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Grants, Loans, Tax Credits and Benefits in the American Rescue Plan Act

By Megan O'Brien, Brainyard Finance & Business Editor
April 07, 2021
ARPA Tax Credits

In short:

  • In March 2021, the Biden Administration passed the American Rescue Plan Act of 2021, a $1.9 trillion bill largely intended to provide continuing COVID-19 relief.
  • While primarily focused on individual relief, the act also provides valuable grants, loans and tax benefits for businesses.
  • Based on these recent updates, companies may find that they need to amend their 2020 business tax returns.

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.

ARPA Business Provisions

Provision What It Does
Restaurant Revitalization Fund (RRF)
  • Appropriates $28.6B for FY2021 to struggling restaurants, to be administered by the (SBA)
Shuttered Venue Operators Grant Program (SVOG)
  • Additional $1.25B in funding
  • Allows eligible entities that receive a first- or second-draw PPP loan after Dec. 27, 2020 to also receive an SVOG
Paycheck Protection Program (PPP) modification
  • Additional $7.25B in funding
  • Expands the program to include more nonprofits and digital media companies
Economic Injury Disaster Loan (EIDL) modification
  • Additional $15B in funding, with a third of funds set aside for hardest-hit businesses
  • Loan limit increased to $500,000
  • Repayment deferred to 2022
Employee Retention Credit (ERC) extension and modification
  • Extended until Dec. 31, 2021
  • Changes eligibility criteria for severely financially distressed employers
  • Expands eligibility to include “recovery startups”
Families First Coronavirus Response Act (FFCRA) extension and modification
  • Extends the credit until Dec. 31, 2021
  • Provides an additional tax credit to employers who voluntarily provide an additional 10 days of paid sick leave and an additional 10 weeks of paid family leave
  • Limit on the tax credit increased to $12,000
  • Adds new qualifying reasons for FFCRA paid leave
COBRA Tax Credit
  • Fully subsidizes for the continuation of COBRA benefits for employees from April through September
  • Offers a payroll tax credit for employers who pay for the health insurance premiums on behalf of their laid-off or reduced-hours employees
Carryback of Losses
  • Extends the limitation on excess business losses through tax year 2026
Unemployment Benefits
  • The first $10,200 in 2020 benefits is tax-free for those making $150,000 or less.

Grants and Loans

Restaurant Revitalization Fund

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.

Who’s eligible for this aid?

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.”

How much will eligible businesses get?

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.

PPP Round 2

PPP Loans: What Business Leaders Need to Know: Some eligible businesses have now received two loans from the Paycheck Protection Program (PPP). We’ve got a refresher on the program’s structure.

What can they spend it on?

Eligible Restaurant Revitalization Fund Expenses

Payroll costs
Payments of principal or interest on any mortgage obligation
Rent payments, including rent under a lease agreement
Utilities
Maintenance
Supplies, including protective equipment and cleaning materials
Operational expenses
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.

When can I apply?

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.

Shuttered Venue Operators Grant Program

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.

Who’s eligible for this aid?

Entities Eligible for the Shuttered Venue Operators Grant

Live venue operators or promoters
Theatrical producers
Live performing arts organization operators
Relevant museum operators, zoos and aquariums who meet specific criteria
Motion picture theater operators
Talent representatives
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.

How much will eligible businesses get?

The grant amount and prioritization depends on several factors.

In terms of amount:

  • For an eligible entity in operation before Jan. 1, 2019, grants will be for an amount equal to 45% of 2019 gross earned revenue or $10 million, whichever is less.
  • For an eligible entity that began operations after Jan. 1, 2019, grants will be for the average monthly gross earned revenue for each full month in operation during 2019 multiplied by six or $10 million, whichever is less.
  • A business that received a PPP loan on or after Dec. 27, 2020, will have its SVOG grant reduced by its PPP loan 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.

When can I apply?

As of publication, the SBA has opened the SVOG application portal, and applications are slated to open April 8, 2021.

Tip: If eligible, register with the government’s System for Award Management (SAM) to get a head start on the process.

Paycheck Protection Program

The ARPA injects an additional $7.25 billion into the PPP and includes several changes to the loan program.

