American Rescue Plan: Provisions for Businesses
As you may know, President Biden signed the $1.9 trillion American Rescue Plan Act of 2021 (ARPA) into law on Thursday, March 11th. AAFCPAs has outlined, below, the key provisions for businesses, including those related to:
- Employee Retention Credits
- The Paycheck Protection Program
- Family and Sick Leave Credits
- Targeted Economic Injury Disaster Loans
- The Restaurant Revitalization Fund
- Shuttered Venue Operators Grants
- COBRA Coverage Effect on Employees
- And other miscellaneous tax provisions
The Employee Retention Credit (ERC)
The ERC received an extension through December 31, 2021, making the credit available for the entire 2021 year. Read AAFCPAs’ detailed blog on the Biden Relief Package and changes to Employee Retention Credits.>>
The Paycheck Protection Program (PPP)
The ARPA appropriates an additional $7.25 billion to the U.S. Small Business Administration (SBA) for the PPP program. As of now, the program is still set to end on March 31, 2021; however, there are legislators and industry leaders lobbying for an extension.
ARPA Expands PPP Eligibility to Include:
- Additional tax-exempt nonprofits (whose lobbying activities do not comprise >15% of its activities):
- 501(c)(5) labor groups
- 501(c)(7) social clubs
- 501(c)(8) fraternal benefit societies
- Religious groups that are generally banned from SBA rules are permitted
- Internet publishing organizations assigned a North American Industry Classification System (NAICS) Code of 519130 and engaged in the collection and distribution of local or regional and national news and information.
- COBRA premium assistance as an allowable payroll cost under the PPP program.
- Nonprofit organizations will now be eligible if they employ no more than 500 employees per physical location for PPP Round 1, and 300 employees per physical location for PPP Round 2.
- A previous release by the SBA also announced that Schedule C borrowers may use gross income (line 7), rather than net income (line 31).
It is anticipated that Massachusetts will respond to the inequity provided in the PPP program affecting individual borrowers and owners of flow-through entities. We expect a “legislative fix,” making the forgiveness effect not taxable income in the year 2020. It is still unknown what the state will do for future years, and as always, each state has its own treatment. AAFCPAs’ SALT (State and Local Tax) practice is dedicated to monitoring and interpreting the emerging state rulings. We will provide additional updates and guidance as new information becomes available.
Family and Sick Leave Credits
The ARPA codifies the credits for sick and family leave originally enacted by the Families First Coronavirus Response Act (FFCRA), P.L. 116-127, as Secs. 3131 (credit for paid sick leave), 3132 (credit for paid family leave), and 3133 (special rule related to tax on employers). The credits are extended to Sept. 30, 2021. These fully refundable credits against payroll taxes compensate employers and self-employed people for coronavirus-related paid sick leave and family and medical leave.
- The Act increases the limit on the credit for paid family leave to $12,000 (up from $10,000).
- The number of days a self-employed individual may consider in calculating the qualified family leave equivalent amount for self-employed individuals increases from 50 to 60.
- The paid leave credits will be allowed for leave that is due to a COVID-19 vaccination.
- There is now a requirement that the leave DOES NOT favor your highly compensated employees, full-time employees, or employees based on tenure.
- The limitation on the overall number of days considered for paid sick leave will reset after March 31, 2021.
- 501(c)(1) governmental organizations are now permitted to take advantage of these credits.
The Act provides that targeted Economic Injury Disaster Loan (EIDL) grants received from the 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. Similar treatment is afforded to SBA restaurant revitalization grants (detailed below). Additional funding will also be targeted for EIDL advances. Specifically, one-third of the new funding is dedicated to support businesses that suffered more than a 50% revenue loss and employ less than 10 people. Congress made “targeted economic injury disaster relief loan advances” (Targeted EIDL) available as part of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act passed on December 27, 2020, to provide additional funds to small businesses in low-income communities.
