This article was updated May 11, 2021.
President Joe Biden signed the American Rescue Plan Act (ARPA) into law on March 11, 2021, which includes $1.9 trillion in funding for individuals, businesses, and state and local governments.
With vaccination rates climbing, the ARPA may be the last major legislative relief package addressing the effects of the COVID-19 pandemic.
The ARPA extends and expands some of the critical provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Consolidated Appropriations Act, 2021 (CAA). It also includes some new provisions that should come as welcome news to many families and businesses.
ARPA Provisions for Businesses and Other Employers
Employee Retention Tax Credit (ERTC)
With the ERTC, eligible employers may generate a tax credit used to offset their employment taxes and apply for a refund for any excess credit generated. The ERTC was made available by the CARES Act and then modified and extended by the CAA.
The ARPA further extends the ERTC through December 31, 2021, for eligible employers that continue to pay employee wages during COVID-19-related closures or experience reduced revenue. It also expands the ERTC to apply to “recovery startup businesses,” which are those businesses that launched after February 15, 2020, with average annual gross receipts of $1 million or less.
Paid Sick and Family Leave Tax Credits
As part of the Families First Coronavirus Response Act signed into law in March 2020, two refundable payroll tax credits became available to small employers as part of a mandated two-week paid leave policy. This includes the paid sick leave credit and the paid family leave credit.
These credits were modified and extended by CAA and the ARPA further expands and extends the credits through September 30, 2021.
Leave credits can’t be used in conjunction with forgiven PPP loans. Additionally, the same wages can’t be used to calculate the ERTC, the Employer Paid Family and Medical Leave credit under Section 45S or the Work Opportunity Tax Credit (WOTC).
Paycheck Protection Program (PPP)
There will be $7.25 billion in additional funding for forgivable loans to eligible businesses under the Small Business Administration’s (SBA) PPP, which is currently scheduled to expire on March 31, 2021.
Learn more about PPP and see related articles.
Economic Injury Disaster Loan (EIDL)
The ARPA provides another $15 billion for EIDL advance grants. Small businesses in low-income communities are eligible for EIDL grants of up to $10,000; $5 billion is reserved for $5,000 grants to businesses that experienced a revenue loss of more than 50% and have no more than 10 employees. This could be particularly beneficial for agribusiness companies and not-for-profits.
EIDL loans are provided directly to small businesses by the SBA and can reach up to $2 million over 30 years.
Excess Business Loss Limitation
This is extended by one year through December 31, 2026. Learn more about the excess business loss rules.
The Section 162(m) limits on the tax deduction that public companies can take for executive compensation is extended to cover the CEO, the CFO, and the five next highest-paid employees, beginning in 2027.
ARPA Provisions that Affect Specific Sectors
The ARPA has two provisions that affect the Payroll Support Program for aerospace companies:
- $15 billion to extend the program for eligible airlines and contractors through September 30, 2021
- $3 billion for eligible aviation manufacturers through the Aviation Manufacturing Jobs Protection section
The ARPA provides farm loan assistance for socially disadvantaged farmers and ranchers.
Qualifying farmers and ranchers may receive payment up to 120% of the qualifying outstanding indebtedness on January 1, 2021. Qualifying indebtedness are loans administered by Farm Service Agency and Commodity Credit Corporation Farm Storage Facility Loans.
