News & Updates

March 26, 2021
Certified Public Accountants and Consultants
The American Rescue Plan Act of 2021
On March 11th, 2021, President Biden signed into the law the American Rescue Plan Act, one of the largest stimulus packages ever approved. With its primary goal to positively impact the economy over time, most of the U.S. continues to slowly recover from the continuing Covid-19 pandemic which has affected millions of Americans across the nation in numerous ways. “This historic legislation is about rebuilding the backbone of our country and giving the people of this nation – working people and middle-class folks who have built the country – a fighting chance,” said Biden during the bill signing. The act contains many provisions that could impact taxpayers in a variety of areas, including many tax components. Let us take a look at a brief breakdown of the numerous provisions the bill contains. 
Economic Impact Payments/Recovery Rebates
As of Friday, March 12th, millions of qualifying individuals have been receiving a fresh new round of economic impact payments. Similar to the previous two rounds, the payments are set up as advanced payments of a recovery rebate credit. Individuals are anticipated to receive $1,400 payments ($2,800 for married taxpayers filing jointly) plus an additional $1,400 per each dependent, including college students and qualifying relatives who are claimed as dependents. Payments begin to phase out for individuals with an AGI (adjusted gross income) of over $75,000, completely phasing out over $80,000. For taxpayers married filing jointly, the credit begins phasing out at an AGI of $150,000 and ceases at an AGI of $160,000. For heads of household, the phase out diminishes at an AGI of $112,500 and ends at $120,000. Payment eligibility is based on the taxpayers 2019 or 2020 adjusted gross income and are to be received via direct deposit or by mail. 
Child Tax Credit
As a result of the act, the amount of the child tax credit has increased to $3,000 per child and $3,600 for children under the age of 6. The credit diminishes for taxpayers with incomes above $75,000 for single filers, $112,500 for head of households, and $150,000 for married taxpayers filing jointly. Taxpayers can receive this credit in advance of filing their tax return. The credit is entirely refundable for 2021 and enables 17-year-olds to be eligible as a qualifying child. The credit reduces by $50 for each $1,000 of income over the threshold limits. The IRS is said to send out estimated advanced monthly amounts to qualifying taxpayers equivalent to 50% of the annual estimated amount of the credit. Taxpayers will begin to receive these monthly pay outs starting July through December of this year. The IRS will be setting up an online portal for those individuals who wish to opt out of the advance payments or provide information that can adjust their estimated amount. Taxpayers should keep track of the payment amounts they receive to be able to reconcile their advance payment amounts with the actual credit amount eligible to be claimed on their 2021 tax return.
Unemployment Benefits
In 2020, individuals with an AGI of less than $150,000 qualify to have the first $10,200 in unemployment benefits tax-free according to the act. The taxpayers filing status is not relevant for tax-free treatment and there is no phase out. The IRS recently changed the calculation for defining the $10,200 exclusion on unemployment benefits which enables more taxpayers to be eligible. Taxpayers can now exclude unemployment benefits from modified AGI whereas prior to the recent update, the IRS instructed taxpayers to include unemployment income in modified AGI. 
Earned Income Credit
For the 2021 tax year, the act announces special rules for taxpayers with no children. The minimum age has been lowered to 19 from 25, with the exclusion of certain students between ages 19 to 24. The phaseout percentage increases to 15.3%, also increasing the phase out amounts. Certain separated spouses are eligible for the credit. The maximum amount for disqualifying investment income increases from $2,200 to $10,000. For the time being, taxpayers can use their 2019 earned income rather than their 2021 earned income to determine the credit amount. 
Child & Dependent Care Credit
For 2021 only, this credit is now fully refundable and is worth 50% of eligible expenses which is limited based on income. The credit is worth up to $4,000 for one qualifying individual and up to $8,000 for two or more. A reduction in credit will begin for those with income levels over $125,000. For households with income up to $400,000, the credit is diminished to 20%. There is also an increase in the exclusion for employer-provided dependent care assistance to $10,500 for 2021.
COBRA Continuation Coverage
COBRA continuation premium assistance is provided for employees who have lost coverage under their employer’s health care plan for up to 6 months due to various reasons such as a reduction in hours, involuntary termination or any reason that otherwise determines the need for COBRA continuation. The employer is responsible for covering 100% of the coverage costs for the selected amount of time. The coverage period runs between April 1, 2021 through September 30, 2021. The act creates an updated section of the COBRA act which allows employers to claim a refundable payroll tax credit. The IRS could possibly make advance payments to employers for this credit.
Family & Sick Leave Credit
Originally enacted by the Families First Coronavirus Response Act, this credit is a fully refundable credit taken against payroll taxes which compensates employers and self-employed people for coronavirus related paid sick leave and family and medical leave. The limit on the credit has increased to $12,000 and the amount of days considered for leave has increased from 50 to 60. It also is allowed for any time off related to the recovery from the covid-19 vaccination or any related illness from the vaccine. The credit is now extended to September 30, 2021. Limitations on the total number of days taken into account will reset after March 31, 2021. 
