The U.S. House of Representatives passed the $1.9 trillion American Rescue Plan of 2021 pandemic relief legislation on Saturday, February 27, 2021, to help Americans weather the ongoing health and economic crisis caused by the COVID-19 pandemic. The bill now moves to the Senate for consideration the week of March 1, 2021. However, the Senate parliamentarian, who advises the Senate on rules and procedures, ruled Thursday that Senate budget-reconciliation rules prohibit the House proposed gradual increase to the federal minimum wage to $15 an hour by 2025 from being included in the COVID-19 relief bill. The reconciliation process otherwise clears the way for the Senate to pass the legislation by a simple majority.
Key Small Business Provisions Under Consideration
PPP Loans – An additional $7.25 billion for Paycheck Protection Program (PPP) forgivable loans but does not extend the PPP’s current application period set to close March 31, 2021. Creates a new category called “additional covered nonprofit entity,” for 501(c)(3) and veteran’s organizations that employ fewer than 500 employees per physical location, certain 501(c)(6) organizations, domestic marketing organizations, and additional covered not-for-profit entities that employ fewer than 300 employees per physical location. Expands PPP eligibility to internet-only news and periodical publishers.
Employee retention credits – The bill extends the employee retention credit through the end of 2021. The employee retention credit allows eligible employers to claim a credit for paying qualified wages to employees. Under the bill, the employee retention credit would be allowed against the Sec. 3111(b) Medicare tax.
Families First Employer Tax Credits – Reinstates Families First employer tax credits and eliminates exemptions for employers with more than 500 and fewer than 50 employees. Reimburses employers with fewer than 500 employees for the cost of this leave.
The credits for sick and family leave originally enacted by the Families First Coronavirus Response Act would be extended to Sept. 30, 2021.The bill increases the limit on the credit for paid family leave to $12,000. The limitation on the overall number of days taken into account for paid sick leave will reset after March 31, 2021. The credits are expanded to allow 501(c)(1) governmental organizations to take them.
Provides 14 weeks of paid sick and family and medical leave to help parents with additional caregiving responsibilities when a child or loved one’s school or care center is closed; for people who have or are caring for people with COVID-19 symptoms, or who are quarantining due to exposure; and for people needing to take time to get the vaccine.
Maximum paid leave benefit of $1,400 per-week for eligible workers. This will provide full wage replacement to workers earning up to $73,000 annually.
Reimburses employers with fewer than 500 employees for the cost of this leave. Extending the refundable tax credit will reimburse employers for 100 percent of the cost of this leave. Reimburses state and local government for the cost of this leave.
$25 billion Restaurant Revitalization Fund (RRF) Provides direct grants to eligible entities, intended to help businesses in the food services sector. Eligible entities include restaurants, bars, food stands, food trucks, food carts, caterers, saloons, inns, taverns, lounges, brewpubs, tasting rooms, taprooms, and any licensed facility or premise of a beverage alcohol producer where the public may taste, sample, or purchase products, or other similar place of business in which the public or patrons assemble for the primary purpose of being served food or drink.
The act allows for grants equal to the pandemic-related revenue loss of the eligible entity, up to $10 million per entity, or $5 million per physical location. The grants are calculated by subtracting 2020 revenue from 2019 revenue. Entities are limited to 20 locations.
The plan sets aside $5 billion for eligible applicants with 2019 gross receipts of $500,000 or less. The bill also charges the SBA with awarding the other $20 billion in grants in “an equitable manner to eligible entities of different sizes based on annual gross receipts.”
During the first 21 days of the grants, the SBA will prioritize applications from restaurants owned and operated or controlled by women, veterans, or socially and economically disadvantaged individuals.
RRF grants are not included in gross income and that this exclusion from gross income will not result in a denial of a deduction, reduction of tax attributes, or denial of basis increase due to the exclusion of the grant funds from gross income.
Targeted Economic Injury Disaster Loan (EIDL) Advance grants
$15 billion for Targeted EIDL Advance grants for businesses located in low-income communities that have no more than 300 employees and have suffered an economic loss of more than 30%, as determined by the amount that the entity’s gross receipts declined during an eight-week period between March 2, 2020, and Dec. 31, 2021, relative to a comparable eight-week period immediately preceding March 2, 2020.
Targeted EIDL Advance grants were created by the Economic Aid Act (EAA). The American Rescue Plan Act extends and expands the program in a series of steps, each one starting no more than 14 days after the previous step. No later than 14 days after the American Rescue Plan Act is enacted, the SBA must initiate a two-week period of accepting applications from any applicants that applied for Targeted EIDL Advances under the EAA and, because of lack of funds, did not receive the amount to which they were entitled ($1,000 per employee up to $10,000). The first 28 days after the plan enactment are reserved to addressing these potential funding shortfalls from the EAA.
Beginning 28 days after enactment is a 14-day period in which the SBA can also make grants of $5,000 to “severely impacted” small businesses, which are eligible entities that have suffered an economic loss of more than 50% and have no more than 10 employees. After 14 more days, the SBA can make $5,000 grants to “substantially impacted” businesses, which are those with no more than 10 employees that can demonstrate a loss of between 30% and 50%.
EIDL grants received from the U.S. Small Business Administration (SBA) are not included in gross income and that this exclusion from gross income will not result in a denial of a deduction, reduction of tax attributes, or denial of basis increase due to the exclusion of the grant funds from gross income.
Key Individual Provisions Under Consideration
Advance Payment of Recovery rebates – $1,400 recovery rebate credit for individuals ($2,800 for married taxpayers filing jointly) plus $1,400 for each dependent for 2021. The IRS will make advance payments, using 2019 AGI or 2020 AGI if filed.
Child-care tax credits – Expanded child-care tax credits on an emergency basis for one year. Increased child tax credit to $3,000 in certain cases, or $3,600 for children under age 6; fully refundable for 2021 and makes 17-year-olds eligible as qualifying children. The IRS is directed to estimate taxpayers’ child tax credit amounts and pay monthly in advance one-twelfth of the annual estimated amount. Payments will run from July through December 2021. The bill also increases the exclusion for employer-provided dependent care assistance to $10,500 for 2021.
COBRA – COBRA continuation coverage between the date of enactment and Sept. 21, 2021, and a COBRA continuation coverage premium assistance credit to taxpayers. The credit is allowed against the Sec. 3111(b) Medicare tax, is refundable, and the IRS may make advance payments to taxpayers of the credit amount.
Earned income credit – For 2021, the applicable minimum age is decreased to 19, except for students and qualified former foster youth or homeless youth . The maximum age is eliminated. Phaseouts are increased, and temporarily, taxpayers would be allowed to use their 2019 income instead of 2021 income in figuring the credit amount.
Unemployment – Extend and expand expiring unemployment insurance benefits.
Miscellaneous Tax Provisions
Foreign Tax Credit Limitations – The bill repeals Sec. 864(f), which allows affiliated groups to elect to allocate interest on a worldwide basis. Companies would not be allowed to apportion interest expense on a worldwide basis to determine taxable income applied to foreign tax credit limitations. This change to current law would raise $22 billion in revenue over the next 10 years, relative to current law.
The American Rescue Plan heads to the Senate where some changes are anticipated. Stay tuned as we monitor the legislation for potential changes that could impact you. As always, please contact us if you have any questions or would like to talk to one of our COVID-19 Advisory Team members – we’re here to help.