The American Rescue Plan, 2021 (ARPA, 2021) was passed by Congress on March 10, 2021 to address the continuing economic impact on employers and employees the coronavirus (COVID-19) pandemic has posed. President Biden signed the bill today, March 11. 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).
2021 Individual Recovery Rebate/Credit
Under ARPA, an eligible individual is allowed an income tax credit for 2021 equal to the sum of: (1) $1,400 ($2,800 for eligible individuals filing a joint return) plus $1,400 for each dependent of the taxpayer.
- For purposes of the credit, an “eligible individual” is any individual other than a nonresident alien or an individual who is a dependent of another taxpayer for the tax year.
Phaseout of credit. The amount of the credit is ratably reduced (but not below zero) for taxpayers with adjusted gross income (AGI) of over:
- $150,000 for a joint return;
- $112,500 for a head of household; and
- $75,000 for all other taxpayers.
The credit is completely phased out (reduced to zero) for taxpayers with AGI of over:
- $160,000 for a joint return;
- $120,000 for a head of household; and
- $80,000 for all other taxpayers
NOTE: Most eligible individuals won’t have to take any action to receive an advance rebate from IRS. This includes many individuals who only file a tax return to claim the refundable earned income credit and child tax credit. NOTE: This credit is technically for 2021 and taxpayer who did not qualify for advance of credit based on 2020 income, may still receive credit on 2021 tax return if 2021 income is under phase out limitations.
Child Tax Credit Expanded for 2021
For tax year 2021 the CTC is temporarily expanded as to eligibility, and amount, as follows:
- The definition of a qualifying child is broadened to include a child who hasn’t turned 18 by the end of 2021.
- The CTC is increased to $3,000 per child ($3,600 for children under age 6 as of the close of the year).
- The CTC is fully refundable for 2021 for a taxpayer (either spouse for a joint return) with a principal place of abode in the U.S. That is, refundability will be determined without regard to either the earned income, or alternative formula.
NOTE: These amendments apply to tax years beginning after December 31, 2020.
Unemployment Received in 2020 Partially Excluded from Income for Some Taxpayers
In the case of any tax year beginning in 2020, if the adjusted gross income (AGI) of the taxpayer for the tax year is less than $150,000, the gross income of the taxpayer does not include unemployment compensation received by the taxpayer as long as it does not exceed $10,200.
NOTE: Law does not provide for a phase-out based on AGI. Therefore, if a taxpayer makes $150,000 or more, the exclusion does not apply, and all the individual’s unemployment compensation would be included in gross income
- Some taxpayers already filed their returns before the passage of ARPA. If these taxpayers included unemployment compensation in their gross income, they should file amended returns if they qualify for the exclusion.
Taxpayers Don’t Have to Repay Excess Advance Premium Tax Credit Payments for 2020
Beginning in 2020, under the ARPA you no longer have to payback your ACA (Obamacare) premium subsidies if you made too much money. If you have insurance through the ACA exchange you may have received premium subsidies based on estimates from your prior year return. Prior to this law, with unexpected income, you would have received a potentially large tax bill with your 2020 return.
Paid Sick and Family Leave Credits
Changes under ARPA apply to amounts paid with respect to calendar quarters beginning after March 31, 2021. ARPA, 2021:
- Extends the FFCRA paid sick time and paid family leave credits from March 31, 2021 through September 30, 2021.
- Increases 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.
- Expands 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.
- Permits 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.
- Increases 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.
- Establishes 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.
- Resets 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 for self-employed individuals.
Employee Retention Credit
The new legislation:
- Extends the ERC from June 30, 2021 until December 31, 2021. The legislation would continue the ERC rate of credit at 70% for this extended period of time. It also continues to allow for up to $10,000 in qualified wages for any calendar quarter. Taking into account 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.
- Limits 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.
- Continues 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.
- Requires 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.
The new legislation:
- Extends continued unemployment provisions to September 6, 2021. This would include the: (1) pandemic unemployment assistance (PUA), (2) federal pandemic unemployment compensation (FPUC), (3) pandemic emergency unemployment compensation (PEUC), (4) the funding for waiving the one-week unemployment benefit waiting period, (5) the temporary financing of short-time compensation (STC) payments for states with programs, (6) STC agreements for states without programs, (7) temporary assistance for states with federal unemployment advances, and (8) the full federal funding of extended unemployment compensation.
NOTE: Further temporary suspension on the accrual of interest on federal unemployment loans to states and a waiver of interest payments under the ARPA assists certain employers that otherwise would have to pay an unemployment tax assessment.
- Extends the FPUC unemployment payment of $300 per week through September 6, 2021.
- Does not extend the 50% credit for reimbursing employers.
Paycheck Protection Program Modifications
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.
Other Relief-Related Provisions
Restaurant revitalization grants. ARPA appropriates $28,600,000,000 for fiscal year 2021 to struggling restaurants to be administered by the SBA. The money will be available until expended. Eligible entities include restaurants, or other specified food businesses, and includes businesses operating in an airport terminal. 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 businesses under the same name. It also does not include any business that has a pending application for, or has received, and grant under the Economic Aid to Hard-Hit Small Businesses, Non-Profits and Venues Act. The amount given to any business who fulfills the eligibility and certification requirements is $10,000,000 and limited to $5,000,000 per physical location of the business. Grants may be used for: (1) payroll costs; (2) mortgage payments; (3) rent; (4) utilities; (5) maintenance expenses; (6) supplies; (7) food and beverage expenses; (8) covered supplier costs; (9) operational expenses; (10) paid sick leave; and (11) any other expense determined to be essential to maintaining the business.
Shuttered venue operators. CAA, 2021 authorized grants to eligible live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operators, or talent representatives who demonstrate a 25% reduction in revenues. ARPA appropriates $1,250,000,000, for fiscal year 2021, to help carry out these grants. The money will be available until expended. Governmental entities do not qualify.
Aviation manufacturing job protection. ARPA establishes a payroll support program for the continuation of employee wages, salaries and benefits for aviation manufacturing employers who have furloughed at least 10% of its workforce in 2020 compared to 2019, or experienced a 15% decline in revenues from 2019 to 2020 (although separate qualifications are set forth for companies that had no involuntary furloughs.