The latest Covid-relief bill – the $1.9 trillion American Rescue Plan Act of 2021 (ARPA) – was signed into law by President Biden, and it provides several provisions specifically beneficial to restaurant owners and to small business owners and individuals in general.
Much of the ARPA extends and expands on the provisions from earlier Covid-relief legislation, including the Families First Coronavirus Relief Act (FFCRA), Coronavirus Aid, Relief and Economic Security (CARES) Act, and the Consolidated Appropriations Act, 2021 (CAA).
As you would expect with bill of this magnitude, the law is very complex, and we will continue to monitor guidance from the Small Business Administration and keep you posted on how the various provisions will impact you. In the meantime, below is a little more about how the ARPA will impact employers and business owners who are eligible for or who have already received Paycheck Protection Program Loans or Employee Retention Tax Credits:
PPP Additional funding
ARPA allocates an additional $7.25 billion towards PPP funding; however, the application period has not been extended and remains March 31, 2021.
Employee Retention Tax Credit
The new legislation:
- Extends the ERTC from June 30, 2021, until December 31, 2021. The legislation would continue the ERTC rate of credit at 70% for this extended period of time. It also continues to allow for up to $10,000 in qualified wages for any calendar quarter. Considering the CAA extension and the pending ARPA extension, this means an employer would potentially have up to $40,000 in qualified wages per employee through 2021.
- Limits the ERTC to $50,000 per calendar quarter of an eligible employer that is a “recovery startup business.” A “recovery startup business” is one that:
- Began operations after February 15, 2020, whose average annual gross receipts for a 3-taxable-year period ending with the taxable year which precedes such quarter does not exceed $1 million; and
- experiences a full or partial suspension of operations due to a governmental order or experiences a significant gross receipts decline.
- Allows the credit to be claimed against Medicare (1.45%, Hospital Insurance – HI) taxes only. Since the employer/employee tax rate for Medicare is 1.45%, it could take longer to immediately claim the credit under the ARPA for the third and fourth quarters of 2021. Instead of just withholding the taxes immediately, it could be more likely that more employers would need to file Form 7200 (Advance Payment of Employer Credits Due to COVID-19).
- Continues the year-over-year gross receipts decline requirement at 20%. The threshold for qualified wages (even if the employee is working) would continue to be 500 employees, as expanded by the CAA.
- Requires the Treasury Secretary to issue guidance providing that payroll costs paid during the covered period would not fail to be treated as qualified wages to the extent that a covered loan under the Small Business Act is not forgiven. As with the expansion of the ERTC under the CAA, this would continue to mean that Paycheck Protection Program (PPP) recipients would be eligible if the loan did not pay the wages in question.
Qualified wages paid by an employer taken account as payroll costs under:
- Second Draw PPP loans;
- Shuttered venues assistance; and
- restaurant revitalization grants are not eligible for the ERC.
Paid Sick and Family Leave Credits
Changes under ARPA apply to amounts paid with respect to calendar quarters beginning after March 31, 2021. The new legislation:
- Extends the FFCRA paid sick time and paid family leave credits from March 31, 2021, through September 30, 2021.
- Provides that paid sick and paid family leave credits may each be increased by the employer’s share of Social Security tax (6.2%) and employer’s share of Medicare tax (1.45%) on qualified leave wages.
- Permits the Treasury Secretary to waive for failure to deposit penalties on “applicable employment taxes” if the failure to deposit is due to an anticipated credit. “Applicable employment taxes” are defined as the employer’s share of Medicare or Tier 1 RRTA tax.
- Allows for the credits for paid sick and family leave to be structured as a refundable payroll tax credit against Medicare tax only (1.45%), beginning after March 31, 2021.
- Increases the amount of wages for which an employer may claim the paid family leave credit in a year from $10,000 to $12,000 per employee.
- Expands the paid family leave credit to allow employers to claim the credit for leave provided for the reasons included under the previous employer mandate for paid sick time. For the self-employed, the number of days for which self-employed individuals can claim the paid family leave credit is increased from 50 to 60 days.
- Permits the paid sick and family leave credit to be claimed by employers who provide paid time off for employees to obtain the COVID-19 vaccination or recover from an illness related to the immunization.
- Increases the paid sick and family leave credit by the cost of the employer’s qualified health plan expenses and by the employer’s collectively bargains contributions to a defined benefit pension plan and the amount of collectively bargained apprenticeship program contributions.
- Resets the 10-day limitation on the maximum number of days for which an employer can claim the paid sick leave credit with respect to wages paid to an employee. The current 10-day limitation runs from the start of the credits in 2020 through March 31, 2021. For the self-employed, the 10-day reset applies to sick days after January 1, 2021.
The new legislation:
- Extends continued unemployment provisions to September 6, 2021.
- Extends the federal pandemic unemployment compensation (FPUC) unemployment payment of $300 per week through September 6, 2021.
- Does not extend the 50% credit for reimbursing employers.
Pension and Benefits Related Provisions
Dependent Care Assistance.
The amount of taxable wage exclusion for dependent care benefits is increased from $5,000 to $10,500 for married couples filing jointly. The amount of excludable wages for married couples filing separately is $5,250. This increase applies to any taxable year beginning after December 31, 2020, and before January 1, 2022, effective December 31, 2020.
Under ARPA, Assistance Eligible Individuals (AEIs) may receive an 85% subsidy for COBRA premiums paid during any period of COBRA coverage during the period beginning on April 1, 2021, (the first day of the first month beginning after enactment) and ending on September 30, 2021.
- Refundable tax credit. Employers will be allowed a quarterly tax credit against the Medicare payroll tax equal to the premium amounts not paid by AEIs. If the credit amount exceeds the quarterly Medicare payroll tax, the excess will be treated as an overpayment refundable under and Code Sec. 6402(a) and Code Sec. 6413(b). The quarterly credit may be paid in advance according to forms and instructions to be provided by the Department of Labor.
- Notice requirements. Group health plans must provide the following notices to AEIs:
- Notice of assistance availability. Informs AEIs of the availability of the subsidy and the option to enroll in different coverage (if permitted by the employer). Must be provided to individuals who become eligible to elect COBRA during the period beginning on April 1, 2021, and ending on September 30, 2021. This notice requirement may be met by amending existing notices or including a separate document along with them. Specific content requirements apply.
- Notice of extended election period. Must be provided to individuals eligible for an extended election period within 60 days after April 1, 2021.
- Notice of expiration of subsidy. Must be provided between 45 and 15 days before the date on which an individual’s subsidy will expire, unless the subsidy is expiring because the individual has gained eligibility for coverage under another group health plan or Medicare.
Nina Daigle, CPA, is a partner with Antares Group, Inc. She can be reached at firstname.lastname@example.org.