On March 11, 2021, President Biden signed into law, the one year act, called the American Rescue Plan. This act contains many tax provisions to help individuals and businesses impacted by Covid-19. Some of these provisions are listed below. As a business owner it is in your best interest to be aware of these provisions and how they can help your business and reduce your tax liabilities.
Employee Retention Credit
The American Rescue Plan extends the employee retention credit through the end of 2021. The employee retention credit was designed to encourage businesses to keep employees on their payroll. The refundable tax credit is 70% of $10,000 in wages paid per employee, per calendar quarter, for a total of $14,000 for the first two calendar quarters of 2021 for businesses that have been financially impacted by COVID-19.
The credit is available to all employers regardless of size, including tax-exempt organizations. There are only two exceptions: State and local governments and their instrumentalities and small businesses who take small business loans such as the Economic Impact Disaster Loan (“EIDL”). Please note, Section 206 of the Relief Act amended section 2301 of the CARES Act to permit an employer that received a Paycheck Protection Program (“PPP”) loan to be eligible to claim an employee retention credit under section 2301 of the CARES Act by striking section 2301(j) of the CARES Act, effective retroactive to the original effective date of the CARES Act.
Qualifying employers must fall into one of two categories:
The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.
The employer’s gross receipts are below 80% of the comparable quarter in 2019
Employers will calculate these measures each calendar quarter and take the tax benefit each calendar quarter until the $10,000 limit is reached or they no longer qualify for the credit.
Economic Injury Disaster Loans (EIDL) and Paycheck Protection Program Loans
The bill allows taxpayers to exclude, EIDL grants and Paycheck Protection Program loan forgiveness received from the Small Business Administration, from gross income. Furthermore, this grant exclusion will not result in a denial of the deduction, reduction in tax attributes, or denial of the basis increase. This is a tremendous benefit for those employers who participated in these loan programs!
Businesses Meals Deduction 100%
The Act added a temporary exception to the 50% limit on the amount that businesses may deduct for food or beverages. The temporary exception allows a 100% deduction for food or beverages from restaurants. Beginning January 1, 2021, through December 31, 2022, businesses can claim 100% of their food or beverage expenses paid to restaurants as long as the business owner (or an employee of the business) is present when food or beverages are provided and the expense is not lavish or extravagant under the circumstances.
Child Tax Credit
The American Rescue Plan makes the Child Tax Credit fully refundable for 2021. It also makes 17-year-olds eligible as qualifying children. The act increased the amount of the credit from $2,000 to $3000 per child ($3,600 for children under 6). The credit phases out for taxpayers with incomes over $75,000 single, $150,000 for married taxpayers.
Child and Dependent Care Credit
The American Rescue Plan makes this credit fully refundable in 2021. The maximum child and dependent care credit is $1,050 for one qualifying dependent and $2,100 for two or more qualifying dependents. It act also increases the exclusion for employer provided dependent care assistance to $10,500 for 2021.
Family and Sick Leave Credits
The bill extends the Family and Sick leave credits from December 31, 2020 to September 30, 2021. It also increases the ,limit on the credit for paid family leave to 12,000. The act also allows the credits for leave that is due to the Covid-19 vaccination.
The American Rescue Plan provides for additional recovery rebate credits for individuals up to $1,400 ($2,800 for married taxpayers filing jointly) plus an additional $1,400 for each dependent in 2021. The recovery rebate credit starts to phase out for taxpayers with adjusted gross income over $75,000 single, $150,000 married filing jointly.
2020 and 2021 have been challenging years for many businesses. Covid-19 has caused numerous businesses to rethink their business strategy. Many businesses have had to pivot to new markets to sustain profitability and cash flow. Congress has also had to respond to Covid-19. It passed the American Rescue Plan in 2021. It is in your best interest to understand these new provisions in the tax law as they could impact both your business and personal bottom lines!
Please let us know if you have any questions regarding the American Rescue Plan or other tax compliance or planning issues, we can be reached at (480) 980-3977!