AMERICAN RESCUE PLAN ACT (ARPA)
President Biden signed the American Rescue Plan Act into law on March 11, 2021, and it contains numerous provisions that impact millions of Americans. Here is a breakdown of the critical features of the Act.
EMPLOYEE RETENTION CREDIT (ERC)
Do not file 1st quarter payroll tax returns without considering eligibility.
Previous legislation extended ERC through June 30, 2021, and the Act extends the credits through the end of 2021. Qualifying employers include those whose operations were fully or partially suspended due to a government order and those who have suffered at least a 20% decline in gross receipts in a 2021 calendar quarter compared to the same quarter in 2019. Employers only need to meet one of these tests; they do not need to meet both tests.
Additionally, an employer who experienced at least a 20% decline in gross receipts in the 4th quarter of 2020 compared to the 4th quarter of 2019 is eligible to claim the ERC for the 1st quarter of 2021. A qualifying employer is eligible to claim payroll tax credits for 70% of each employee’s qualifying payroll (including employer-paid health insurance) up to a maximum wage of $10,000 per employee for the qualifying quarter and the succeeding quarter. The maximum credit is $7,000 per employee per quarter.
We strongly advise employers to consider eligibility for this credit before proceeding with the filing of 1st quarter 2021 payroll tax returns. Employers can take advantage of the ERC in combination with PPP, but not for the same wages.
RESTAURANT REVITALIZATION FUND
The Act provides $28.6 billion in non-taxable grants to assist with qualified operating expenses for qualified entities, including restaurants, bars, and other businesses providing food and beverage. As of now, the SBA has not released guidance on the program qualifications and application process but has indicated the application process is likely to launch in May. A qualifying business is eligible to receive a grant calculated as follows: 2019 gross receipts less 2020 gross receipts and less PPP funds received.
Example: If a business had 2019 gross receipts of $1,000,000, 2020 gross receipts of $600,000, and received PPP funds of $150,000, the qualifying grant amount is $250,000.
Priority will be given in the first 21 days to businesses owned and controlled by women, veterans, and the socially and economically disadvantaged.
FAMILY & SICK LEAVE CREDITS
The Families First Coronavirus Relief Act voluntary leave employer tax credits are extended through September 30, 2021.
The Act makes the first $10,200 of unemployment benefits per individual tax-free in 2020 for taxpayers earning less than $150,000 per year.
The Act creates a third round of economic impact payments to be sent to qualifying individuals. The credit amount is $1,400 ($2,800 for married taxpayers filing jointly) plus $1,400 for each qualifying dependent, including college students and qualifying relatives who are claimed as dependents. Taxpayers with income below $150,000 ($75,000 for single) are qualified to receive this round of payments.
CHILD TAX CREDIT
The Act expands the existing child tax credit and makes provisions that allow taxpayers to receive the credit in advance of filing an income tax return. The credit phases out for married filing joint taxpayers with incomes over $150,000 ($75,000 for single). The IRS has been directed to estimate a taxpayer’s credit and pay this amount monthly in advance in one-twelfth of the annual estimated amount. The payments are to run from July through December 2021.
CHILD & DEPENDENT CARE CREDIT
The Act makes various changes to this credit. Effective for 2021 only, the credit is refundable. The credit is worth 50% of eligible expenses, up to a limit based on income.
COBRA CONTINUATION COVERAGE
The Act provides COBRA continuation coverage premium assistance for those who are eligible for COBRA from the date of enactment through September 30, 2021. The credit is refundable, and the IRS may make advance payments.
As with most topics related to COVID-19, changes are being made rapidly. To learn more, visit the COVID-19 Resource section of our website, contact your Smith Schafer professional or email us at [email protected].