American Rescue Plan

Article Dean Dorton

We previously published an article highlighting key provisions in the American Rescue Plan Act of 2021 (ARP or Rescue Plan) for small businesses. The $1.9 trillion relief package was signed into law on March 11, and contains several tax changes.

Partial income tax exclusion for unemployment compensation received in 2020

Generally, an individual’s gross income includes unemployment compensation. For taxpayers whose adjusted gross income (AGI) is less than $150,000, the ARP excludes up to $10,200 of unemployment compensation received in 2020 from gross income. In the case of a joint return, the $10,200 exclusion applies to each spouse. The exclusion does not apply to taxpayers whose AGI is $150,000 or more; in this instance, all of the taxpayer’s unemployment compensation is taxable. The IRS has urged taxpayers who have already filed their 2020 tax return not to file an amended return or take any action because reductions in taxable income and refunds, if appropriate, will be processed automatically.

Another round of stimulus checks

The ARP authorizes a third round of stimulus checks. The stimulus payments are structured as refundable tax credits against 2021 income taxes, but the IRS has already started distributing advanced credits based on information from taxpayers’ 2020 income tax returns (or 2019 returns, if a taxpayer’s 2020 return has not been filed when the advanced credit is issued).

Payments are equal to $1,400 per eligible individual ($2,800 for married couples filing jointly) and $1,400 for each eligible dependent. For single taxpayers, the payment begins phasing out at an AGI of $75,000 and is completely phased out for individuals with an AGI of more than $80,000. The phase-out for married couples filing jointly begins at an AGI of $150,000 and ends at an AGI of $160,000. For heads of household, the payment begins phasing out at an AGI of $112,500 and is completely phased out at an AGI of $120,000.

Expansion of the child tax credit and child and dependent care credit

Child tax credit

For 2021, the ARP temporarily increases the amount of the child tax credit by modifying several provisions of existing law. The ARP makes the credit fully refundable and increases the maximum age for an eligible child to seventeen. It also increases the maximum amount of the credit from $2,000 to $3,000 per child ($3,600 for children under age six). The increased credit amount phases out for taxpayers with an AGI of more than $75,000 for single filers, $112,500 for heads of household, and $150,000 for married couples filing jointly.

The IRS is directed to issue half of a taxpayer’s expected 2021 credit in periodic payments from July through December of 2021. The remaining half of the 2021 credit will be claimed on the taxpayer’s 2021 income tax return (filed in 2022). The amount of the payments advanced during 2021 will be estimated by the IRS based on the taxpayer’s 2020 income tax return (or 2019 return if the taxpayer has not filed a 2020 return).

Child and dependent care credit

The ARP also makes several changes to the child and dependent care credit for 2021. This credit is available to taxpayers who pay expenses for the care of a child or other qualifying individual to enable the taxpayer (and the taxpayer’s spouse, if filing a joint return) to work or actively look for work. The amount of the credit is equal to a percentage of expenses paid to a provider for the care of the child or other qualifying individual. Notably, the ARP makes the child and dependent care credit refundable, allowing taxpayers with little to no income tax liability to benefit from the credit.

Generally, the total expenses that may be used to calculate the credit cannot exceed $3,000 (for one child or qualifying individual) or $6,000 (for two or more children or qualifying individuals). The ARP temporarily increases the cap on expenses to $8,000 and $16,000, respectively.

The ARP also increases the credit rate for certain taxpayers. For taxpayers with AGI of less than $125,000, the credit is equal to 50% of eligible expenses. The 50% credit rate phases down for taxpayers with AGI of $125,000 or more, until it reaches 20% for taxpayers with AGI of $185,000. The rate remains at 20% for taxpayers with AGI up to $400,000 and then phases down to 0% for taxpayers with AGI of more than $440,000.

The ARP also increases the maximum amount of employer-provided dependent care assistance that taxpayers can exclude from their income from $5,000 to $10,500. Like the changes to the child and dependent care credit, this change is effective for 2021 income tax returns only.

Extension of excess business loss limitation

The Tax Cuts and Jobs Act (TCJA), enacted at the end of 2017, introduced a limitation on business losses deductible by individuals and other non-corporate taxpayers (trusts and estates) against non-business income. Specifically, the TCJA disallowed 2018 net tax losses from active businesses in excess of $250,000 (for individual taxpayers) and $500,000 (for joint filers), adjusted annually for inflation. Under the TCJA, the excess business loss (EBL) limitation was effective for tax years 2018 through 2025. In March of 2020, the CARES Act retroactively postponed the effective date of the EBL limitation until tax years beginning in 2021, resulting in taxpayers filing amended returns to claim their full net tax loss.

On a less favorable note, the ARP extends the EBL limitation for one year, through 2026.

