On March 11, 2021, President Biden signed into law the $1.9-trillion American Rescue Plan Act (“ARPA” or the “Act”). The Act contains several provisions that benefit small and midsize employers, including expansions and changes to the Employee Retention Credit, Paycheck Protection Program loans, and others.
Employee Retention Credit (ERC)
Perhaps the most overlooked relief program for small and midsize businesses is the Employee Retention Credit or ERC. The ERC is not a grant or a loan – it is a refundable tax credit that reimburses eligible employers for qualified employee wages. In 2021, employers may be eligible for up to $7,000 per employee per quarter. That means up to $28,000 per employee for the year. Employers are eligible for credits if they were shut down by a government order, had a significant decline in gross receipts, or (newly after June 30, 2021) started up business after February 15, 2020 (“Recovery Startup Businesses”). However, large businesses face some additional restrictions.
Many employers are newly or retroactively eligible for substantial relief under recent legal changes. We encourage businesses to contact us for a complimentary eligibility analysis.
The Act extends the credit through the end of 2021 and targets new companies for relief. In addition to Recovery Startup Businesses, “Severely Financially Distressed Employers” – employers that have a 90% drop in gross receipts from 2019 (as opposed to the normal 20% requirement for 2021) – are eligible for additional relief. They can claim the ERC on any employee wages (subject to the normal $10,000 per employee per quarter limit for 2021).
Many employers are eligible but have not claimed the ERC because they are not aware of it or because they are not aware of recent changes that make them eligible. PPP borrowers may now be eligible, and employers can retroactively claim ERC in previous quarters. However, it is crucial that businesses keep in mind the difference between the 2020 ERC, the 2021 Q1/Q2 ERC, and the 2021 Q3/Q4 ERC and that they not “double-dip” by including wages in ERC and another program, such as PPP forgiveness, FFCRA or others.
We specialize in building models to maximize the amount that they qualify for in multiple programs – professional advising will be crucial to take full advantage of multiple relief programs.
Paycheck Protection Program
Eligibility for PPP has been expanded to 501(c) nonprofit entities that are not 501(c)(4) lobbying entities. The previous restrictions on lobbying activity (up to $1,000,000 in expenditures or 15% of receipts) remain in place.
Unrelated to the American Rescue Plan, the House of Representatives recently passed a bill to extend the March 31 deadline for PPP second round applications to May 31, with only three representatives voting against the measure. The bill now heads to the Senate.
We expect further legal and regulatory changes to the Paycheck Protection Program. Businesses should consult professional advisors on eligibility and to ensure they stay up-to-date and compliant with new rules.
Restaurant Revitalization Fund
The Act appropriates $28 billion to create a new Restaurant Revitalization Fund (RRF) that gives grants to eligible restaurants. The RRF reimburses eligible restaurants, bars, and other businesses for their revenue lost due to the pandemic. This program is separate from PPP and PPP participants may be eligible. Eligible entities include:
- Food stands
- Food trucks
- Food carts
- Tasting rooms
- Licensed facilities or premises of alcoholic beverage producers where the public may taste, sample, or purchase products
- Any similar business that primarily serves food or drinks
To be eligible, entities (including aggregated groups) cannot:
- Operate more than 20 locations (under the same or different names),
- Be publicly traded, or
- Have received (or have a pending application for) a Shuttered Venue Operators Grant (Section 324 of the Economic Aid to Hard-Hit Small Business, Non-profits, and Venues Act).
The amount of the grant is determined by the following equation:
Max grant amount = 2019 gross receipts – 2020 gross receipts – PPP loan funding (round 1 and round 2)
The total amount of the grant is capped at $10 million (or $5 million per physical location). SBA’s website has yet to be updated for the new grant program – it is uncertain when the program will open for applications.
FFCRA Paid Sick and Family Medical Leave Tax Credits
FFCRA Paid Sick and Family Leave tax credits reimburse employers for the cost of qualified pandemic-related leave due to sickness, due to a sick family member, or due to another specified reason. The mandate that employers provide employees with paid sick and family medical leave (under the original law) was terminated at the end of 2020, but the credits were extended through March 31. The credits have been further extended through September 30.
The original law allowed up to 10 days per employee of qualified sick leave taken because the employee:
- Was quarantined based on a government order or advice of a health care provider (must be unable to telework),
- Had COVID symptoms (must be unable to telework),
- Was caring for a quarantined family member,
- Was caring for their child due to school closure, or
- Was experiencing a similar condition specified by the Department of Health and Human Services.
The American Rescue Plan provides that the 10-day limit will reset on April 1, 2021. The new law also adds new reasons – leave may be taken because the employee:
- Was waiting for COVID test results,
- Was getting vaccinated for COVID, or
- Was recovering from COVID vaccine side effects.
The credits also now apply to pension contributions and apprenticeship program costs that are allocable to the qualifying FFCRA wages. As with other programs, employers should take care not to double-dip between FFCRA credits and other reimbursements, grants, or loans for wages.
COBRA Health Coverage Subsidy
The Act funds a COBRA subsidy that will be available for eligible individuals for the six months from April 1, 2021 to September 30, 2021. Qualified individuals must have been subject to involuntary termination or reduction in hours and must have coverage that would have extended into the subsidy period. In addition, individuals must fit one of the following categories:
- Individuals who were previously eligible for COBRA continuation coverage but did not elect to take it
- Individuals who were previously eligible and elected but dropped their COBRA coverage
- Individuals who are (or become) eligible during the subsidy period
The subsidy applies to all COBRA-eligible coverage (medical, dental, vision) except health flexible spending accounts (FSAs). If the individual loses eligibility (under normal COBRA rules), the subsidy may end earlier than the expiration date of September 30.
Dependent Care FSA Exclusion
An exclusion from taxable compensation is allowed for a dependent care assistance plan (DCAP). The ARPA increases the exclusion to $10,500 of dependent care expenses ($5,250 for married filing separately) reimbursed under a DCAP for tax year 2021. To implement this change, employers would need to amend their FSA plans, but amendments may be retroactive if made before January 1, 2022.
Many multiemployer pensions (MEPs) have been chronically underfunded in recent years and are projected to be unable to cover their promised benefits. The Act authorizes the Pension Benefit Guaranty Corporation to offer financial assistance to eligible MEP plans. Plans must meet certain criteria, such as being in critical and declining status from 2020 through 2022 or having been approved by the Treasury Department to reduce benefits. The American Rescue Plan ARPA will also increase MEP premiums to $52 per participant starting in 2031 and index it to inflation thereafter. It also makes certain changes to funding for single-employer plans.
The American Rescue Plan Act also contains numerous provisions that affect individuals, including expansions of the Child Tax Credit, the Earned Income Tax Credit, Unemployment Insurance top-ups, increased ACA premium subsidies, and $1,400 stimulus payments to many people. However, the law also contains many programs that benefit small and midsize businesses.
It is imperative that businesses understand these programs and how they interact with each other. Having professional advisors and CPAs will be crucial. Since businesses generally cannot double-dip, they can benefit by optimizing their relief among multiple programs by using statistical models and forecasting. Ryan & Wetmore is an accounting and advisory firm – we specialize in using data to maximize relief for our clients. Contact us today.