Restaurant Revitalization Fund
The ARPA introduced a new Restaurant Revitalization Fund, which will provide $28.6 billion in grants to restaurants and bars in need. The first 21 days of the program are reserved for small businesses owned and controlled by women, veterans, or economically and socially disadvantaged persons. Similar to the PPP, there will be required certifications, including a necessity certification, to obtain the grant. The grants are limited to $10M, $5M per physical location, and are calculated based on the pandemic-related revenue loss of the eligible entity. The grant may be used for expenses similar to the PPP program, with notable additions such as maintenance expenses, construction to accommodate outdoor seating, walls, floors, fixtures, supplies, food and beverage costs, supplier costs, operational expenses, etc.
What Are the Eligibility Requirements?
- Eligible businesses include food service and drinking establishments like restaurants, bars, caterers, breweries, taprooms, and tasting rooms.
- Excludes restaurant chains with more than 20 locations including affiliated companies as of March 13, 2020.
- Affiliation is defined as more than 50% interest in an affiliated business or contractual authority to control the direction of the affiliated business.
- Excludes publicly traded businesses and state or local government-operated businesses.
- Excludes businesses that are applicants of the Shuttered Venues Operators Grant (SVOG) program (details below).
- Businesses must certify their current uncertain economic conditions.
- Excludes any permanently closed businesses.
What Is the Covered Period?
The covered period is from February 15, 2020, to December 31, 2021.
How Is the Grant Calculated?
The value of the grant is complicated as it depends, in part, on the year of opening for the business. Further, if you have taken advantage of other stimulus-related programs, such as the PPP, those funds will be subtracted from the ultimate grant amount received. As each entity’s calculation will be slightly different, contact your AAFCPAs advisor to understand what your grant amount may be and other considerations and implications of this program.
Shuttered Venue Operators Grants
$1.25 billion of additional funding will be made available for the SBA’s SVOG Program, including $500,000 set aside for technical assistance to help entities apply for grants, though applications are not yet available. The Act also allows eligible applicants to access both the SVOG and PPP to address SVOG’s delayed start.
COBRA Coverage Effect on Employers
Workers who lost their jobs and their dependents who lost group health coverage during the COVID-19 pandemic because they were unable to afford COBRA premiums now will have an opportunity to receive fully subsidized coverage for up to six months under ARPA. This is a dramatic departure from the regular COBRA scenario in which the worker and dependents have full financial responsibility to pay premiums and up to a 3% administrative fee. Under ARPA, the employer, insurer or multiemployer plan sponsor must pay eligible employees’ COBRA premiums but may offset the cost by claiming a new Medicare payroll tax credit.
ARPA makes the subsidized premiums available for the six-month period from April 1 through September 30, 2021. The subsidized coverage will be available, as well, to certain workers and their dependents who involuntarily lose group health benefits between April 1 and September 30, 2021.
ARPA does not extend or modify the period of COBRA eligibility, which is most often 18 months (but may be as long as 29 or 36 months). So, typically, if an employee and dependents lose benefits as of August 1, 2021, for example, subsidized coverage will be available for only the months of August and September 2021, even though their COBRA eligibility period extends to January 31, 2022. As another example, if an employee and dependents lost benefits as of March 1, 2020, 18 months of eligibility would expire at the end of August 2021 and premiums would be subsidized for five months, namely, April through August 2021.
The Act provides the opportunity to retroactively elect COBRA benefits or start benefits effective as of April 1, 2021, as a result of the new election. The new 60-day election period also applies if the employee initially elected COBRA and then dropped the COBRA benefits or declined to elect coverage.
People who left a job voluntarily are not eligible for the subsidized coverage. The subsidy is available to workers and dependents who lost group health coverage on account of an involuntary loss of employment or involuntary reduction in work hours. People who qualify for subsidized coverage and later start a new job with group health insurance will no longer be eligible for the subsidy.
The subsidy applies to group health benefits but not to health care flexible spending accounts. It currently is unclear whether the subsidy applies to dental or vision coverage.
The subsidy applies to self-funded and fully insured plans, multi-employer plans, and governmental employer plans. The subsidy is not taxable income to the insured. Recoupment of the subsidy awaits guidance from the Internal Revenue Service. Depending upon the type of plan, the premium payments will be advanced by employers, their insurers, or a multiemployer plan, and will be recouped either by a payroll tax credit or a refund.