Who’s eligible for this aid?

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:

  • 501(a) tax-exempt “destination marketing organizations” engaged in marketing and promoting communities and facilities that promote travel and leisure.
  • 501(c)(6) organizations. However, these organizations:
    • cannot receive more than 15% of receipts from lobbying activities.
    • must have less than 15% of their total activities as lobbying activities.
    • cannot have exceeded $1 million in lobbying activities during the most recent tax year.
    • can retain no more than 300 employees.
  • An “additional covered nonprofit entity” listed in 501(c) other than those listed as (c)(3), (c)(4), (c)(6) or (c)(19), if the organization meets the qualifications stated above.
  • 501(c)(3) nonprofits and veterans organizations with up to 500 employees.

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.

When can I apply?

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.

PPP Loanss

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.

Economic Injury Disaster Loan

The ARPA adds $15 billion to the COVID-19 Economic Injury Disaster Loan (EIDL) program.

Who’s eligible for this aid?

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.

How much will eligible businesses get?

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.

Tax Credits

Employee Retention Credit

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:

  • CARES Act: Wages paid between March 13, 2020 and Dec. 31, 2020
  • CAA: Wages paid between Jan. 1, 2021 and June 30, 2021
  • ARPA: Wages paid between July 1, 2021 and Dec. 31, 2021

How much is this credit?

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.

Who’s eligible for this credit?

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:

  • experienced a decline of more than 20% of gross receipts in any quarter in 2021 compared to the same quarter in 2019, or
  • was required to fully or partially suspend business operations due to a governmental order.

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.

Families First Coronavirus Response Act

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.

Who’s eligible for this credit?

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.

Covered Reasons for Providing Paid Sick Leave

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.

How much is this credit?

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.

COBRA Tax Credit

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.

Other Benefits

Carryback of Losses

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.

Unemployment Benefits

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.

Tax Due Dates

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:

2021 Tax Due Dates* by Business Structure

  • Sole proprietorships and single-owner LLCs: May 17, 2021
  • Partnerships: March 15, 2021
  • S corporations: March 15, 2021
  • C corporations: April 15, 2021 (if your fiscal year is the same as the calendar year)

*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.

Amending Tax Returns

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:

  • 1040 Schedule C & 1040 Schedule SE: The self-employed — including freelancers, independent contractors and single member LLC (SMLLC) business owners — may need to amend wages/payroll tax expense deductions for credits received. You’d use Form 1040-X to amend 1040 Schedule C and 1040 Schedule SE.
  • Form 941: The form used to report income taxes, Social Security tax or Medicare tax withheld from employee's paychecks, as well as to pay the employer's portion of Social Security or Medicare tax, may need to be amended to reflect 2020 ERC/FFCRA credits taken. Businesses would use Form 941-X to amend payroll filings for these credits.
  • Form 1040: The form used to file individual income tax returns comes into play if a self-employed business owner, S corp shareholder or S corp employee received state unemployment benefits. However, business owners who filed 1040s early and paid taxes on the first $10,200 in 2020 should not amend their 1040s, Thompson says. The IRS plans to adjust those returns and give refunds.
  • Form 1120: Corporations who filed the 1120 form to report their income, gains, losses, deductions, credits and figure their income tax liability may need to amend wages/payroll tax expense deductions for ERC/FFCRA credits received. To do so, they will file an amended 1120-X form.
  • Form 1120-S: S corps as a whole may need to amend their 1120-S, which reports their income, gains, losses, deductions, credits, etc., to reflect any wages/payroll tax expense deductions for ERC/FFCRA credits received. To do so, they must file a superseding 1120-S return.
  • Form 1120-C: Those who filed the 1120-C form for cooperative associations to report their income, gains, losses, deductions, credits and figure their income tax liability may need to amend wages/payroll tax expense deductions for ERC/FFCRA credits received. To do so, they will file an amended 1120-C for with the “amended return” box checked.

The Bottom Line

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.

Mark Bianco

For more helpful information from the Brainyard and our friends at Grow Wire and the NetSuite Blog, visit the Business Now Resource Guide.

  

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