By: Jessica A. Distel, CPA, MBA - Director of Tax and Business Services
The American Rescue Plan, 2021 (ARPA, 2021) was signed by President Biden on March 11, 2021 to address the continuing economic impact on small businesses, employers, and employees due to the coronavirus (COVID-19) pandemic. The legislation extends and expands provisions found in the Families First Coronavirus Relief Act (FFCRA), Coronavirus Aid, Relief and Economic Security (CARES) Act, and the Consolidated Appropriations Act, 2021 (CAA, 2021).
Below is a summary of some of the provisions from this latest legislation that are impacting our small business clients.
Restaurant Revitalization Grants
ARPA appropriates $28,600,000,000 for fiscal year 2021 to struggling restaurants to be administered by the SBA. Eligible entities include restaurants or other specified food businesses. It does not include a state or local government operated business, or a company that as of March 13, 2020 operates in more than 20 locations, whether or not the locations do business under the same name. It also does not include any business that has a pending application for, or has received, a grant under the Economic Aid to Hard-Hit Small Businesses, Non-Profits and Venues Act.
Grants may be used for payroll costs, mortgage payments, rent, utilities, maintenance expenses, supplies, food and beverage expenses, covered supplier costs, operational expenses, paid sick leave, and any other expense determined to be essential to maintaining the business.
The SBA has yet to issue rules or any other guidance regarding the application procedure for Restaurant Revitalization Grants, except that applicants will have to make a good faith certification to the SBA that the uncertainty of current economic conditions makes the applicant’s grant request necessary to support its ongoing operations.
Any funds left over after the first 60 days of grant eligibility will be opened to larger restaurant businesses, but the details regarding the procedure for opening the eligibility requirements have not yet been published.
Paid Sick and Family Leave Credits
Changes under ARPA, as it relates to FFCRA paid sick time and paid family leave credits, apply to amounts paid with respect to calendar quarters beginning after March 31, 2021 and include an extension of the credits from March 31, 2021 through September 30, 2021. These new provisions:
- Provide that paid sick and paid family leave credits may each be increased by the employer's share of Social Security tax (6.2%) and employer's share of Medicare tax (1.45%) on qualified leave wages.
- Permit the Treasury Secretary to waive for failure to deposit penalties on "applicable employment taxes" if the failure to deposit is due to an anticipated credit. "Applicable employment taxes" are defined as the employer's share of Medicare or Tier 1 Railroad Retirement Tax Act (RRTA tax).
- Allow for the credits for paid sick and family leave to be structured as a refundable payroll tax credit against Medicare tax only (1.45%), beginning after March 31, 2021.
- Increase the amount of wages for which an employer may claim the paid family leave credit in a year from $10,000 to $12,000 per employee.
- Expand the paid family leave credit to allow employers to claim the credit for leave provided for the reasons included under the previous employer mandate for paid sick time. For the self-employed, the number of days for which self-employed individuals can claim the paid family leave credit is increased from 50 to 60 days.
- Permit the paid sick and family leave credit to be claimed by employers who provide paid time off for employees to obtain the COVID-19 vaccination or recover from an illness related to the immunization.
- Increase the paid sick and family leave credit by the cost of the employer's qualified health plan expenses and by the employer's collectively bargains contributions to a defined benefit pension plan (as defined under Code Sec. 414(j)) and the amount of collectively bargained apprenticeship program contributions.
- Establish a non-discrimination requirement where no credit will be permitted to any employer who discriminates in favor of highly-compensated employees as defined under Code Sec. 414(q), full-time employees, or employees on the basis of employment tenure.
- Reset the 10-day limitation on the maximum number of days for which an employer can claim the paid sick leave credit with respect to wages paid to an employee. The current 10-day limitation runs from the start of the credits in 2020 through March 31, 2021. For the self-employed, the 10-day reset applies to sick days after January 1, 2021.
- Clarify that while no credit for paid sick and family leave may be claimed by the federal government or any federal agency or instrumentality, this would not apply to any organization described under Code Sec. 501(c)(1) and exempt from tax under Code Sec. 501(a), including state and local governments.
Employee Retention Credit
The new legislation extends the Employee Retention Credit (ERC) from June 30, 2021 until December 31, 2021. The legislation would continue the ERC rate of credit at 70% for this extended period. It also continues to allow for up to $10,000 in qualified wages for any calendar quarter. Considering the CAA extension and the pending ARPA extension, this means an employer would potentially have up to $40,000 in qualified wages per employee through 2021. The new provisions:
- Limit the ERC to $50,000 per calendar quarter of an eligible employer that is a "recovery startup business" as defined in Code Sec. 3134(c)(5). A "recovery startup business" is one that: (1) began operations after February 15, 2020 whose average annual gross receipts for a 3-taxable-year period ending with the taxable year which precedes such quarter does not exceed $1,000,000, and (2) experiences a full or partial suspension of operations due to a governmental order or experiences a significant gross receipts decline.
