On March 11, 2021, President Biden signed the American Rescue Plan Act (ARPA) into law. Here is a summary of some of the business tax provisions included in the ARPA.
Expansion of Employee Retention Credit
Under the ARPA, the Employee Retention Credit is being extended through December 31, 2021. The credit continues to be calculated at a rate of 70% for up to $10,000 in qualified wages for any calendar quarter.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) Premium Subsidy
Certain eligible individuals may receive a 100% subsidy for COBRA premiums paid for coverage during the period between April 1, 2021, and September 30, 2021. Employers would then be eligible for a quarterly tax credit against the Medicare payroll tax, equal to the premium amounts not paid by those eligible individuals.
Employer-Provided Dependent Care Assistance
For 2021 only, an employer can provide up to $10,500 of dependent care assistance to each employee under a qualified dependent care assistance program, and that amount will be excluded from that employee’s gross income. Prior to the ARPA, the amount was limited to $5,000.
Targeted Economic Injury Disaster Loan (EIDL) Advances
Under the ARPA, eligible small businesses who receive targeted EIDL advances are not required to include this amount in gross income. However, as this income is tax-exempt income, it will continue to be included in the calculation of a partner or shareholder’s tax basis.
Restaurant Revitalization Grants
Restaurant revitalization grants will be available for eligible restaurants, food trucks, and similar businesses through the Small Business Administration. The amounts received as part of this grant program will not be included in gross income. Similar to the treatment of the EIDL advances, this tax-exempt income will also be included in the calculation of tax basis.