112,500 and is capped at $120,000.
The act uses 2019 AGI to determine eligibility, unless the taxpayer already has filed a 2020 return.
Child Tax Credit
The bill increases the amount of the child tax credit to $3,000 per child ($3,600 for children younger than 6), by making it fully refundable for 2021 and by expanding eligibility to include 17-year-olds as qualifying children. Eligible taxpayers will start receiving advance payments of their credits in July 2021, and payments will extend through December 2021.
The increased credit amount phases out for taxpayers who make more than $150,000 for married taxpayers filing jointly, $112,500 for heads of household and $75,000 for others, reducing the expanded portion of the credit by $50 for each $1,000 of income over those limits.
Child and Dependent Care Credit
The child and dependent care tax credit now is refundable for 2021. The credit will be worth 50% of eligible expenses, up to a limit based on income, making the credit worth up to $4,000 for one qualifying individual and up to $8,000 for two or more. Credit reduction will start at households with incomes of more than $125,000, while the credit can be reduced below 20% for households with more than $400,000 in income.
The exclusion for employer-provided dependent care assistance is increased to $10,500 for 2021.
Gross income now does not include any amount that would otherwise be included in income because of the discharge of any student loan after December 31, 2020, and before January 1, 2026.
COBRA Continuation Coverage
ARPA provides COBRA continuation coverage premium assistance in the form of a tax credit for individuals who are eligible for continuation coverage between the date of enactment and September 30, 2021. The IRS may make advance payments to taxpayers of the credit amount. The refundable credit applies to premiums and wages paid after April 1, 2021, and through September 30, 2021.
The credit is allowed against the Sec. 3111(b) Medicare tax. A new penalty is imposed for failure to notify a health plan of cessation of eligibility for the continuation coverage premium assistance. Continuation coverage premium assistance is not includible in the recipient’s gross income.
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Ericksen Krentel CPAs and Consultants, founded in New Orleans, Louisiana in 1960 with offices in New Orleans and Mandeville, believes that serving as the clients’ most trusted adviser is grounded in going beyond the numbers.
That includes helping clients achieve their business and personal financial goals by providing innovative and exceptional services in the following areas: audit and assurance services, tax compliance and planning, outsourced CFO services and business valuations for a variety of industries; employee benefit plan audits; fraud and forensic accounting; business planning; IT consulting; loss calculations; and estate planning.
Learn more at www.ericksenkrentel.com.