American Rescue Plan: Essential insights for businesses

The American Rescue Plan Act (ARPA) of 2021, signed on March 11, 2021, provides more funding for individuals, families, and businesses in response to COVID-19. There are a few updates for businesses in the new plan that tax professionals should be aware of, as well as insights to pass along to your clients.

Paycheck Protection Program loans

Paycheck Protection Program (PPP) loans were originally established under the CARES Act to cover small business payroll and other expenses, including mortgage interest, rent, and utilities. The ARPA includes a few key changes:

• An additional $7.25 billion in funds was added to the PPP program.
• Eligibility for the PPP was expanded to certain 501(c) tax-exempt groups and nonprofits, as well as internet-only news services.
• The PPP Extension Act of 2021, signed into law after ARPA on March 30, extends the application deadline for a first- or second-draw PPP loan to May 31, 2021.

Be sure to communicate the new application deadline to any clients who may still be able to benefit from applying. Tax practitioners can be of great value to clients by helping them determine PPP loan forgiveness eligibility.

Economic Injury Disaster Loan (EIDL) Advance program

The EIDL program was designed to provide assistance for major disruptions to business and revenues:

• Under ARPA, additional funding has been added for payment of EIDL Advance amounts that were previously granted, but remain unpaid. 
• A new supplemental Targeted EIDL Advance of $5,000 is available for small businesses that are located in a low-income community, have less than, or equal to, 10 employees, and have suffered an economic loss of more than 50%.
• Amounts received are not taxable and are excluded from gross income.

Tax practitioners should ensure their clients have a plan for what the EIDL funds will be used for. Proceeds from a PPP loan and an EIDL loan can be used simultaneously; however, they cannot be used for the same purposes and, thus, must be used to cover different types of expenses. 

Restaurant revitalization grants

An additional $28.6 billion has been provided for eligible small restaurants and eating establishments that experienced lost revenue in 2020, as compared to 2019:

• These grants are intended for small establishments that operate 20 or fewer locations, and can be used for a variety of business expenses.
• Funds received will be tax-free grants, and will compensate for the reduction in revenue between 2019 and 2020 (special rules apply to new restaurants in 2020). However, the grant amount received will be reduced by the amount of any PPP loans received.

It is important to communicate this grant to any restaurant-related client, and help them determine if applying is right for them and their business. 

Employee Retention Credit (ERC)

There aren’t many changes to the Employee Retention Credit, but a few updates of note include:

• The deadline was extended from June 30, 2021, until Dec. 31, 2021.
• The amount of the credit remains at 70% of up to $10,000 of qualified wages paid per calendar quarter.
• The credit is claimed against Medicare (1.45% hospital insurance) taxes only.
• A recovery startup business (business established after Feb. 15, 2020, with average annual gross receipts not exceeding $1 million) can qualify for a credit of up to $50,000 per calendar quarter.
• The business cannot double count the same wages for both the ERC and other assistance programs, such as second draw PPP loans, shuttered venue assistance, and restaurant revitalization grants. 

Your clients will likely have questions on which credits or loans are right for them, and you can help them determine whether to take ERC, PPP, or if they qualify for both. 

Credits for Paid Sick and Family Leave

Finally, the credits for employer paid sick and family leave have been updated as well. Key changes include:

• Credits were extended from April 1, 2021, through Sept. 30, 2021.
• The 10-day sick leave limit per employee is reset starting April 1, 2021.
• The amount of wages for which an employer may claim the credit in a year was increased to $12,000 per employee.
• Self-employed individuals can claim the paid family leave credit for 60 days, up from 50 days.
• The credits are increased by the employer’s share of Social Security tax and medicare tax on qualified leave wages.
• Credits are also extended to employers who provide paid time off to employees to obtain the COVID-19 vaccination or recover from an illness related to the immunization.

Some small businesses may be eligible to file Form 7200, Advance Payment of Employer Credits due to COVID-19, to request an advance payment of the ERC or Paid Sick and Family leave credits. Regardless of whether Form 7200 is filed, any remaining credit payments due to the employer will be paid when the employment tax return is filed. Tax practitioners can help clients understand whether filing for an advance of these funds can be helpful in their situation.