- Allow the credit to be claimed against Medicare (1.45%) taxes only. Since the employer/employee tax rate for Medicare is 1.45%, it could take longer to immediately claim the credit under ARPA for the third and fourth quarters of 2021. Instead of just withholding the taxes immediately, it could be more likely that more employers would need to file Form 7200 (Advance Payment of Employer Credits Due to COVID-19).
- Continue the year-over-year gross receipts decline requirement at 20%; and the threshold for qualified wages (even if the employee is working) would continue to be 500 employees, as expanded by the CAA. Also, certain governmental employers would continue to be exempt from claiming the ERC, except certain tax-exempt organizations that would include colleges and universities or medical or hospital care providers.
- Require the Treasury Secretary to issue guidance providing that payroll costs paid during the covered period would not fail to be treated as qualified wages to the extent that a covered loan under the Small Business Act is not forgiven. As with the expansion of the ERC under the CAA, this would continue to mean that Paycheck Protection Program (PPP) recipients would be eligible if the loan did not pay the wages in question.
- Qualified wages paid by an employer taken account as payroll costs under (1) Second Draw PPP loans; (2) shuttered venues assistance and (3) restaurant revitalization grants are not eligible for the ERC.
Paycheck Protection Program (PPP)
The new legislation allocates an additional $7.25 billion towards PPP funding; however, the application period has not been extended and remains March 31, 2021. In addition, the new provisions provide that amounts used from First Draw and Second Draw PPP loans for premiums used to determine the credit for COBRA premium assistance as provided under Code. Sec. 6432 are eligible for loan forgiveness.
Under ARPA, Assistance Eligible Individuals (AEIs) may receive an 85% subsidy for COBRA premiums paid during any period of COBRA coverage during the period beginning on April 1, 2021 (the first day of the first month beginning after enactment) and ending on September 30, 2021. Provisions for employers include:
- Refundable tax credit - Employers will be allowed a quarterly tax credit against the Medicare payroll tax equal to the premium amounts not paid by AEIs. If the credit amount exceeds the quarterly Medicare payroll tax, the excess will be treated as an overpayment refundable under Code Sec. 6402(a) and Code Sec. 6413(b). The quarterly credit may be paid in advance according to forms and instructions to be provided by the Department of Labor.
- Notice requirements - Group health plans must provide the following notices to AEIs:
1. Notice of assistance availability, which informs AEIs of the availability of the subsidy and the option to enroll in different coverage (if permitted by the employer). Must be provided to individuals who become eligible to elect COBRA during the period beginning on April 1, 2021 and ending on September 30, 2021. This notice requirement may be met by amending existing notices or including a separate document along with them. Specific content requirements apply.
2. Notice of extended election period, which must be provided to individuals eligible for an extended election period within 60 days after April 1, 2021.
3. Notice of expiration of subsidy, which must be provided between 45 and 15 days before the date on which an individual’s subsidy will expire, unless the subsidy is expiring because the individual has gained eligibility for coverage under another group health plan or Medicare.
These notices are required to meet COBRA’s notice requirements.
Extended Federal Tax Return and Payment Due Date
The Internal Revenue Service announced on March 17, 2021 that the federal income tax filing due date for individuals for the 2020 tax year has been automatically extended from April 15, 2021, to May 17, 2021. This extension also applies to individual federal income tax payments due for the 2020 tax year; tax liability that is owed by individuals for the 2020 tax year can now be paid by May 17, 2021, without penalty or interest. It is important to note that this due date extension does not apply to first quarter 2021 federal estimated tax payments for individuals, tax returns for C Corporations for the 2020 tax year, or first quarter 2021 federal estimated payments for C Corporations; at this time, those payments are still due by April 15, 2021. We are also waiting to hear if states and other municipalities will follow suit with the IRS and extend the filing and payment due date, as those filings and payments are currently due on April 15, 2021. S Corporation and Partnership tax returns for the 2020 tax year were due on March 15, 2021; if extended, those tax returns will be due on September 15, 2021.
We expect additional legislation to come later this year and we will continue to keep you updated. As always, please contact one our experienced team members if you have any questions or if you would like to discuss your specific situation.
For additional details regarding the American Rescue Plan Act of 2021 for Individuals, please refer to: https://mybuckingham.com/insights/american-rescue-plan-act-of-2021-what-individuals-need-to-know