On March 11, President Biden signed the $1.9 trillion American Rescue Plan Act (ARPA) into law—and while relief provided to individuals is perhaps the best known part of the ARPA, there are also several financial benefits and tax breaks and for businesses.
Here are a few of the tax implications of the ARPA.
Extension of the Employee Retention Credit (ERC)
The ARPA extends the ERC—a valuable tax credit—from June 30 until December 31, 2021. The ERC rate of credit will continue at 70% through this extended period. In addition, the ERC continues to allow for up to $10,000 in qualified wages for any calendar quarter. Between the Consolidated Appropriations Act extension and the extension of the ARPA, an employer could have up to $40,000 per employee in qualified wages through 2021.
Changes to the qualified dependent care assistance program (DCAP)
Under a qualified dependent care assistance program (DCAP), the gross income of eligible employees typically doesn’t include amounts paid or incurred by an employer for dependent care assistance provided to the employee.
Prior to the passing of the ARPA, no more than $5,000, or $2,500 for married individuals filing separately, could be excluded from an employee’s gross income under a DCAP during a given tax year, subject to certain limitations—although contributions made by an employer to a DCAP can’t exceed the employee’s earned income or the lesser of employee’s or spouse’s earned income if the employee is married.
However, under the ARPA, the exclusion for employer-provided dependent care assistance is increased from $5,000 to $10,500—and from $2,500 to $5,250 for married individuals filing separately—for 2021 only.
This provision of the ARPA is effective for tax years beginning after December 31, 2020.
Paid credits for sick and family leave
Changes under the ARPA apply to amounts paid with respect to calendar quarters beginning after March 31, 2021. The ARPA also has implications for paid sick time and paid family leave. Among other changes, the law:
- Extends the paid sick time and paid family leave credits under the Families First Coronavirus Response Act from March 31, 2021, through September 30, 2021.
- Provides that on qualified leave wages, both paid sick and paid family leave credits may be increased by the employer’s share of Social Security tax (6.2%) and employer’s share of Medicare tax (1.45%).
Restaurant revitalization grants
Eligible restaurants, food trucks, and other businesses that provide food and drinks may receive restaurant revitalization grants from the Small Business Administration under the ARPA. Amounts that are received as restaurant revitalization grants aren’t included in the gross income of the person who receives the money for tax purposes.
Contact us to learn more
These are only a few of the provisions in the ARPA, and many others may also be beneficial to your business. For more information about your situation, contact us today.