On March 11, 2021, President Joe Biden signed the American Rescue Plan Act (H.R. 1319) into law. This new legislation provides nearly $1.9 trillion in funding and stimulus to further support and lift the American people, their families, and their businesses.
While this new round of stimulus will certainly make an impact in nearly every area of American life, we want to focus on what it means for your business. We will highlight a few key areas of the American Rescue Plan and describe the impact on companies.
Employee Retention Credit
What is it?
The Employee Retention Credit is a refundable tax credit against certain employment taxes equal to 70% of the qualified wages an eligible employer pays to employees up to $10,000 per employee per quarter.
Employers may qualify if they can demonstrate that their operations were partially or fully suspended due to government orders related to COVID-19, or if the company can demonstrate that gross receipts were 80% less than the gross receipts of the previous calendar year for the same quarter. Additionally, new businesses that started after February 15, 2020 may be eligible.
- The Employee Retention Credit (ERC) has been officially extended through the year and will remain in place until December 2021 (it was originally set to expire on June 30, 2021).
- The American Rescue plan softens restrictions on “Severely Financially Distressed Employers” which is defined as employers that can demonstrate that gross receipts are less than 10% of gross receipts of the corresponding base period (i.e. the same calendar quarter of 2019). Under the new act, these employers may apply the ERC to all wages paid to employees even if they have over 500 employees (the previous rule limited the credit that could be taken if an employer had more than 500 full-time employees).
Families First Coronavirus Response Act (FFCRA) Paid Sick and Family Leave Tax Credit
What is it?
The Families First Coronavirus Response Act required certain employers to provide their employees with paid sick leave or expanded family and medical leave for specific reasons that are directly related to COVID19. The government would then provide a tax credit to businesses who paid employees for this leave. Under the American Rescue Plan Act, there is no longer a requirement to pay sick leave or expanded family and medical leave. However, companies who continue to do this (it’s optional) can still receive a tax credit.
The expanded paid sick leave and family and medical leave provisions that fall under FFCRA apply to certain public employers as well as private employers who have fewer than 500 employees, with certain exceptions made to some companies with 50 employees or fewer.
Businesses who meet these criteria and grant employees paid sick time under the direction of FFCRA are eligible for the tax credit.
- The tax credit is extended beginning April 1, 2021 through September 30, 2021.
- The requirement to offer FFCRA leave expired in 2020 but covered employers that continue to offer it will have such leave funded by the government up to applicable limits.
- Employees will be eligible for a new bank of leave starting on April 1. Full-time employees are entitled to 80 hours of leave while part-time employees are entitled to a prorated amount.
- New reasons have been added for which and employee may take paid sick or family leave.
- The tax credit is expanded to apply to pension contributions and apprenticeship program costs.
- A newly specified rule states that employers cannot “double dip” by taking credit for payroll costs that have been subject to PPP loan forgiveness
- Employers cannot favor highly compensated employees nor can they discriminate based on how long an employee has worked for the employer.
Paycheck Protection Program
What is it?
The Paycheck Protection Program (PPP) provides government loans (that can be fully forgiven) to businesses who qualify for assistance. The second round of PPP loans is scheduled to end March 31, 2021.
The SBA is now accepting loan applications from businesses who did not receive a loan in the first round of PPP as well as businesses that are going for a “second draw.” To qualify for a second draw loan, the SBA states that the company has no more than 300 employees and can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.
- Eligibility for PPP loans is expanded to nonprofit 501(c) entities (excluding 501(c)(4) organizations).
- Certain nonprofit or veterans organizations become eligible even if the employ 300 or more employees
- COBRA premium assistance payments are not to be included in PPP forgivable payroll costs
More from the SBA here.
Dependent Care FSA
What is it?
Dependent Care FSAs (flexible spending accounts) are a financial vehicle that allows employees to set aside pre-tax dollars into an account that will be spent on care for dependents. Under normal circumstances, if an employee and a spouse participate in Dependent Care FSA then a married couple filing jointly can only exclude a maximum of $5,000 (even if both members of the couple contributed $5,000 to their account). A new increase to the tax exclusion means more savings for Dependent Care FSA holders.
Those who currently have and contribute to a Dependent Care FSA.
The American Rescue Plan increases the exclusion for employer-provided Dependent Care FSAs from $5,000 to $10,500 for married couples filing jointly (or $5,250 for married couples filing separately) for 2021.
More from the IRS here.