What's in the new American Rescue Plan Act (ARPA)?

The American Rescue Plan Act, 2021 (ARPA) was signed by President Biden on March 11, 2021 to help businesses, nonprofits and individuals affected by COVID-19. The legislation extends and expands provisions found in the Families First Coronavirus Relief Act (FFCRA), Coronavirus Aid, Relief and Economic Security (CARES) Act, and the Consolidated Appropriations Act, 2021 (CAA, 2021).

Changes Affecting Businesses

Paycheck Protection Program (PPP) Modifications

An additional $7.25 billion is allocated towards PPP funding, however the application period has not been extended. While there is support in Congress to extend the application deadline, for now it remains March 31, 2021.
IMPORTANT: Adds “per physical location” when determining size eligibility to qualify for the PPP, for the following entities:
- Code Sec. 501(c)(3) nonprofit and veterans’ organizations with up to 500 employees; and
- Code Sec. 501(c)(6) nonprofit organizations (business leagues, chambers of commerce, real estate boards, boards of trade and professional football leagues) with no more than 300 employees
IMPORTANT: Adds “additional covered nonprofit entity” as an eligible nonprofit eligible for First Draw and Second Draw PPP loans.
- An “additional covered nonprofit entity” is an organization listed in Code Sec. 501(c) other than Code Sec. 501(c)(3), Code Sec. 501(c)(4), Code Sec. 501(c)(6), or Code Sec. 501(c)(19).
- An “additional covered nonprofit entity” is eligible for a PPP loan if ALL of the following apply:
  1. the organization employs no more than 300 employees; and
  2. it does not receive more than 15% of its receipts from lobbying activities; and
  3. lobbying activities do not comprise more than 15% of the organization’s total activities; and
  4. the cost of lobbying activities does not exceed $1,000,000 during the most recent tax year that ended prior to February 15, 2020.

Paid Sick & Family Leave Credits

Changes under the ARPA apply to amounts paid, with respect to calendar quarters beginning after March 31, 2021.

IMPORTANT: Extends the FFCRA paid sick time and paid family leave credits from March 31, 2021 through September 30, 2021.
Provides for the increase of both paid sick and paid family leave credits, 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 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.
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.

Employee Retention Credit (ERC)

IMPORTANT: The ARPA extends the ERC from June 30, 2021 until December 31, 2021. This means an employer who has $40,000 of qualifying wages for an employee in 2021 can claim a $28,000 credit for that employee (70% of qualifying wages).

Unemployment Provisions

The ARPA:

Extends continued unemployment provisions to September 6, 2021.
Extends the FPUC unemployment payment of $300 per week through September 6, 2021.
Does not extend the 50% credit for reimbursing employers.

Other Relief-Related Provisions in ARPA

IMPORTANT: Restaurant Revitalization Grants: ARPA appropriates $28,600,000,000 for fiscal year 2021 to struggling restaurants to be administered by the SBA. Eligible entities include restaurants, or other specified food businesses, and includes businesses operating in an airport terminal. It does not include a state or local government operated business, or a company that as of March 13, 2020 operates in more than 20 locations, whether or not the locations do businesses under the same name.

It also does not include any business that has a pending application for, or has received, and grant under the Economic Aid to Hard-Hit Small Businesses, Non-Profits and Venues Act.

The amount given to any business who fulfills the eligibility and certification requirements is $10,000,000, and limited to $5,000,000 per physical location of the business. Grants may be used for:

payroll costs;
mortgage payments;
rent;
utilities;
maintenance expenses;
supplies;
food and beverage expenses;
covered supplier costs;
operational expenses;
paid sick leave; and
any other expense determined to be essential to maintaining the business.

IMPORTANT: Shuttered Venue Operators: CAA, 2021 authorized grants to eligible live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operators, or talent representatives who demonstrate a 25% reduction in revenues. ARPA appropriates $1,250,000,000, for fiscal year 2021, to help carry out these grants. The money will be available until expended. Governmental entities do not qualify.

Changes Affecting Individuals

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.

Unemployment Benefit Taxation: Unemployment compensation is normally included in an individual’s Adjusted Gross Income (AGI). Under ARPA, in the case of any tax year beginning in 2020, if AGI of the taxpayer for the tax year is less than $150,000, the gross income of the taxpayer does not include unemployment compensation received by the taxpayer (or, in the case of a joint return, received by each spouse) up to $10,200.

Individual Recovery Rebate/Credit: Under ARPA, an eligible individual is allowed an income tax credit for 2021 equal to the sum of: (1) $1,400 ($2,800 for eligible individuals filing a joint return) plus (2) $1,400 for each dependent of the taxpayer.

Phaseout of credit

- The amount of the credit is ratably reduced (but not below zero) for taxpayers with adjusted gross income (AGI) of over:
  - $150,000 for a joint return;
  - $112,500 for a head of household; and
  - $75,000 for all other taxpayers.
- The credit is completely phased out (reduced to zero) for taxpayers with AGI of over:
  - $160,000 for a joint return;
  - $120,000 for a head of household; and
  - $80,000 for all other taxpayers.

Child tax credit changes: Under ARPA, for tax year 2021, the Child Tax Credit (CTC) is temporarily expanded regarding both eligibility and amount, as follows:

A qualifying child includes a child who has not turned 18 by the end of 2021.
The CTC amount is increased to $3,000 per child ($3,600 for children under 6 as of the close of the year.)
Increased credit amounts are phased out at modified of Adjusted Gross Income (AGI) of over $75,000 for singles, $112,000 for heads-of-households, and $150,000 for joint filers and surviving spouses, at a rate of $50 for each $1,000 (or fraction thereof) of modified AGI over the applicable threshold.
The phase out is limited
- it only applies to the temporarily increased amounts for 2021
- it does not apply to the $2,000 of CTC permitted under existing law
Taxpayers who aren’t eligible to claim an increased CTC in 2021, can claim a regular CTC of up to $2,000, subject to existing phase out rules.

Student loan discharge Cancel of Indebtedness (COD) is excluded from gross income. The American Rescue Plan Act excludes from gross income certain discharges of student loans after December 31, 2020, and before January 1, 2026. The discharge of a loan made by either an educational institution or a private education lender is not excluded if the discharge is on account of services performed for either the organization or for the private education lender.

ARPA In Summary

Although the ARPA has been signed into law, there are still many details that are waiting for further guidance. We are monitoring this fluid situation and will keep you updated as needed.

Please reach out to your HW&Co. advisor with any questions or for more clarification.