Knowledge and Insights
On March 11, 2021 President Biden signed the American Rescue Plan Act of 2021, (ARPA or the Act) which will provide $1.9 trillion in relief funds across a wide spectrum of categories, including additional relief for nonprofits and small businesses, the extension of unemployment benefits, new tax provisions, assistance for restaurants and bars, and more.
Assistance for Restaurants, Bars & Shuttered Venues
The ARPA establishes a $29 billion Restaurant Revitalization Fund (RRF) to address the pandemic’s devastating impact on the food services industry. In addition to restaurants and bars, the legislation broadens eligibility for RRF grants to any place of business where patrons assemble to consume food or alcohol, including food trucks, brewpubs, and caterers. The new bill permits grants of up to $10 million per entity, or $5 million per physical location.
It does not include state or local government operated businesses, or a company that as of March 13, 2020 operates in more than 20 locations, whether or not the locations do businesses under the same name. It also does not include any business that has a pending application for, or has received, and grant under the Economic Aid to Hard-Hit Small Businesses, Non-Profits and Venues Act. Establishments that receive a grant may use it for:
- payroll costs
- mortgage and rent payments
- utilities and maintenance expenses
- food and beverage expenses
- covered supplier costs
- operational expenses
- paid sick leave
- any other expense determined to be essential to maintaining the business.
The grant amounts will be calculated by subtracting 2020 revenue from 2019 revenue, similar to the PPP. Consistent with the Biden administration’s commitment to disbursing government funds equitably, the SBA will prioritize applications from restaurants owned and operated by women, veterans, and socially and economically disadvantaged individuals for the first 21 days of the RRF.
As part of the Biden administration’s continued efforts to sustain the live entertainment industry, the bill also sets aside an additional $1.25 billion for the Shuttered Venue Operators Grant (SVOG) program. These grants are separate from the RRF and an entity may not receive an RRF grant if it has applied for or received an SVOG. Care should be taken to determine which grants are allowed during various grant opportunity periods and to maximize the benefits available to you.
Small Business Assistance
The Act restores the State Small Business Credit Initiative (SSBCI), which expired in 2017. The program provides federal funding to deliver flexible, affordable capital to small businesses across the nation. The new iteration of the program will provide $10 billion in funding to support small businesses recovering from the economic impacts of the COVID–19 pandemic.
Additionally, the program will ensure business enterprises owned and controlled by economically disadvantaged individuals have access to credit and investments, will provide technical assistance to help small businesses applying for various support programs, and will allocate funds to pay reasonable costs of administering the program. The funds will be allocated by the US Department of Treasury within 30 days of the enactment of the American Rescue Plan Act and will be determined by focusing on each state’s respective employment level decline in 2020.
Paycheck Protection Program (PPP) Provisions
The deadline to submit a PPP loan application has not been extended, so organizations eligible to apply for a second draw PPP loan must do so by March 31, 2021. The new legislation allocates an additional $7.25 billion towards PPP funding and adds additional covered nonprofit entity as an eligible nonprofit for first and second draw PPP loans. An additional covered nonprofit entity is eligible for a PPP loan if:
- the organization employs no more than 300 employees
- it does not receive more than 15% of receipts from lobbying activities
- lobbying activities don’t comprise more than 15% of the organization’s total activities
- the cost of lobbying activities does not exceed $1 million during the most recent tax year
The act also adds additional eligible entities to receive a PPP loan:
- 501(c)(3) nonprofit & veteran organizations with less than 500 employees
- 501(c)(6) nonprofit organizations (i.e. business leagues, chambers of commerce, real estate boards, boards of trade, etc.)
- Domestic marketing organizations with 300 or less employees
- Internet-only new & periodical publishers with less than 500 employees
Unemployment Benefits Extension
The federal unemployment supplement of $300 a week, which was scheduled to expire on March 14th, is renewed through September 6th. The first $10,200 in Unemployment Insurance benefits received in 2020 is now nontaxable for households with under $150,000 in taxable earnings. In the case of a joint return, up to $10,200 in unemployment insurance benefits received by each spouse would be nontaxable. This may affect income tax returns already filed for 2020. The IRS will need to advise taxpayers whether it will be necessary to amend 2020 income tax returns.
