Last month, President Biden signed the American Rescue Plan Act of 2021 (ARPA) into law. An enormous and intricate piece of legislation, the $1.9 trillion bill is primarily meant to provide continuing COVID-19 relief.
The stimulus bill mainly focused on relief for individuals. However, it also contains relief for businesses in the form of grants, loans and tax benefits. While some provisions were just updates and expansions of previously existing programs, others — like the Restaurant Revitalization Fund — are completely new initiatives.
ARPA contains needed relief for businesses — and has complicated implications, particularly when it comes to taxes. In this article, we’ll cover the provisions set forth, how to take advantage of them, the potential impact on tax filings and how to go about amending tax returns if needed.
First, here’s an overview of the ARPA’s business provisions. Below, we’ll detail them in three categories: grants & loans, tax credits and other benefits.
|Provision||What It Does|
|Restaurant Revitalization Fund (RRF)||
|Shuttered Venue Operators Grant Program (SVOG)||
|Paycheck Protection Program (PPP) modification||
|Economic Injury Disaster Loan (EIDL) modification||
|Employee Retention Credit (ERC) extension and modification||
|Families First Coronavirus Response Act (FFCRA) extension and modification||
|COBRA Tax Credit||
|Carryback of Losses||
The AFRA created a new initiative called the Restaurant Revitalization Fund (RRF). It allocates $28.6 billion to provide tax-free federal grants to hard-hit food and beverage businesses.
Eligible entities are defined as a “restaurant, food stand, food truck, food cart, caterer, saloon, inn, tavern, bar, lounge, brewpub, tasting room, taproom, licensed facility or premise of a beverage alcohol producer where the public may taste, sample, or purchase products, or other similar place of business in which the public or patrons assemble for the primary purpose of being served food or drink.”
Businesses operated by state or local governments, publicly-traded companies and entities that are part of an affiliated group with more than 20 locations as of March 13, 2020, are not considered eligible. Additionally, businesses that have applied for or received a grant under the Shuttered Venue Operators Grant Program (more on that in a moment) are also not permitted to receive an RRF grant.
In order to qualify, businesses also must show that they suffered “pandemic-related revenue loss.”
Eligible restaurants can expect grants that match their pandemic-related revenue loss, calculated by taking their 2019 revenue and subtracting 2020 revenue and any Paycheck Protection Program (PPP) loan received. (A first- or second-draw PPP loan is considered revenue in this case.) Alternative calculation will be provided for entities that weren’t in operation for the entirety of 2019.
The maximum grant that a restaurant or bar can receive is $10 million, with a cap of $5 million per physical location.
|Payments of principal or interest on any mortgage obligation|
|Rent payments, including rent under a lease agreement|
|Supplies, including protective equipment and cleaning materials|
|Paid sick leave|
|Covered supplier costs (as defined by the PPP)|
|Food and beverage expenses “within the scope of the normal business practice of the eligible entity before the covered period.”|
|Any other expenses the SBA determines essential|
Grant recipients can apply the funds to eligible expenses already incurred and use them for expenses for the rest of this year, as the covered period for use of funds runs from Feb. 15, 2020 through Dec. 31, 2021 — though it may be extended. The Small Business Administration (SBA) will administer RRF grants directly, unlike PPP loans.
As of publication, applications are not yet open for RRF. Once they open (estimated early April), the first 21 days will be reserved for restaurants that are owned and controlled by women or veterans or are “socially and economically disadvantaged small businesses” — meaning those that are independently owned and operated and not dominant in their field of operation.
Tip: While waiting for RRF grant applications to open, restaurant owners can register for a Data Universal Numbering System (DUNS) number. This nine-digit business identifier is required to receive grants from the government.
Similar in nature to the RRF, the Shuttered Venue Operators Grant (SVOG) program is run directly by the SBA and intended to further aid hard-hit businesses. It focuses specifically on businesses that the pandemic closed, like movie theaters, concert venues and live performing arts organization operators.
An act passed in December 2020 established the SVOG, and the ARPA amends it. The program includes over $16 billion in grants for eligible entities.
|Live venue operators or promoters|
|Live performing arts organization operators|
|Relevant museum operators, zoos and aquariums who meet specific criteria|
|Motion picture theater operators|
|Each business entity owned by an eligible entity that also meets the eligibility requirements|
In addition, a business must have been in operation as of Feb. 29, 2020.
The grant amount and prioritization depends on several factors.
In terms of amount:
Priority goes to businesses that suffered the greatest economic loss. You can find business categories, the order of prioritization and a timeline on the SBA’s SVOG page.
As of publication, the SBA has opened the SVOG application portal, and applications are slated to open April 8, 2021.
The ARPA injects an additional $7.25 billion into the PPP and includes several changes to the loan program.
