The recently passed American Rescue Plan Act (ARPA) includes 600 pages of new legislation- a $1.9 trillion COVID relief package. The Act contains retroactive and prospective tax breaks including exclusions from income, new tax-free grant programs, and credits.
Here are some of the provisions that may affect you and your business:
- Stimulus Payments: The third round of stimulus payments have already begun to be paid out. This time the amount is $1,400 per eligible recipient. In addition, during this round taxpayers will receive payments for all dependents, not just those who are under 17. Payments will be made to single taxpayers with an adjusted gross income of $80,000 or less, or married filing jointly of $160,000 or less. For more details on exactly who qualifies, check out this recent Forbes article.
- Restaurant Recovery Plan: As part of the ARPA, help has arrived for bars and restaurants in the form of a $25 billion grant program. These generous grants will benefit a broad category of eateries and will be equal to the loss in gross receipts in calendar year 2020 compared to calendar year 2019. There are some reductions related to PPP loans taken. Get more in-depth details in our Restaurant Revitalization Plan blog post here.
- Employee Retention Credit: Under the ARPA, the generous employee retention has been extended from June 30, 2021 through the end of the year. The credit has also been expanded to taxpayers who received a PPP loan in 2020 originally these taxpayers were excluded from this additional credit. There are significant complexities related to this credit, please reach out to your Sweeney Conrad professional with questions.
- Tax-free Unemployment Benefits: Extended through September 6, is a $300 weekly supplemental unemployment benefit. Under the ARPA, the first $10,200 of unemployment income received during 2020 is now excluded from income. This applies to up to $10,200 per spouse, so for a married couple a maximum of $20,400 may be excluded. This exclusion only applies if adjusted gross income is less than $150,000.
- Dependent Care Assistance Program FSA Limit Increase: The ARPA also increased the dependent care FSA limit to $10,500 ($5,250 if married filing separately) for 2021 only. The Consolidated Appropriations Act of 2021 (CAA) allows employers to amend their health and dependent care FSAs to allow participants to prospectively change their elections without experiencing a permitted election change event. This allows plans to let participants immediately increase the dependent care deferral election for 2021. Although the use-it-or-lose-it rule poses a risk to amounts deferred into a dependent care account, the CAA of 2021 also allows a plan to adopt an unlimited carryover of unused amounts from 2021 to 2022. Besides the income tax savings from this exclusion, salary reductions through a cafeteria plan are also excluded from Social Security and Medicare tax for both the employee and employer.
We are monitoring this ever-changing tax situation closely, and will send updates as guidance is made available.