Employee Retention Credit
Originally endorsed by the CARES Act, the employee retention credit provides a refundable tax credit against certain employment taxes equal to 70 percent of the qualified wages an eligible employer pays to employees from January 1, 2021 to December 31, 2021. The maximum credit for 2021 is 70 percent of qualified wages up to $10,000, or $7,000 of credit per employee per quarter which equates to a max of $28,000 of credit per employee. Under ARPA, the tax credit is now extended until the end of 2021. To qualify, a business must prove they were partially or wholly impacted by the covid-19 pandemic under governmental orders or prove that its gross receipts were less than 80% of its gross receipts for the same calendar quarter in 2019.
The act also expands eligibility to two other types of businesses, a recovery start-up business and a severely financially distressed employer. A recovery start-up business is a business that started operations after February 15, 2020 and had annual gross receipts of less than $1 million. The maximum credit should not exceed $50,000 for any calendar quarter. A financially distressed employer is a business that experienced a gross receipts reduction of more than 90% compared to the same calendar quarter in 2019. These businesses will be able to treat all wages up to the $10,000 limitation as qualified wages, even if the business is a large employer. For 2021, if an eligible employer had more than 500 full-time employees in 2019, the credit is based on amounts paid to employees for not providing services. If the number of full-time employees in 2019 was less than 500, the credit is based on wages paid to all employees. In determining if wages paid are qualified wages for the ERC, an eligible employer cannot include wages used to obtain PPP loan forgiveness, amounts used to claim the sick and family leave credit, or the newly created restaurant revitalization fund. Lastly, The ARPA includes a special five-year statute of limitations for the IRS to assess a deficiency for claiming the employee retention tax credit.
Paycheck Protection Program/ Shuttered Venues Operators Grant
As of Thursday, March 25th, the PPP application deadline has officially been extended from March 31st to May 31st, allowing additional time for potential borrowers to continue to take advantage of the available funds and allowing more processing time for the SBA. The act provided the program with an additional $7.25 billion dollars and has widen its eligibility for not-for-profit businesses to apply for PPP funding. As of March 21st, over 3.1 million loans estimating at $196 billion dollars has been approved to businesses across the nation. The act has also modified the Economic Aid Act making it possible for entities that have received first and second draw loans after December 27th, 2020 to also be eligible to receive a Shuttered Venue Operators Grant. The change made it clear that if a venue operator receives a first and second draw loan during the current PPP round and is also approved for an SVOG, the amount of the SVOG will be decreased by the total of the two PPP loans. To qualify, a business must have been in operation as of February 29, 2020. Keep in mind, PPP applicants are not eligible for a PPP loan if they happen to be approved for an SVOG before they receive a PPP approval loan number.

The Act provided $16 billion in funds for the Shuttered Venue Operators Grant supplying eligible applicants with grants equal to 45% of their gross earned revenue, up to a maximum amount of $10 million. The SBA is currently working on the grant program which is expected to be open for applications beginning early April. 
Targeted Economic Injury Disaster Loan Advances
Also included in the Economic Aid Act, the existing Targeted EIDL Advance Program has been allocated an additional $10 billion in funding provided by the act. This creates a greater opportunity for businesses located in low-income communities to obtain EIDL advances of up to $10,000. The program provides grants to entities that had previously applied for the program under the CARES Act but did not receive the funds due to lack of funding. The act also adds $5 billion dollars to a new program called the supplemental Targeted EIDL Advance program for small business. An eligible candidate can receive $5,000 if the entity has been in operation since January 31, 2020, does not employ more than 10 employees, has been directly impacted by the Covid-19 pandemic, is located in a low-income community, and has suffered an economic loss of greater than 50%. Applicants need not apply for the program as the SBA will reach out to those entities that could potentially qualify. The application process has yet to be determined at this point. 
Restaurant Revitalization Fund
The act provides this program with $28.6 billion dollars to help struggling restaurants and food/drinking establishments that were affected by the pandemic. The total grant amount allocated to an establishment is calculated by subtracting its 2020 gross receipts from its 2019 gross receipts reduced by an PPP loan amount. The maximum grant available equals to $5 million per physical location and $10 million per entity. The grant funds can be used for a wide range of expenses including payroll costs, mortgage & rent payments, utilities, food and beverage expenses, supplies and much more. The covered period for the grant is February 15, 2020 through December 31, 2021. Please note, funds are to be returned if the funds are not used on legitimate allowable expenses or if the business permanently ceases operation before the end of the covered period.  
The American Rescue Plan Act provides numerous other tax provisions not mentioned above that could greatly impact taxpayers in a variety of ways. To see how these provisions could benefit you, feel free to call our office for more information. We at Griffing & Company, PC would be more than happy to help you in every way possible. 
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