The language of ARPA is mandatory regarding the payment of premiums on behalf of assistance eligible individuals, or AEIs, by employers but permissive as to allowing employees the option to change coverage.
Employers will need to provide notice to subsidy-eligible individuals no less than 15 and no more than 45 days before any subsidy ends unless the subsidy ends because the individual has obtained other group health plan coverage. COBRA notices must be revised to include provisions regarding the availability of subsidies and, if offered, the ability to change plan options. Notices must include:
- The forms to establish eligibility for subsidies;
- The name, address, and phone number to contact the employer or other person who can provide assistance and further information;
- A description of the extended election period;
- A description of the individual’s obligation to notify the plan of loss of eligibility for the subsidies, and the potential penalties for failure to do so;
- A prominently displayed description of the right to subsidies and the conditions to qualify; and
- If permitted by the employer, a description of the option to enroll in a different plan option.
Existing qualified beneficiaries eligible for subsidies, including individuals eligible for the extended election period to enroll in subsidized COBRA, must receive an additional notice including this information by May 31, 2021. We expect model language from the administrative agencies by April 10.
Employers will obtain reimbursement for the subsidy under ARPA through a payroll tax credit against the employers’ quarterly taxes. If the credit exceeds the amount of payroll taxes due, the credit will be refundable when employers submit Form 941. The credit could also be advanced under rules that will be set by the Treasury Department. It is worth noting that ARPA was a reconciliation bill that only allocates $10 million in implementation funding for this subsidy, so the availability of those funds, particularly regarding refunds and advances, should be closely monitored.
Miscellaneous Tax Provisions
A new Community Navigator Program will help with outreach to target eligible businesses so that they may take advantage of these federal programs.
The Act amends Sec. 162(m), for years after 2026, to add a corporation’s five highest-compensated employees (besides the employees already covered by Sec. 162(m)) to the list of individuals subject to the $1 million cap on deductible compensation. This limitation applies to the employer’s CEO, CFO and the company’s next three highest compensated officers. Starting in 2027, the limitation will apply to the CEO, CFO and the company’s next eight highest compensated employees (i.e. an increase of five employees). With this additional cap on a corporation’s compensation deduction, publicly-held corporations may see a larger tax bill.
The Act extends the Sec. 461(l) limitation on excess business losses of noncorporate taxpayers for one year, through 2027 (it was previously set to sunset in 2025). The 2017 Tax Cuts and Jobs Act (the TCJA) limited non-corporate taxpayers’ ability to deduct excess business losses—the excess of the aggregate business gross deductions over aggregate business gross income—to $250,000 per year (or $500,000 for joint filers), with unused excess business losses carried forward as net operating losses. Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Congress delayed the limitation until 2021 such that the limitation would apply for tax years 2021-2025. Now, the ARPA has extended the limitation by one year such that the limitation will apply for tax years 2021-2026.
ARPA repeals the Section 864(f) election for U.S. affiliated groups to allocate interest expense on a worldwide basis. Congress enacted Section 864(f) of the Internal Revenue Code of 1986, as amended (the Code) in 2004. Section 864(f) permits taxpayers to elect to apportion interest expense on a worldwide basis, which may have implications for foreign tax credit calculations. Although section 864(f) was enacted in 2004, its effective date has been delayed several times, and it was scheduled to go into effect beginning with the 2021 tax year. The ARPA repealed section 864(f), which may affect how multi-national groups approach financing transactions and intercompany arrangements on a going-forward basis.
The Act temporarily delays the designation of multiemployer pension plans as in endangered, critical, or critical and declining status and makes other changes for multiemployer plans in critical or endangered status. Additionally, $86 billion has been allotted to fixing failing multiemployer pensions, including about 185 union pension plans that—without the rescue—would force more than a million retired truck drivers, retail clerks, builders and others to forgo retirement income. The legislation gives the weakest plans enough money to pay hundreds of thousands of retirees their full pensions for the next 30 years, through plan year ending in 2051.
AAFCPAs’ COVID-19 Task Force is dedicated to following emerging legislation and FAQs, understanding how this impacts our clients, and educating our 240+ person team on opportunities for proactive outreach.