According to the American Farm Bureau Federation, the ARPA appropriates $10.4 billion in relief to agribusinesses, as broken down in the following categories:
- $4 billion for debt forgiveness for socially disadvantaged farmers
- $3.6 billion for food purchase and distribution as well as pandemic response efforts
- $1 billion for outreach and support for socially disadvantaged farmers
- $800 million for the Food for Peace Program, a global humanitarian effort
- $500 million for rural health care grants
- $300 million for animal surveillance
- $100 million for overtime inspection cost reduction
- $48 million for administration
- $5 million for education support for socially disadvantaged farmers
- $3 million for inspector general costs
There are 10 health-care related provisions in the ARPA. In addition to clarifying a supplemental vaccine funding formula, the act expands and increases:
- ACA health insurance coverage subsidies
- ACA cost-sharing support for the unemployed who are enrolled in a qualified health plan
- Medicare reimbursement for certain hospitals, which applies for discharges occurring on or after October 1, 2021
It also provides the following:
- $8.5 billion for rural hospitals and facilities through the Provider Relief Fund
- $80 million for mental health services spending to the Pediatric Mental Health Care Access Program and $420 million to Community Behavioral Health Clinics
- $1 billion for health care services and related support for eligible veterans through September 30, 2023
- COBRA continuation coverage without premiums
- Support for skilled nursing facilities, known as SNFs, responding to COVID-19 with clinical care, infection control, or staffing
- Temporary Medicare relief for ambulances through reimbursements
The ARPA includes $39 billion in grants to higher education institutions and provides student loan forgiveness.
There are nine life sciences-related provisions in the ARPA:
- $6.05 billion for essential costs related to research, development, manufacturing, production, purchase of vaccines, as well as ancillary medical products and therapeutics.
- $10 billion under the Defense Production Act for responding to pathogens that have the possibility to become a future public health emergency, as well as PPE and other medical equipment or supplies.
- $7.5 billion for the Centers for Disease Control and Prevention (CDC) to prepare, promote, distribute, administer, monitor, and track vaccines.
- $500 million to the CDC for public health surveillance and analytics, including modernizing the US disease warning system to predict COVID-19 hotspots and emerging public health threats
- $47.8 billion for US Department of health and Human Services (HHS) to monitor, trace, detect, and diagnose COVID-19, including establishing a national strategy for contact tracing, testing, mitigation, and more.
- $7.6 billion to Community Health Centers specifically for vaccination, testing, and related activities
- $50 billion to the Federal Emergency Management Agency’s (FEMA) Disaster Relief Fund will remain available through fiscal year 2025 to reimburse state and local governments for COVID-19-related expenses.
- $1.75 billion to expand activities and workforce-related to genomic sequencing, analytics, and disease surveillance.
- $500 million for the Food and Drug Administration (FDA)
The funding for the FDA is to:
- Monitor the efficacy of vaccines and therapeutics against new COVID-19 variants
- Facilitate advanced continuous manufacturing activities of vaccines and related materials
- Conduct inspections of drug and device manufacturers delayed or cancelled due to the pandemic
- Review medical devices for the treatment, prevention, or diagnosis of COVID-19
- Oversee the supply chain and mitigate shortages of COVID-19-related vaccines, therapeutics, and devices
The ARPA expands PPP eligibility two ways for not-for-profit organizations:
- Allows more not-for-profits to apply, including those engaging in advocacy and larger not-for-profits
- Makes available Shuttered Venues Operator Grants to operators of theaters and live venues that received a PPP loan after December 27, 2020
The shuttered venue operators grant program received an additional $1.25 billion.
The ARPA establishes a $28.6 billion Restaurant Revitalization Fund with $5 billion earmarked for restaurants with 2019 gross receipts equal to or less than $500,000.
The fund affects restaurants, bars, wine tasting rooms, and brewery taprooms with 20 or fewer establishments that can demonstrate revenue loss in 2020 over 2019. It will be administered through the SBA.
Eligible businesses may receive a tax-free federal grant equal to the amount of its pandemic-related revenue loss, calculated by subtracting their 2020 gross receipts and PPP loan amounts taken to date from 2019 gross receipts. The maximum amount of the grants made to an eligible business can’t exceed $10 million in aggregate or $5 million per physical location of the eligible business.
The grants can be spent on most operating expenses, including payroll costs, mortgage obligations, rent payments, utilities, maintenance, food and beverage expenses, covered supplier costs, operational expenses, and paid sick leave. The grants, like forgiven PPP loans, are nontaxable and the expenses funded by them remain tax deductible.
In addition, the extension of the ERTC noted above could provide restaurants with substantial cash flow relief for the remainder of 2021. Even those restaurants that exceed the employee count rules could utilize the credits for amounts paid under some state-mandated COVID programs, such as California’s AB 1867.