The ARPA expands eligibility for PPP loans to certain nonprofits. Previously, PPP funds were limited to 501(c)(3) organizations, 501(c)(19) veterans organizations and certain 501(c)(6) business leagues. That has now been expanded to include:
Notably, 501(c)(4) social welfare organizations are still ineligible.
In addition to nonprofits, the ARPA expands the PPP to “internet publishing organizations,” defined as an entity that has North American Industry Classification System (NAICS) code 519130 and is "an internet-only news publisher or internet-only periodical publisher, and is engaged in the collection and distribution of local or regional and national news and information." It must not have more than 500 employees at any physical location.
On March 30, President Biden signed an extension for PPP loan applications: The new deadline is May 31, 2021. The law also extends authorization of loans to June 30, to give the SBA additional time to process applications.
Accounting for PPP Loans: As with many things of late, we face a highly unusual situation when it comes to how to account for government aid. Experts advise finance teams to consult unofficial guidance from AICPA, which suggests four paths forward.
The ARPA adds $15 billion to the COVID-19 Economic Injury Disaster Loan (EIDL) program.
A third of that amount will go to the Targeted EIDL Advance. The Advance is designated for the hardest-hit businesses, specifically those that suffered a revenue loss of greater than 50%, are located in low-income census tract areas (as designated by this map) and have fewer than 10 employees.
Separately from the ARPA, the SBA also recently raised the loan limit. Starting the week of April 6, the limit for COVID-19 EIDL loans will jump from six months of economic injury with a maximum loan amount of $150,000 to up to 24 months of economic injury with a maximum loan amount of $500,000.
Additionally, the SBA announced it would defer COVID-19 EIDL repayment. For loans distributed in 2020, the first payment is due in 24 months, as opposed to 12 months, from the date of the note. For loans distributed in 2021, the first payment is due in 18 months, vs. 12 months, from the date of the note.
The Coronavirus Aid, Relief and Economic Security (CARES) Act created the Employee Retention Credit (ERC). Then, the Consolidated Appropriations Act (CAA) expanded and extended it. The ARPA extends the credit again, from June 2021 to the end of the year. It also modifies how the credit works and those who are eligible.
The three acts passed — CARES, CAA and ARPA — and their respective ERC guidance apply to specific time periods:
Like the CAA originally designated, the ERC will continue to be a 70% credit for qualified wages paid between July 1, 2021 and Dec. 31, 2021, which includes the cost of providing health benefits. It will also continue to be capped at $7,000 per quarter for qualified wages paid between July 1, 2021 and Dec. 31, 2021.
The ARPA retained most of the ERC framework laid out in CAA, namely that an employer with fewer than 500 employees is eligible for the credit if it either:
The ARPA also modifies the ERC to include two new types of business: A “recovery startup business” and a “severely financially distressed employer.”
A “recovery startup business” is one that started operations after Feb. 15, 2020 and had annual gross receipts less than $1 million. Since the credit for this type of business is effective for wages paid between July 1, 2021 and Dec. 31 2021, this essentially provides a potential incentive of up to $100,000 ($50,000 maximum credit per quarter for the third and fourth quarters of 2021).
A “severely financially distressed employer” is a business that experienced a gross receipts reduction of more than 90% compared to the same calendar quarter in 2019. Beginning in the third quarter of 2021, these employers may take all qualified wages paid during those quarters — up to the $10,000 — into account for the ERC. Note: A severely financially distressed employer is allowed the credit if its employees are performing services, even if it had more than 500 employees in 2019.
The ARPA also declares that PPP loan borrowers can use the credit for wages, as long as the wages weren’t paid with proceeds of the loan. Credit is not allowed for wages paid with proceeds of SVOG or RRF grants.
A notable inclusion: The ARPA, unlike past stimulus laws, specifically includes a special five-year statute of limitations for the IRS to assess any potential issues with a business’s use of the Employee Retention Credit. This likely indicates that the IRS is anticipating a vigorous enforcement program to prevent abuse of this credit.
The Families First Coronavirus Response Act (FFCRA), made effective in April 2020, contains a paid leave tax credit which the ARPA both modifies and extends.
Providing emergency paid leave, as dictated in the original act, is no longer required. The ARPA now allows private employers with fewer than 500 employees that voluntarily provide paid sick and family leave to receive tax credits through Sep. 30, 2021.
The latest relief package also expands the scope of covered uses of paid sick or family leave. ARPA adds three new qualifying reasons for paid sick leave to the original six. Additionally, it expands paid family leave to include leave which arises from any of the nine reasons outlined under paid sick leave, whereas the original act only provided tax credits if employees were unable to work because they needed to care for a child whose school or place of care was closed or unavailable due to the public health emergency.