Miscellaneous tax provisions

The ARP contains a handful of miscellaneous tax provisions, including:

  • Providing for temporary, fully subsidized COBRA continuation coverage premiums for eligible individuals and reimbursing the taxpayer to whom the premiums are payable through a premium assistance credit, taken against the employer’s share of Medicare tax;
  • Specifying that gross income does not include any amount resulting from the discharge of any student loan occurring between 2021 and 2025;
  • Repealing the election to allocate interest expenses of members of a worldwide affiliated group on a worldwide basis, effective for tax years beginning after December 31, 2020; and
  • Broadening the provision that limits a publicly-held corporation’s deduction for compensation paid to certain employees by expanding the list of covered employees for years after 2026.

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The Consolidated Appropriations Act, 2021 established the Shuttered Venue Operator Grant (SVOG) program. The Small Business Administration announced it expects to begin accepting applications in early April. The American Rescue Plan (ARP) amends a key element of the SVOG program and provides some relief for venue operators that have been waiting for funding.

Previously, an eligible entity could not receive both an SVOG and a Paycheck Protection Program (PPP) loan. With the looming March 31, 2021 deadline for PPP applications and the delays in getting the SVOG program up and running, many entities were left deciding whether they should apply for a PPP loan before the deadline, making them ineligible for an SVOG when it becomes available.

With the ARP, eligible entities can now apply for and receive both a PPP loan and an SVOG—with a caveat. Any PPP loan received will be deducted from an SVOG received by the same entity. Consider the example of an eligible entity that receives a First Draw PPP loan for $30,000 on March 23, 2021. When the SVOG program is up and running, the same eligible entity applies for an SVOG and calculates its potential grant amount to be $100,000. Rather than receiving the full $100,000 grant, the entity will now only receive $70,000.

Click the button below for further details on eligibility, grant amounts, and general terms of the SVOG program:

SVOG Program Information

For more information on COVID-19 relief efforts, visit our coronavirus relief resource page or browse the articles below:

COVID-19 Resources

Do you have questions about the new American Rescue Plan Act? Contact your Dean Dorton advisor, or contact us at:

covid19solutions@deandorton.com

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The restaurant industry was targeted within the American Rescue Plan (ARP) by establishing the Restaurant Revitalization Grant (RRG) program. The program has $28.6 billion for grants to eligible entities, including $5 billion earmarked for eligible entities with 2019 gross receipts of $500,000 or less. The SBA is expected to issue guidance and open the program soon.

Restaurant Revitalization Grant Eligibility

Eligible entities are defined broadly as “a place of business in which the public or patrons assemble for the primary purpose of being served food or drink.” The ARP includes a list of specific entities, including:

  • Food stands and trucks
  • Caterers
  • Saloons, inns, or taverns
  • Bars and lounges
  • Brewpubs
  • Tasting rooms and taprooms
  • Other licensed facilities or premises of a beverage alcohol producer where the public may taste, sample, or purchase products

The following are ineligible entities:

  • State or local government-operated businesses
  • An entity that, as of March 13, 2020, owns or operates (together with any affiliated business) more than 20 locations, regardless of whether those locations do business under the same or multiple names
  • An entity that has a pending application for or received a Shuttered Venue Operator Grant
  • Publicly-traded companies

During the initial 21-day grant awards period, priority will be given to eligible entities that are small business concerns owned and controlled by women, veterans, or socially and economically disadvantaged individuals.

Restaurant Revitalization Grant Amounts

Grants distributed to eligible entities are expected to be equal to the pandemic-related revenue loss calculated as the difference between 2019 and 2020 gross receipts for each location. Maximum grant amounts are capped at $10 million for an affiliated group and $5 million per physical location and will be reduced for any first or second draw PPP loan received by the entity. An affiliated business is defined as a business in which an eligible entity has an equity or right to profit distributions of not less than 50%, or in which an eligible entity has the contractual authority to control the direction of the business, provided that the affiliation existed as of March 13, 2020.

Restaurant Revitalization Grant Uses

Eligible entities are required to spend the grant money on certain eligible expenses, such as payroll costs, maintenance expenses, supplies (including protective equipment and cleaning materials), operational expenses, utilities, etc. Entities with grant monies that go unused or used for unallowable expenses must return the funds to the U.S. Department of Treasury.

It is anticipated that the SBA will create reporting requirements to ensure grant monies were spent according to program terms and conditions.

