By Simon Zhang, CPA, Harry Sallet III, and Jessica Winn
President Biden is set to sign the American Rescue Plan Act of 2021 (ARPA) and the following are some of the items included in the bill.
The bill provides a third economic impact payment of $1,400 for each individual subject to income limitations based on 2019 return information unless the 2020 return has been filed at the time the IRS is making the payments. Individuals will also receive another $1,400 payment for each dependent claimed on their tax return.
In a new feature in this provision, if the IRS has made an advance payment based on the 2019 tax return and after the 2020 return is filed, the taxpayer is entitled to an additional amount because of new child and new dependents in 2020, the IRS is to also send the additional amount. For this to apply, the 2020 return must be filed within the earlier of 90 days after the tax filing deadline or September 1, 2021. The IRS must make the payments by December 31, 2021.
Income limitations for Recovery rebates:
Children Tax Credit
The bill directs the Treasury and the IRS to begin monthly payments, if possible, on July 01, 2021. This advanced payment consists of only half of the credit, the remaining half is to be received when filing 2021 tax returns.
The bill includes a “hold-harmless” provision, which protects taxpayers from having to pay back overpayments received in error of up to $2,000. The $2,000 could be required to be paid back based on income, see chart below.
The Treasury and IRS will provide a website where taxpayers can opt out of the payments or update information regarding qualifying children.
Earned Income Tax Credit
This credit is increased for taxpayers without children. The maximum age is eliminated.
A $300 weekly unemployment relief will be available through Sept. 6th, the most noteworthy change of this bill is that the first $10,200 of unemployment relief is tax-exempt for taxpayers with income under $150,000.
Exclusion of Forgiven Student Loans
Currently student loan forgiveness is excluded from income under certain circumstances, e.g. death or permanent disability. This new bill allows for the non-tax benefit for any federal student loans discharged between Dec. 31, 2020 and Jan. 1, 2026 for any reason. Private lender loans are not applicable. This is not student loan cancellation, but it is paving the way of what could come next with student loan forgiveness.
The American Rescue Plan Act holds numerous provisions for small businesses with emphasis of targeted grants for economically harder hit small businesses such as the service industry, Nonprofits, and Venue Acts. The bill provides the following provisions:
- $28.6 billion grant program for restaurants and bars that have taken a loss in revenue because of the pandemic.
- An additional $15 billion for Targeted Economic Injury Disaster Loan (EIDL) advance payments which will provide grants up to $10,000 per business in harder hit low-income communities.
- An additional $7.25 billion for the Paycheck Protection Program (PPP) along with expansion of the SBA’s PPP eligibility which includes more nonprofits and digital media companies.
- $1.25 billion for the Shuttered Venue Operators Grant (SVOG) program. This includes movie theaters, concert spaces, museums, and performing arts organizations. Eligible applicants can access both the SVOG and PPP program.
Employee Retention Credit
The Employee Retention Credit is a provision first created within the CARES Act that allows a refundable payroll tax credit for “qualified wages” paid out to employees to retain full time between March 13, 2020 and December 31, 2020 when operations were fully or partially suspended due to orders from an appropriate governmental authority.
- Eligible employers are allowed a credit against applicable employment taxes each calendar quarter up to 70% of qualified wages with respect to each employee.
- For each employee, a limitation of $10,000 can be taken per quarter.
- Excess credit over applicable employment taxes shall be treated as overpayment and refunded.
The employee retention credit would be extended from the June 30, 2021 deadline provided in the Consolidated Appropriations Act, 2021 to December 31, 2021.
The new act allows for more Nonprofits to be eligible for the PPP by creating a new category called "additional covered nonprofit entity.” To qualify a Nonprofit must meet the following criteria:
- The organization does not receive receipts or activities don’t comprise of more than 15% from lobbying activities.
- The cost of lobbying activities of the organization did not exceed $1 million.
- Organization employs no more than 300 employees
- Larger 501(c)(3) organizations and do not employ more than 500 employees.
- Larger 501(c)(6), marketing organizations, and additional covered nonprofits and do not employee more than 300 employees per location.
Targeted EIDL Advances
This act created by the Economic Aid Act (EAA) will provide $15 billion in grants to businesses located in low-income communities that have 300 employees or less and have suffered a revenue reduction of more than 30% during an 8-week period beginning on March 2, 2020 or later. This includes small business entities normally eligible for the SBA EIDL program, including non-farm business and corporations, sole proprietors, independent contractors, and private nonprofit organizations.
The program will be having a rollout over the course of 14-day increments.
- First 14 days after ARPA enacted: SBA initiates two-week period of accepting applications. Funding allows $1,000 per employee up to a total of $10,000
- After 28th days from the ARP enactment: SBA can make additional $5,000 grants to businesses that are "severely impacted" categorized as economic loss of more than 50% and 10 or less employees.
- After 42nd day of enactment: SBA is allowed to make $5,000 grants to "substantially impacted businesses categorized as having 10 or less employees and an economic loss of 30 to 50%.
According to the American Rescue Plan Act, funds from the Restaurant Revitalization Fund (RRF) grants and the Economic Injury Disaster Loan (EIDL) advance payments shall not be included in gross income of an eligible person who has received the grant, there will not be a denial of tax deductions during preparation of the returns, or a denial in the increase of basis.
Paid Sick Leave and Family Leave Tax Credits
Paid sick leave credit is a credit in the case of an employer shall be allowed a credit against applicable employment taxes for each calendar quarter equal to 100 percent of the qualified sick leave wages paid by such employer. This bill extends this credit through Sept. 30, 2021 and increases the limitation on wages. For the paid sick leave credit, the wages shall not exceed $200 per individual for any day for which the individual is paid qualified sick leave wages, and the number of days applicable for any calendar quarter shall not exceed the excess of 10 days over the aggregate number of days so taken into account during preceding calendar quarters in such calendar year. The credit can be claimed for taking time off to seek or await the results of a diagnostic test or receive the COVID-19 vaccine and/or recover from the side effects of the vaccine. Credit limited to employment taxes and excess credit is refundable. Credit for sick leave is allowable for certain self-employed individuals.
Payroll credit for paid family leave is a credit against applicable employment taxes for each calendar quarter an amount equal to 100 percent of the qualified family wages paid by such employer. Paid family leave credit, effective after March 31, 2021 employers can claim a credit of $200 per day and not to exceed $12,000 in the aggregate to all calendar quarters. The credit allowed shall not exceed the applicable employment taxes for such calendar quarter and excess credit is refundable. Credit for family leave is allowable for certain self-employed individuals.