Employee Retention Credit
The Act extends the Employee Retention Credit from June 30, 2021 to December 31, 2021. The rate of credit will continue at 70% for this extended period of time. It also continues to allow for up to $10,000 in qualified wages for any calendar quarter. The Employee Retention Credit is limited to $50,000 per calendar quarter of an eligible employer that qualifies as a “recovery start up business”.
The year-over-year gross receipts decline requirement is continued at 20%; and the threshold for qualified wages (even if the employee is working) would continue to be 500 employees, as expanded by the Consolidated Appropriations Act (CAA). Also, certain governmental employers would continue to be exempt from claiming the ERC, except certain tax-exempt organizations, including colleges and universities or medical or hospital care providers.
Child Tax Credit & Earned Income Tax Credit
The new legislation increases the Child Tax Credit and the Earned Income Tax Credit. For 2021, the Child Tax Credit is increased from $2,000 to $3,000 for each child over age six and $3,600 for each child who is under age six as of the close of the calendar year. These credits are subject to phase-out limits beginning at $75,000 in income for single filers and $150,000 for married filing jointly. The Child Tax Credit is fully refundable for 2021. Children remain eligible through age 17 rather than the previous age of 16.
The IRS is directed to send periodic advance Child Tax Credit payments to qualifying families, beginning in July 2021. These payments would represent half of the Child Tax Credit to which a taxpayer is entitled for 2021. The remaining half will be claimed on the 2021 income tax return.
For 2021, the Act expands eligibility requirements and the maximum credit amount for the Earned Income Tax Credit (EITC) for taxpayers without dependents, reducing the minimum age from 25 years of age to 19 years of age. It also increases the upper age limit to include taxpayers over 64 years old. Special age provisions apply to students, qualified former foster youth and qualified homeless youth.
Families First Coronavirus Response Act (FFCRA) Paid Sick & Family Leave Tax Credit
The FFCRA Paid Sick and Family Leave tax credit has been extended beginning April 1 through September 30, 2021 and remains refundable and advanceable through IRS Form 7200. Under the FFCRA the requirement for covered employers to offer paid leave expired in 2020, but for covered employers that offer it, such leave is funded by the federal government up to applicable limits. The original FFCRA 10-day limitation for paid sick leave applied from March 2020 through March 2021. The Act resets this limit for qualifying sick leave taken between April 1, 2021 and September 30, 2021.
Additionally, the new legislation adds new reasons for which employees may take paid sick or family leave for which employers are entitled to the tax credit, including leave for time awaiting the results of a test to diagnose COVID-19, to obtain immunization for it, or to recover from any adverse health impacts arising from the immunization. The Act also increases the wage limit for paid family leave payments from $10,000 per employee to $12,000 per employee.
The credit is further expanded to apply to pension contributions and apprenticeship program costs associated with qualifying FFCRA sick or family leave wages. Certain government entities are also now eligible to take FFCRA credits.
Individual Recovery Rebate Payments
The ARPA authorizes the Internal Revenue Service (IRS) to pay $1,400 to individuals and an additional $1,400 for each dependent of the taxpayer up to specified income limits. These payments are fully phased out for single filers earning $80,000, head of household filers with $120,000 in income, and joint filers making $160,000. Nonresident aliens and those who are a dependent of another taxpayer are not eligible.
If you have any questions regarding the American Rescue Plan Act and what it means for your organization, please contact me at email@example.com or 609-689-2360. Our COVID consulting team stands ready to assist you with grant and loan management, reporting and compliance oversight, cash flow projections and analysis, cost allocation plan development and more to help you through the continued pandemic.
DISCLAIMER: This advisory resource is for general information purposes only. It does not constitute business or tax advice and may not be used and relied upon as a substitute for business or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified accountant, tax practitioner or attorney licensed to practice in the jurisdiction where that advice is sought. It is possible that if additional information from the SBA, Treasury Department and/or your lender is forthcoming, our observations and comments noted herein could be materially different.