With President Biden’s signature yesterday, March 11, 2021, the $1.9 Trillion Stimulus Bill (ARPA) became law. This is the six separate COVID-relief bill enacted by the federal government. The American Rescue Plan Act of 2021 (ARPA) includes tax provisions, business stimulus provisions, individual assistance like extended unemployment benefits, additional funding for existing programs like the Paycheck Protection Program (PPP), help for state and local governments, and funds for coronavirus testing and vaccines. We will touch on just a few of the provisions in this legislation below.
Individual tax provisions
Tax-free unemployment benefits
Beginning with 2020, ARPA makes up to $10,200 of unemployment benefit exempt from federal income tax. To benefit from this exclusion, the taxpayer’s adjusted gross income (AGI) must be less than $150,000. Once income hits $150,000, regardless of filing status, all the unemployment benefits are taxable. For taxpayers that received unemployment benefits and already filed their 2020 federal income tax return, an amendment may result in a refund.
In addition to the two previous individual recovery rebates, where taxpayers received payments from the IRS labeled “economic impact payments”, ARPA enacts another $1,400 per person. For joint filers, this means $2,800 plus $1,400 for each qualifying dependent. The following reflects the points at which the rebate amount starts being reduced and at the point by which it is fully eliminated, depending on the filing status:
Filing status Begin reduction Fully eliminated
Joint $150,000 $160,000
Head of household $112,500 $120,000
All others $75,000 $80,000
Like the earlier version of this credit, ARPA requires the IRS to make advance payments to taxpayers based on either their 2019 or 2020 tax returns. The payment is considered an advance of the credit for the year 2021, and any shortfall in the advance will be considered as part of the taxpayer’s 2021 tax return.
Child tax credit and advance payment
ARPA increases the 2021 child tax credit from $2,000 to $3,000 per child ($3,600 for children under age 6 at the end of 2021). Certain income limitations apply. Unlike the current child tax credit, the IRS is instructed to make advance payments to taxpayers of 50% of the anticipated credit. The advances are to be paid in monthly installments from July through December 2021. The advance will be reconciled on the taxpayer’s 2021 tax return, and any shortfall or excess will result in an adjustment.
Premium tax credit
The 2021 and 2022 premium tax credit (PTC), which is used to subsidize the cost of Marketplace health insurance, is enhanced. Taxpayer’s have been able to receive an advance of the credit to help reduce the monthly premiums they pay. Under current law, the credit is available on a sliding scale for individuals and families with income between 100% and 400% of the federal poverty level (FPL).
At least 250% but less than 300% 8.33% 9.83%
At least 300% but not more than 400% 9.83% 9.83%
Under ARPA, the amount required to be paid by the taxpayer is reduced and advanced credits can still be received when income exceeds 400% of the FPL.
ARPA also provides that if a taxpayer receives excess advances on their PTC during the year, as determined on that year’s tax return, that excess does not have to be repaid. This provision was made retroactive to 2020. If a taxpayer has already filed their 2020 income tax return and repaid some of the advance PTC, they should consider amending the return to secure a refund.
Other individual tax credits
The earned income tax credit is expanded and modified. In addition, the child and dependent care credit is enhanced and made refundable, meaning that a credit that exceeds the amount of tax will result in a refund.
COVID sick/leave pay credits
The Families First Coronavirus Response Act (FFCRA) required certain employers to pay employees when they were absent due to the virus. It also provided credits to fully reimburse employers. While the mandate on employers ended December 31, 2020, the credits continued through March 31, 2021. ARPA now extends the credits through September 30, 2021 for employers and self-employed individuals.
The credit provisions are modified in a number of ways, including:
• The limitation on the overall number of days that should be considered for paid sick leave will reset after March 31, 2021.
• The number of days a self-employed individual can take into account in calculating the qualified family leave equivalent amount increases from 50 to 60.
• The paid leave credits will be allowed for leave that is due to a COVID-19 vaccination.
Employer retention credit
We have previously written about substantial modifications to this credit that were extended to many businesses struggling with the economic impact of the virus. The credit was set to expire on June 30, 2021, but ARPA now extends the credit through the end of 2021.
Grants for food and beverage industry
ARPA provides “Restaurant Revitalization Grants” that will provide a total of $28.6 billion to qualifying entities, $5 billion of which is reserved for businesses with 2019 revenues of $500,000 or less. These grants are tax-free, and the requirements are similar to the PPP. The program runs through December 31, 2021.
Eligible businesses include restaurants, food stands, food trucks, food carts, caterers, saloons, inns, taverns, bars, lounges, brewpubs, tasting rooms, taprooms, and alcohol producers “where the public may taste, sample, or purchase products.” The law also ensures broad eligibility by referring to “other similar place of business in which the public or patrons assemble for the primary purpose of being served food or drink.”
Applicants must assert that there is economic uncertainty necessitating the grant, must not have received a Shuttered Venue Operators Grant, and must be able to show COVID-related revenue loss by comparing 2020’s gross receipts to 2019’s gross receipts. The amount of the revitalization grant will equal the amount of documented lost revenue, less the amount of PPP first and second draw loans received in 2020 or 2021, up to $10 million per entity (or $5 million per location). Presumably, businesses with sources of revenue other than from food and beverage sales will be eligible based solely on a reduction in qualifying revenues. Alternate calculations are available for those that were not in business for all of 2019 or 2020.
The grant funds can be used for payroll, facilities maintenance, utilities, rent, mortgage principal and interest, supplies, and food and beverage purchases. Businesses that do not fully expend the funds by the end of 2021 or that cease operations before the end of 2021 will be required to repay any funds not spent on qualifying expenses.
The SBA will administer the program and will be developing rules and creating application forms. Expect to see additional guidance and the opening of the application process in the coming weeks.
Other business provisions
ARPA provides an additional $15 billion for economic injury disaster loan (EIDL) grants, as well as $7 billion of funding for PPP loans; that program is currently set to expire on March 31, 2021. Income from these programs remains tax-free.
To help employees with the cost of health care coverage after loss of employment, ARPA introduces a 100% subsidy for COBRA continuation coverage from the date of the legislation’s enactment through September 2021. From April 1 through September 30, 2021, employers that are out-of-pocket for this coverage can receive a credit against Medicare payroll taxes. An additional $1.25 billion is set aside for the SBA shuttered venue operators grant program, a program designed to help businesses offering live venues for performing arts, museums, zoos, aquariums, movie theaters and others working in and around these industries. This program was funded with $15 billion in December, but the SBA has yet to deploy those funds. ARPA also allows businesses to apply for both a venue grant and a PPP loan; that was previously prohibited.
For 2021 only, ARPA increases the exclusion for employer-provided dependent care from $5,000 to $10,500 ($2,500 to $5,250 for MFS).
Every person’s situation is different and some of these provisions can be complicated. If you need assistance with navigating all these new rules, then please reach out to SME CPAs with any questions you may have.