What Businesses Need to Know About the American Rescue Plan
On March 12, 2021, President Biden signed the American Rescue Plan (ARP) Act of 2021. The fourth piece of COVID-19 relief legislation passed since the pandemic started, the ARP provides over $1.9T in relief for individuals, families, and businesses. While individuals received several essential benefits, including $1,400 economic stimulus payments and the extension of unemployment benefits, the comprehensive list of business provisions may have the most impact. From the additional funding of the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDLs) to the extension and expansion of various tax credits, including the Employee Retention Credit (ERC), opportunities for businesses abound.
The ARP allocated additional funds to sustain many programs, including those managed by the Small Business Administration (SBA), to ensure the flow of financial support to small businesses remains uninterrupted.
- PPP – The popular program received an additional $7.25B in funding, which expands the current round of available loan funds to just over $813B. On March 30, 2021, President Biden signed into law the Paycheck Protection Program (PPP) Extension Act of 2021, which extends the application deadline through May 31, 2021, and gives the SBA an additional 30 days to process applications received by the May 31 deadline.
- EIDL– The Targeted EIDL Advance program received $15B in funding. The advance is designed to provide businesses in low-income communities with additional capital necessary to ensure continuity, adaptation, and resiliency. An advance of up to $10,000 will be available to those in low-income communities that previously received an EIDL Advance for less than $10,000 or previously did not receive an advance because of exhausted funding.
- Restaurant Revitalization Fund – The ARP allocates $25B for a new fund program designed to support restaurants and other food service establishments. Tax-free relief is provided as a grant and is equal to the amount of pandemic-related losses (determined by subtracting 2020 gross receipts from 2019 gross receipts). The SBA is expected to begin accepting applications sometime in early April.
- Shuttered Venue Operators Grant (SVOG) – The SVOG received an additional $1.25B in funding with $500,000 held aside to help program applicants with needed technical assistance in the application process. Also, the ARP clarified that the amount of PPP would reduce grants received loans issued on or after December 27, 2020.
Business Tax & Other Provisions
- Employee Retention Credit (ERC) – The popular payroll-based refundable tax credit has been extended through December 31, 2021. It will be credited against the employer’s portion of Medicare taxes rather than Social Security. Also, it expands the program to include two new business categories including;
- Recovery Start-Up Businesses – These are companies that started operations after February 15, 2020, have no more than $1M in average gross receipts over the last three years, and are otherwise ineligible. The employer could claim the credit for these businesses even if there were more than 500 employees in 2019. The credit maximum is $50,000 per quarter.
- Severely Financially Distressed Employers – These are employers with gross receipts for the quarter that are less than 10% for the same period in 2019. These businesses are allowed to claim the credit for all wages and compensation paid to employees in a qualifying calendar quarter, regardless of the 500-employee limit imposed on other applicants.
- Family & Sick Leave Tax Credits – While the ARP did not renew the requirement for companies to provide paid family and sick leave benefits initially required under the Families First Coronavirus Response Act, there was an extension of credits for voluntary participants. Any company that provides Family Medical Leave or Paid Sick Leave will continue to receive tax benefits through September 30, 2021. Several other significant changes were instituted, including:
- 10 Day Bank Reset– There was a reset of the 10-day bank, which eligible employees could use. The ARP allows employers to grant up to an additional ten days of paid sick leave starting on April 1, 2021.
- Expanded Eligibility – The ARP adds new criteria for an employer to be eligible to take a paid sick leave or paid family leave credit. This includes the leave needed to get a COVID-19 vaccine, to recover from adverse reactions, and the time needed to await the results of a COVID-19 test.
- Family and Medical Leave Act (FMLA) Changes – There was also an expansion of the eligibility criteria and benefits for those taking medical leave. Under prior regulations, FMLA was only available for a ten-week period after the first two weeks were unpaid. The ARP eliminates the unpaid period making the FMLA coverage period twelve weeks long. Also, under ARP, FMLA can be used for any of the qualifying reasons found under Paid Sick Leave.
- Multi-Employer Pension Plans (MEPPs) – A new financial assistance program was created to support MEPPs facing solvency issues. The $85B funds will be administered by the Pension Benefit Guaranty Corporation (PBGC) and provide troubled plans with a means of covering benefit payments and plan expenses. While the application details have not yet been developed, there are eligibility criteria that must be met to participate, including:
- A plan must be in critical and declining status.
- For plan years between 2020 and 2022, the plan is certified to be in critical status, has a modified funding percentage of less than 40%, and has a ratio of active to inactive participants less than two to three.
- Finally, any MEPP was insolvent after December 16, 2014, but did not terminate the plan before ARPA effective date.
The ARP creates additional funding and tax savings opportunities for struggling New Jersey and Pennsylvania-area businesses. Since several changes can be utilized soon, it is important to consult with a qualified advisor to determine the best path forward.
If you have questions about the information outlined above or need assistance with another tax or accounting issue, Klatzkin can help. For additional information, click here to contact us. We look forward to speaking with you soon.
©2021 Klatzkin & Company LLP. The above represents our best understanding and interpretation of the material covered as of this post’s date and does not constitute accounting, tax, or financial advice. Please consult your advisor concerning your specific situation.