On March 11, 2021, President Biden signed into law the $1.9 trillion American Rescue Plan Act of 2021. The legislation includes provisions for businesses and individuals and extends many provisions originally enacted in the CARES Act of late March 2020. For a synopsis of the provisions see below.
- Employee Retention Credit – In previous webinars and emails, we’ve shared information about this new tax credit. It has now been expanded to the 3rd and 4th quarters of 2021. The Act also expands the credit to two additional types of businesses:
- Recovery startup businesses are eligible for the credit up to $50,000 per calendar quarter. This means any employer that: (1) began operations after February 15, 2020 with average annual gross receipts for a three-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 decline in gross receipts.
- Severely financially distressed businesses are employers who have suffered a decline in quarterly gross receipts of 90% or more compared to the same calendar quarter in 2019. The Employers will be able to treat all wages (up to the $10,000 limitation) paid during those quarters as qualified wages. This rule will allow a large employer (i.e., an employer with over 500 employees) under severe financial distress to treat those wages as qualified wages whether or not its employees actually provide services.
- Extension of Employer Credits for Paid Sick and Family Leave – Extends voluntary employer provided paid sick and family leave to September 30, 2021. Also increases the number of paid sick days from 50 to 60 days. The qualified family leave wages increase to $12,000 (from $10,000) per employee. The Act also expands the leave credits to cover COVID-19 vaccinations or wait times for test results or diagnoses.
- Targeted Economic Injury Disaster Loan (EIDL) Advances – Eligible small businesses may receive these advances from the Small Business Administration (SBA). Amounts received as targeted EIDL advances are not included in gross income of the recipient. Since the EIDL advances are treated as tax-exempt income, they will increase partner and shareholder basis. There is no application process for these grants. Eligible businesses will receive direct contact from the Small Business Administration via email.
- Paycheck Protection Program (PPP) – An additional $7.25 billion has been allocated to the program. Also adds “additional covered nonprofits” to the list of those now eligible to obtain PPP loans.
- This includes any nonprofit listed in Code Sec. 501(c) that’s not a (c)(3), (c)(4), (c)(6) or (c)(19) and will now include labor organizations and social/recreational clubs.
- The organization must have no more than 300 employees, not receive more than 15% of its receipts from lobbying activities, it’s activities must not comprise more than 15% of the organization’s total activities, and the cost of lobbying activities must not exceed $1,000,000 during the most recent tax year that ended prior to February 15, 2020.
- 2021 Individual Recovery Rebate – By now many Americans have likely received stimulus payments. The stimulus is equal to $1,400 (or $2,800 for married filing joint) plus $1,400 for each dependent. If you have not filed for 2020, your eligibility is based on your 2019 tax return. However, if you do not receive the credit but your Adjusted Gross Income (AGI) decreases in 2021 you will be eligible to receive the credit on your 2021 tax return. The income thresholds for phase out of this direct payment were reduced significantly from previous payments, to $80,000 and $160,000 for single and joint filers, respectively.
- Unemployment Compensation – Retroactive to 2020, if the adjusted gross income of the taxpayer is less than $150,000, the taxpayer is eligible to exclude up to $10,200 of unemployment compensation.
- The $150,000 AGI limitation applies in the case of a joint return; however, both taxpayer and spouse can exclude of to $10,200 of unemployment compensation.
- If you have filed your 2020 return and you had unemployment compensation the IRS has requested that you await guidance before amending your tax return.
- Child Tax Credit (CTC) – Expanded for 2021 to provide additional benefits to families.
- A qualifying child is one who hasn’t turned 18 by the end of 2021.
- The credit is also being increased from $2,000 to $3,000 per child ($3,600 for children under age 6 as of the end of the year).
- The credit is phased out at modified AGI of over $75,000 for singles, $112,500 for heads-of-households, and $150,000 for joint filers and surviving spouses.
- NOTE: The phase out applies only to the increased amounts of the CTC ($1,000 or $1,600 for children under age 6). The “regular” CTC of $2,000 is subject to existing phaseout rules.
- Child and Dependent Care Credit – Expanded for 2021 to make the credit refundable where previously it was non-refundable.
- The limit on expenses is increased to $8,000 (from $3,000) if there is one qualifying individual or $16,000 (from $6,000) if there are two or more qualifying individuals.
- Phaseout begins at AGI of $125,000 and at AGI of $440,000 is phased out completely.
- Credit is 50% of eligible expenses.
This is a brief summary of selected items included in this legislation. As additional guidance and clarification is issued, we will provide updates. If you have any questions regarding these provisions, please reach out to a Mitchell Wiggins team member.