For more information on COVID-19 relief efforts, visit our coronavirus relief resources page or browse the articles below:

COVID-19 Resources

Do you have questions about the new American Rescue Plan Act? Contact your Dean Dorton advisor, or contact us at:

covid19solutions@deandorton.com

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Article Dean Dorton

The latest COVID-19 relief package, dubbed the American Rescue Plan Act of 2021 (Rescue Plan), extends two payroll tax credits created nearly a year ago to help businesses weather the pandemic. The employee retention credit (ERC), designed to encourage businesses to keep employees on their payroll despite experiencing economic hardship, was set to expire July 1. The Rescue Plan extends the ERC through December 31, 2021. The paid sick and family leave tax credits, available to employers providing paid leave to employees for various COVID-19 related reasons, were scheduled to expire March 31. The Rescue Plan extends the credits through September 30, 2021.

In addition to extending the expiration dates, the Rescue Plan makes several changes to these programs. We break down the major changes below, beginning with the ERC.

The ERC

Background

The ERC is a refundable payroll tax credit for eligible employers, calculated as a percentage of qualified wages paid to employees. As created by the CARES Act, the ERC applied to wages paid from March 13, 2020 through December 31, 2020 (the 2020 ERC). The Consolidated Appropriations Act, 2021 (Appropriations Act) extended the ERC into the first and second quarters of 2021 (the 2021 ERC).

The 2021 ERC is equal to 70% of qualified wages paid to employees, up to a maximum of $10,000 in wages per employee each quarter. To be eligible, a business must meet one of two criteria during the calendar quarter:

  1. The operation of the business is fully or partially suspended due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings because of COVID-19; or
  2. The employer experiences a significant decline in gross receipts.

For purposes of the 2021 ERC, an employer experiences a significant decline in gross receipts if its gross receipts for the relevant calendar quarter in 2021 are less than 80% of its gross receipts for the same calendar quarter in 2019. An employer also can elect to determine eligibility by comparing its gross receipts for the immediately preceding calendar quarter to the corresponding 2019 calendar quarter.

The definition of qualified wages for the 2021 ERC is more restrictive for employers that averaged more than 500 full-time employees during 2019 (large employers). For large employers, qualified wages include only wages paid when the employee is not providing services.

For additional background on the 2020 and 2021 ERC, click the button below:

Additional ERC Background

The Rescue Plan’s Changes

The Rescue Plan extends the ERC through December 31, 2021, and restructures the credit to be claimed against the employer’s share of Medicare rather than Social Security taxes.

It also expands eligibility for the credit to “recovery startup businesses.” A recovery startup business is any employer that began carrying on any trade or business after February 15, 2020. Guidance on additional eligibility requirements is expected. The credit allowed for recovery startup businesses for any calendar quarter cannot exceed $50,000.

In addition, the Rescue Plan expands the definition of qualified wages for large employers that qualify as “severely financially distressed employers.” A severely financially distressed employer is an eligible employer whose gross receipts for the relevant calendar quarter in 2021 are less than 10% of its gross receipts for the same calendar quarter in 2019. Severely financially distressed employers can count all wages paid to employees as qualified wages rather than only wages paid to employees when they do not provide services.

The Rescue Plan states that wages used in connection with a Paycheck Protection Program (PPP) loan, a Shuttered Venue Operator Grant (SVOG), or a Restaurant Revitalization Grant (RRG) cannot be used for calculating the 2021 ERC.

The Rescue Plan’s changes apply to wages paid during the third and fourth quarters of 2021.

Tax Credits for Paid Sick and Family Leave

Background

The Families First Coronavirus Response Act (FFCRA), enacted in March of 2020, required most government employers, as well as tax-exempt organizations and private employers with fewer than 500 employees, to provide employees with paid sick or family leave for various COVID-19 related reasons. Under the FFCRA, the amount of leave and pay to which employees were entitled varied depending on the reason for leave.

To offset the cost of providing paid leave, the FFCRA provided employers with a refundable payroll tax credit equal to 100% of qualified sick and family leave wages, plus allocable health plan expenses and the employer’s share of Medicare tax paid each calendar quarter. The credit was allowed against the employer portion of Social Security tax. Equivalent credits were available for self-employed individuals.

Under the FFCRA, the requirement to provide paid leave took effect April 1, 2020, and expired December 31, 2020. However, the Appropriations Act extended the payroll tax credits’ availability to cover leave taken through and including March 31, 2021. Notably, the Appropriations Act did not extend the requirement to provide FFCRA paid leave beyond December 31, 2020; it only extended the availability of the payroll tax credits for employers that voluntarily provide this leave to eligible employees.

