The American Rescue Plan Act (ARPA), signed by President Biden on March 11th, provides new funds and tax credits designed to help struggling small businesses recover from the ongoing pandemic. Below we list key details on the provisions that include tax relief, expansion of credits and continuation of programs that were put in place to help businesses stay afloat.
- The Act allocates an additional $7.25 billion for forgivable loans under the Paycheck Protection Program (PPP). The program provides small businesses with funds to pay up to eight weeks of payroll costs, including benefits, as well as less stringent requirements for eligible nonprofits. The current application period and deadline to apply for a loan has been extended to May 31, 2021.
- Another $15 billion was set aside for the Economic Injury Disaster Loan (EIDL) program, run by the Small Business Association (SBA). The program provides quick relief to businesses that are experiencing a temporary loss of revenue due to the ongoing crisis and cannot meet their current financial obligations or operating expenses (i.e., employee benefits, rent, utilities, debt payments, etc.). Especially noteworthy, one third of the funds ($5 billion) are specifically targeted for businesses that suffered a loss larger than 50 percent of revenue, employ fewer than 11 people, and located in low-income census tracts. Grants are limited to $10,000 and are intended for qualifying businesses that have not yet received one.
- It expands and extends the employee retention tax credit under the CARES Act for two more quarters through December 31, 2021, originally set to expire on July 1. The provision allows most businesses to claim a tax credit for qualifying wages paid to employees.
- Enhances the small business tax credit for paid sick and family leave wages created under the Families First Coronavirus Response Act (FFCRA) and extends it through September 30, 2021. The credits are used to offset costs for employers that voluntarily provide emergency paid sick leave or expanded family and medical leave related to COVID-19.
- Funding relief is provided to businesses that sponsor defined benefit pension plans in two ways. First, interest rate relief started in 2012 is extended through the end of the decade, versus within the next few years. Second, the shortfall amortization of investment losses period is extended from 7 to 15 years.
- The bill includes targeted aid for small and mid-sized restaurants with the establishment of the “Restaurant Revitalization Fund,” which will also be administered by the SBA. With $28.6 billion in funding, this grant program will assist the hardest-hit restaurants and bars with much needed aid. Like EIDL grants and PPP loans, owners can apply for the grants based on lost revenue and the grants will not be taxable to the recipient. The maximum grant size will be $10 million per entity or $5 million per location.
- It added an additional $1.25 billion in funding to the $15 billion for shuttered venue operators such as music venues, theatres, museums, and other performing arts organizations.
Particularly welcomed by state and local government budgets stretched to their limits is the inclusion of $350 billion for state and local government aid. Available through December 21, 2024, $219.8 billion is set aside for states, territories, and tribal governments, while the remaining $130.2 billion is for metropolitan cities, municipalities, and counties. While the necessity of the aid is open to debate, with some state and local budgets generating a surplus in 2020, it will provide critically needed funding for those hit hardest and help them get back on their feet. The legislation prohibits the state and local governments from using the aid to offset new tax cuts. As a result, smaller businesses that have fallen through the cracks with the initial relief funding may want to look to their local officials first for assistance.
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Please consult with an attorney or a tax or financial advisor regarding your specific legal, tax, estate planning, or financial situation. The information in this article is not intended as legal or tax advice.