On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (ARP), a $1.9 trillion COVID-19 relief package aimed at stabilizing the economy, providing needed relief to individuals and small businesses, and improving and accelerating the administration of coronavirus vaccines and testing. The relief package, which is Biden’s first major legislative initiative, is one of the largest in U.S. history and follows on the heels of the Trump Administration’s $900 billion COVID relief package enacted in December 2020 (Consolidated Appropriations Act, 2021 (CAA)). The most significant measures included in the Act are the following:
- The third round of stimulus payments to individuals and their dependents
- Extension of enhanced supplemental federal unemployment benefits through September 2021
- Expansion of the child tax credit and child and dependent care credit
- Extension of the Employee Retention Credit (ERC)
- $7.25 billion in aid to small businesses, including for the Paycheck Protection Program (PPP)
- Increased federal subsidies for COBRA coverage
- $160 billion earmarked for vaccine and testing programs to improve capacity and help curb the spread of COVID-19
- Other measures that address nutritional assistance, housing aid, and funds for schools.
Measures Affecting Businesses
ARP contains provisions designed to assist small businesses, in particular.
Small Businesses and Paycheck Protection Program
An additional $7.25 billion is allocated to assist small businesses and for the Paycheck Protection Program (PPP) forgiven loans.
The PPP—which was created as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) enacted on March 27, 2020—is designed to help small businesses that have suffered from the disruptions and shutdowns related to the coronavirus pandemic and keep them operational by granting federally guaranteed loans to be used to retain staff at pre-COVID levels. A PPP loan may be forgiven in whole or in part if certain requirements are met.
The Economic Aid Act, which is part of the CAA, had earmarked an additional $284 billion for PPP loans, with specific set-asides for eligible borrowers with no more than 10 employees or loans of $250,000 or less to eligible borrowers in low- or moderate-income neighborhoods. The program ends the earlier of March 31, 2021, or the exhaustion of the funds—additional funds are now allocated under the ARP. New legislation has been introduced to extend the date to May 31, 2021.
Employee Retention Credit
The ERC, originally introduced under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and enhanced under the CAA, aims to encourage employers (including tax-exempt entities) to keep employees on their payroll and continue providing health benefits during the COVID-19 pandemic. The ERC is a refundable payroll tax credit for wages paid and health coverage provided by an employer whose operations were either fully or partially suspended due to a COVID-19-related governmental order or that experienced a significant reduction in gross receipts.
The CAA extended the eligibility period of the ERC to June 30, 2021, increased the ERC rate from 50% to 70% of qualified wages, and increased the limit on per-employee wages from $10,000 for the year to $10,000 per quarter ($50,000 per quarter for start-up businesses). ARP extends the ERC for another six months to December 31, 2021, under the same terms as provided in the CAA.
- Employers offering COVID-19-related paid medical leave to their employees would be eligible for an expanded tax credit through September 30, 2021.
- The bill increases the proposed subsidies of insurance premiums for individual workers eligible for COBRA after they were laid off, or had their hours reduced, to 100% through September 30, 2021.
- Funds are allocated for targeted Economic Injury Disaster Loan advance payments, as well as for particularly hard-hit industries such as restaurants, bars, and other eligible food and drink providers; shuttered venue operators; and the airline industry.
- Effective for taxable years beginning after December 20, 2020, the bill repeals IRC section 864(f), which allows U.S. affiliated groups to elect to allocate interest on a worldwide basis. This provision was enacted as part of the American Jobs Creation Act of 2004 and has been deferred several times. The provision is relevant in computing the foreign tax credit limitation under IRC section 904.
- The limitation on excess business losses of non-corporate taxpayers enacted as part of the Tax Cuts and Jobs Act will be extended by one year through 2026.
- The threshold for third-party payment processors to report information to the IRS is lowered substantially. Specifically, IRC section 6050W(e) is revised so that the current threshold of $20,000 for at least 200 transactions is reduced to $600. As a result, such payment processors will have to provide Form 1099K to sellers for whom they have processed more than $600 (regardless of the number of transactions). This change, which applies to tax returns for calendar years beginning after December 31, 2021, will bring many more sellers, including “casual” sellers, within the 1099K reporting net.
This relief package also has measures affecting individuals.
At Anderson ZurMuehlen, we understand this relief program may bring some confusion. Our experts work tirelessly to stay up to date and informed on these changes. We are happy to be a resource to you. Please contact our team with any questions you may have.