The ARPA created the Coronavirus State and Local Fiscal Recovery Fund, which provides states, territories, and Tribal governments $220 billion of additional funding to mitigate the fiscal effects from the COVID-19 pandemic. Tribal governments will receive $20 billion from that amount.
The use for these funds is broadened from those provided under the Coronavirus Relief Fund, which was established by the CARES Act. Now there’s more flexibility, such as using funds for the provision of government services to the extent the government experienced certain revenue reductions or allowing for additional investments in water, sewer, or broadband infrastructure.
The funds are available to spend through December 31, 2024.
In addition to the $20 billion provided to Tribal governments by the Coronavirus State and Local Fiscal Recovery Funds, which is noted above, the ARPA provides an additional $8.8 billion, primarily for Tribal health activities, that will support Tribes in their response to COVID-19.
The funding will help supplement Tribal programs operated under the Indian Health Service, Bureau of Indians Affairs, Bureau of Indian Education, Native American Housing Assistance and Self Determination Act (NAHASDA) programs.
Tribal business concerns were also specifically included as eligible to apply for funding under the newly created Restaurant Revitalization Fund in addition to a few others.
Additional direct payments, also known as recovery rebates, of $1,400 (plus $1,400 per dependent, including adult dependents) will be made to eligible individuals ($2,800 for joint filers).
To qualify for the full amount, individuals must have an adjusted gross income (AGI) of less than $75,000 per year—$150,000 for married couples filing jointly and $112,500 for heads of households. The payments phase out and are no longer made when AGI exceeds $80,000 for individuals, $160,000 for married joint filers, and $120,000 for heads of household.
Child Tax Credit (CTC)
For eligible individuals, the CTC increases from $2,000 to $3,000 for each child age six to 17 and to $3,600 per year for children under age six for the 2021 tax year. This is a temporary expansion of the $2,000 credit normally available to eligible taxpayers.
To be entitled for the expanded credit amount, you must have a modified AGI of under $75,000 for singles, $112,500 for heads-of-households and $150,000 for joint filers and surviving spouses. The expanded credit amount—$1,000 for a child age six to 17 and $1,600 for a child under six—phases out at a rate of $50 for each $1,000, or fraction thereof, of modified AGI over the applicable threshold.
Parents eligible for the expanded credit will begin receiving advance payments of part of the CTC later this year. Under the ARPA, the IRS must establish a program to make monthly payments (generally by direct deposits) equal to 50% of eligible taxpayers’ 2021 CTCs, from July 2021 through December 2021.
Taxpayers who aren’t eligible to claim the increased CTC in 2021, because their income is too high, may be able to claim the regular CTC of up to $2,000, subject to the existing phaseout rules.
Child and Dependent Care Tax Credit
For 2021, there’s an expanded child and dependent care tax credit of up to $4,000 for childcare expenses for one child and up to $8,000 for two or more children for households making up to $125,000. The credit begins to phaseout above this threshold.
Student Loan Debt Forgiveness
Any student loan debt forgiven between December 31, 2020, and January 1, 2026, will receive tax-free treatment versus having forgiven debt be treated as taxable income.
An additional $300 per week in unemployment benefits will be paid through September 6, 2021.
Also, the first $10,200 in unemployment benefits received beginning in 2020 isn’t included in gross income for taxpayers with AGIs under $150,000. (However, for joint filers below the AGI limit, the $10,200 exclusion applies separately to each spouse.)
Affordable Care Act (ACA) Subsidies
There’s expanded availability of and increased ACA subsidies for those who obtain insurance in the ACA marketplaces, for 2021 and 2022.
Federal Rental Assistance
Federal rental assistance is included for families affected by COVID-19, applicable to past due rent, future rent payments, and utility and energy bills.
Earned Income Tax Credit
There’s expanded eligibility for low-income individuals with no qualifying children to claim the Earned Income Tax Credit.
We’re Here to Help
For more insight into how these new provisions could affect you and your business, contact your Moss Adams professional. You can also explore additional recovery options as you adjust goals, operations, and workforces to confront cash flow and other operational issues.