Employees are eligible for paid covered sick leave under the FFCRA if they:
|Are unable to work (or telework) because they are subject to a federal, state or local quarantine or isolation related to COVID-19.|
|Have been advised by a healthcare provider to self-quarantine.|
|Are caring for an individual who is subject to quarantine or is self-quarantining.|
|Are caring for a child whose school or place of care is closed (or child care provider is unavailable) because of COVID-19.|
|Are experiencing any other substantially similar condition specified by the US Secretary of Health and Human Services.|
|Are obtaining a COVID-19 immunization.*|
|Are recovering from an injury, disability, illness or condition related to the immunization.*|
|Are seeking or awaiting the result of a COVID-19 test or diagnosis when the employee has either been exposed to COVID-19 or the employer has requested the test or diagnosis.*|
Based on guidance from the Department of Labor.
*New covered reasons added by the ARPA.
As of April 1, 2021, covered employers' entitlement to FFCRA paid sick leave tax credits will reset and they can again receive tax credits for up to 10 days of qualifying paid sick leave. Those tax credits are capped at $511 a day (roughly $133,000 annualized pay) if the leave is due to coronavirus quarantine, self-quarantine or symptoms or if the leave falls under any of the new covered reasons designated by the ARPA (e.g., immunization).
With paid family leave — like caring for a child whose school is closed or caring for an individual who is subject to quarantine — the tax credit available to an employer is calculated at two-thirds the employee’s regular rate of pay and capped at $200 a day. For paid family leave, the tax credit has also been increased from its previous $10,000 cap per employee to $12,000. The ARPA also removes the initial two-week unpaid period of family leave that was present under the original FFCRA.
The ARPA contains implications for employers in regards to providing a continuation of health coverage, or COBRA. Under federal law, employers are required to make health insurance available under their corporate health plans for a certain period of time to employees who lose their benefits because of layoffs or reduced hours.
Starting in April 2021, assistance eligible individuals (AEIs) are entitled to fully subsidized COBRA coverage for up to six months. An AEI is someone who, between April 1 and Sept. 30, 2021, is eligible for COBRA coverage due to an involuntary termination or a reduction in hours and elects such coverage. The individual can’t have been terminated for gross misconduct or have left voluntarily. Additionally, ARPA opens up the ability to enroll in COBRA coverage even if a person declined coverage earlier or if their enrollment window closed.
The federal government, not the employer, provides the subsidy. Under the ARPA, however, an employer must front any COBRA premium owed to a provider or plan administrator. Then, the government provides a dollar-for-dollar tax credit to the employer on the employer’s quarterly payroll tax filings.
Tip: If applicable to your organization, begin working with your benefit providers and third-party administrators to identify assistance eligible individuals and provide notice about the new benefit and the special enrollment period. The ARPA legally requires notice to potential beneficiaries by May 30, 2021.
We couldn’t go without mentioning the carryback of losses benefit. The CARES Act established this benefit, and the ARPA extends the limitation on excess business losses through tax year 2026. This means that companies that lost money in 2018, 2019 or 2020 can carry back those losses for up to five years. Net operating losses (NOLs) generated in tax years beginning after Dec. 31, 2017, and before Jan. 1, 2021 may be carried back five years preceding the tax year of such loss; this carryback can be used to offset 100% of taxable income in those years.
The ARPA sets unemployment benefits that may affect certain S corp shareholders and employees, as well as self-employed business owners. According to the act, the first $10,200 in 2020 benefits is tax-free for families making $150,000 or less. Folks who had taxes withheld from unemployment benefits in 2020 will be able to recover them when filing their 2020 taxes or via an amended tax return if they have already filed.
Separate from the ARPA, the IRS recently announced it would postpone the 2020 federal tax deadline in light of COVID-19 difficulties.
For individuals, the tax extension is relatively straightforward: The federal income tax filing date is extended from April 15, 2021, to May 17, 2021.* However, businesses face more complex guidance with varying deadlines based on their legal structure:
*Due to the February storms in Texas, Oklahoma and Louisiana, individuals and businesses in these states have until June 15, 2021 to file individual and business tax returns and make tax payments.
These dates are not set in stone. On March 22, the National Conference of CPA Practitioners (NCCPAP) wrote an open letter to the IRS asking it to further delay the tax deadline to June 15 and to make it apply to quarterly estimated payments. The American Institute of CPAs (AICPA) concurred, saying the tax postponement doesn’t go far enough and risks hurting small businesses. President and CEO of the AICPA, Barry Melancon, called upon CPAs and others to ask their senators and representatives to intervene. Only time will tell whether the IRS will oblige.
A slight issue: Some of these provisions will likely affect 2020 business tax returns, but many businesses have likely already filed. Fear not! We reached out to CPA Sallie Mullins Thompson for clarification on which returns may be affected and how to go about amending a return.
According to Thompson, it’s important to first differentiate between the various business tax returns that the ARPA can affect, then identify the needed actions to amend:
Consult your CPA to ensure that your company is reaping the tax advantages of the latest stimulus package, both for 2020 and going forward. Additionally, stay tuned as the government continues to issue tax guidance and open applications for loans and grants outlined in the ARPA.
We’ll continue to update this article with the latest information and guidance.