Insights

Business Tax Provisions of the American
Rescue Plan Act of 2021


COVID-19 Business Update
Tax Group

Contained within the $1.9 trillion American Rescue Plan Act of 2021 (ARPA) are a number of business provisions that are outlined below:

Employee Retention Credit (“ERC”). The ARPA extends the ERC through December 31, 2021. The ARPA now allows businesses to claim an ERC payroll tax credit of up to $7,000 per employee per quarter or $28,000 per employee for the entire year, thus doubling the benefit of the already favorable 2021 ERC rules.

In order to qualify for the ERC, a company must experience either partially or fully suspended operations due to restrictions imposed by the government or a significant decline in gross receipts. For 2020, a “significant decline” in gross receipt occurs if an employer’s gross receipts for a given quarter are less than 50% of its gross receipts for the same calendar quarter in 2019. However, for 2021 an eligible quarter requires a decline in gross receipts of more than 20% as compared to the same applicable quarter in 2019.

The ARPA created a new tax provision for “recovery start-up businesses” (“RSBs”) that began carrying on a trade or business after February 15, 2020. An RSB meets the ERC eligibility test even if it does not meet the ERC requirement of either suspended operations or a significant decline in gross receipts. The ERC is limited to $50,000 per quarter for RSBs.

Paid Sick and Family Leave Credit. The paid sick and paid family leave credits for employers under the Families First Coronavirus Response Act are extended to the period April 1-September 30, 2021. It also increases the amount of wages for which an employer may claim the family leave credit from $10,000 to $12,000 per employee per year.

Limitation on Excessive Employee Remuneration (IRC Sec. 162(m)). In the case of taxable years beginning after December 31, 2026, the $1 million limit on the amount of deductible compensation that a public company can pay to its CEO, CFO and the other three most highly paid executives is extended to the next five highest compensated executives.

Restaurant Revitalization Grants. The ARPA provides substantial financial relief for restaurants and similar places of business in the form of “restaurant revitalization grants.” Gross income does not include amounts received as restaurant revitalization grants.

Any amount so excluded from income under this provision is treated as tax-exempt income (for purposes of IRC Sec. 705 and IRC Sec. 1366) in the case of a partnership or S corporation. That allows the amounts excluded to increase the basis of partners or S corporation shareholders in their partnership/S corporation interests.

Also, no deduction is denied, no tax attribute is reduced and no basis increase is denied by reason of this exclusion from gross income.

Treatment of Targeted Emergency Economic Injury Disaster Loans. Gross income does not include amounts received as a targeted emergency economic injury disaster loan advance.

As in the case of restaurant revitalization grants, any amount excluded from income under this provision is treated as tax-exempt income (for purposes of IRC Sec. 705 and IRC Sec. 1366) in the case of a partnership or S corporation. That allows the amounts excluded to increase the basis of partners or S corporation shareholders in their partnership/S corporation interests.

Also, no deduction is denied, no tax attribute is reduced and no basis increase is denied by reason of this exclusion from gross income.

The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.