For additional background on the FFCRA paid sick and family leave tax credits, click the button below:

Additional FFCRA Paid Sick and Family Leave Background

The Rescue Plan’s Changes

The Rescue Plan extends the employer payroll tax credits, but not the requirement to provide paid leave, for sick and family leave taken through and including September 30, 2021. In addition, the Rescue Plan:

  • Resets the 10-day limit for sick leave beginning April 1, 2021 (the FFCRA limited sick leave to 10 days per employee);
  • Allows sick and family leave tax credits for leave provided to employees to obtain a COVID-19 vaccine or recover from an injury, disability, illness, or condition related to the vaccine;
  • Expands the definition of paid family leave to allow family leave tax credits to be claimed for all qualifying uses of paid sick leave;
  • Increases the limit on the tax credit for paid family leave wages to $12,000 (up from $10,000) total per employee;
  • Adds a non-discrimination rule prohibiting employers from claiming the tax credits if paid leave provided to employees discriminates in favor of highly compensated or full-time employees or based on employment tenure;
  • Restructures the tax credits to be claimed against the employer’s share of Medicare tax, rather than Social Security tax, after March 31, 2021; and
  • Permits 501(c)(1) government organizations and certain state and local governments to claim the tax credits.

Under the Rescue Plan, wages used in connection with a PPP loan, an SVOG, or an RRG cannot be used for claiming sick or family leave tax credits.

Self-employed individuals are allowed a refundable income tax credit for paid sick and family leave. The Rescue Plan extends and expands the sick and family leave tax credits for self-employed individuals, similar to the modifications made for employers.

For more information on COVID-19 relief efforts, visit our coronavirus relief resources page or browse the articles below:

COVID-19 Resources

Do you have questions about the new American Rescue Plan Act? Contact your Dean Dorton advisor, or contact us at:

covid19solutions@deandorton.com

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With less than three weeks left to apply for a Paycheck Protection Program (PPP) loan, the American Rescue Plan (Rescue Plan) expands eligibility for first and second draw loans. The expansion includes internet publishing organizations assigned an NAICS code of 519130 and any 501(c) organization except for 501(c)(4) and 501(c)(19) entities, which remain ineligible. Newly eligible nonprofit organizations include labor unions, agricultural organizations, and community locations of larger nonprofits. An applicant must meet the following requirements before applying for a loan:

  • the organization does not receive more than 15% of receipts from lobbying activities;
  • lobbying activities do not compose more than 15% of its activities;
  • the cost of lobbying activities of the organization did not exceed $1 million during the most recent tax year that ended before February 15, 2020; and
  • the organization does not employ more than 300 employees at a single location.

Despite the expectation that the current deadline to apply (March 31, 2021) will be extended, newly eligible organizations interested in applying for a loan should begin working with their lender as soon as possible.

For more information on COVID-19 relief efforts, visit our coronavirus relief resources page or browse the articles below:

COVID-19 Resources

Do you have questions about the new American Rescue Plan Act? Contact your Dean Dorton advisor, or contact us at:

covid19solutions@deandorton.com

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Article Dean Dorton

The third round of significant COVID-19 stimulus funding was signed into law on March 11, 2021. The American Rescue Plan Act of 2021 (ARP) includes various items, including aid for vaccinations and testing, state and local governments, schools, rental assistance, agriculture, and the airline industry. The ARP also includes several tax-related provisions and additional business relief. This article details the higher education components.

The Higher Education community has received significant benefits from the various stimulus bills over the past 12 months. The CARES Act allocated approximately $14 billion in funding and the Consolidated Appropriations Act, 2021 added $23 billion for a total of approximately $37 billion before ARP.

ARP allocates an additional $40 billion (available through September 30, 2023) to the Higher Education Emergency Relief Fund (HEERF). The new appropriation follows closely the allocation methodology, terms, and conditions in the second stimulus legislation, Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (CRRSAA). Under the ARP, 91% of the total funds (versus 89% under the CRRSAA), or $36 billion, will be allocated to institutions based on a methodology of:

  • 75% on Pell Grant-eligible students
  • 25% on remaining enrollment (not Pell-eligible).

At least 50% of the funds must be used to provide emergency financial aid grants to students. The funds can be used for the same items as under the CRRSAA:

  • To defray expenses associated with COVID-19 (including lost revenue, reimbursement for expenses already incurred, technology costs associated with a transition to distance education, faculty and staff training, and payroll); carry out student support activities authorized by the Higher Education Act of 1965, as amended (HEA) that address needs related to COVID-19
  • Make additional financial grants to students, which may be used for any component of the student’s cost of attendance or for emergency costs that arise due to COVID-19, such as tuition, food, housing, health care (including mental health care), or child care

Also, the ARP requires that a portion of funds received should be used to:

  • Implement evidence-based practices to monitor and suppress COVID-19 under public health guidelines
  • Conduct direct outreach to financial aid applicants about the opportunity to receive a financial aid adjustment due to the recent unemployment of a family member or independent student, or other circumstances, described in §479A of the HEA

We will continue monitoring this program and update you as more information comes from the Department of Education.

For more information on COVID-19 relief efforts, click the button below:

COVID-19 Resources

Do you have questions about the new American Rescue Plan Act? Contact your Dean Dorton advisor, or contact us at:

covid19solutions@deandorton.com