How the American Rescue Plan Affects Business Tax Plans

9 minute read

On the first day of his presidency, Joe Biden announced his intention to pass legislation that would address the economic crisis imposed by the COVID-19 pandemic. The American Rescue Plan (ARP) was formally introduced by the House in late February and became public law on March 11, 2021. This 242-page bill is far reaching; it provides economic relief to individuals, governments, and businesses. When your small business clients ask you about how the ARP will affect them and their tax plans, here’s what you can tell them.

EIDL Expansion

The ARP set aside an additional $15 billion for targeted advance payments under the Economic Injury Disaster Loan (EIDL) program. The EIDL program has been around for decades, but the targeted advance payments were first created with the Consolidated Appropriations Act that was enacted at the end of 2020. The ARP provides additional funding to this program.

The targeted EIDL advances under the ARP are earmarked for businesses in low-income communities that saw at least a 30% decrease in revenues during an 8-week period between March 2, 2020 and December 31, 2021 as compared to the 8-week period immediately preceding March 2, 2020. These businesses must have no more than 300 employees. The ARP prioritizes funding as follows:

  1. Businesses who have already applied under the prior iteration of the program but were denied support due to funding shortfalls. Under the prior program, these businesses could receive up to $10,000 of grant revenue based on the number of employees.
  2. Businesses that saw at least a 50% decline in revenues and that have no more than 10 employees. They can receive grants of up to $5,000.
  3. Businesses that saw at least a 30% decline in revenues and that have no more than 10 employees. They can also receive grants of up to $5,000.
  4. All other eligible businesses.

EIDL advances are not taxable to the business, but funding may run out before your clients receive them, so be mindful when including EIDL advances in your clients’ tax plans.

PPP Expansion

The ARP set aside an additional $7.25 billion for the Paycheck Protection Program (PPP), a loan program that has had strong bipartisan support since it was introduced back in March of last year. PPP loans are low-interest loans provided by the Federal government that can be forgiven if businesses use those funds on payroll and other qualifying expenses. The Consolidated Appropriations Act, which was passed at the end of last year, extended the PPP and allowed businesses to apply for a second round of funding.

The ARP does not extend the PPP or fundamentally change the program, but it did tweak a few of its rules.

The ARP made more nonprofits eligible for the PPP.

Nonprofits organized under Section 501(c) other than 501(c)(3), 501(c)(4), 501(c)(6), or 501(c)(19) organizations can apply for the PPP as long as:

  1. They do not have more than 300 employees;
  2. They do not receive more than 15% of receipts from lobbying activities; and
  3. Their lobbying activities do not comprise more than 15% of activities.

The ARP also made the program available to the following larger nonprofits:

  1. 501(c)(3) organizations and veterans organizations that have no more than 500 employees per location.
  2. 501(c)(6) organizations and domestic marketing organizations that have no more than 300 employees per location.

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The ARP makes online news publishers eligible for the PPP.

Online-only news and periodical publishers are now eligible for PPP funding as long as they have no more than 500 employees per location and certify that the loan will be used to provide local or regional news.

The ARP will not approve a PPP application from a Shuttered Venue Operators Grant recipient.

In 2021, businesses cannot apply for a PPP loan after they’ve received a Shuttered Venue Operators Grant.

The PPP ends on May 31, 2021, which means that your clients only have a short time to apply for the program.

Shuttered Venue Operators Grant

The Shuttered Venue Operators Grant (SVOG) program was created as part of the Consolidated Appropriations Act under the Trump presidency, but the ARP under President Biden boosted program funds by $1.25 billion. In total, the SVOG program earmarks $16.25 billion for live venue operators like movie theaters, museums, concert venues, zoos, and performing arts centers that were in operation as of February 29, 2020. Applicants can receive grants equal to 45% of the gross revenue they earned in 2019, up to a maximum of $10 million.

The SVOG program prioritizes businesses that suffered the largest setbacks. In the first 14 days, the program will prioritize businesses that suffered a 90% or greater loss of revenue between April and December 2020. In the next 14 days, the program will prioritize those who suffered a 70% or greater loss of revenues and – after that – those who lost at least 25% of revenues.

Like most government grants, SVOG funds can only be used on certain expenses. Most business expenses will qualify, but the program specifically excludes expenses incurred to:

  • Buy real estate;
  • Make payments on loans that originated after February 15, 2020;
  • Make investments;
  • Loan money to other businesses or individuals; or
  • Contribute to a political party.

Your clients should maintain documentation that they followed the grant’s guidelines. They should keep employment records for four years and keep all other expense records for three.

Your clients may apply for the SVOG program even if they have already applied for PPP loans, but their SVOG funds will be reduced by any PPP loan amounts they received after December 27, 2020. Similarly, businesses can apply for both EIDL and the SVOG program, but they cannot use the same expenses to qualify for both programs.

SVOG funds are not taxable, and all otherwise deductible expenses paid for with SVOG funds will continue to be tax deductible.

As of April 15, 2021, the SVOG application portal was suspended, but once it reopens, you can help your clients apply for the program and show them how to prove compliance to the grant’s requirements.

Restaurant Revitalization Fund

The Restaurant Revitalization Fund (RRF) is a $28.6 billion grant program available to most American restaurants, including bars, food trucks, and lounges. Though restaurants can apply for other relief programs (like some of the ones we’ve already discussed), a restaurant-specific grant was deemed necessary by legislators because the food service industry was hit particularly hard by the pandemic.

The application-based grant program has not yet been launched, but when it does, it will be administered by the Small Business Administration (SBA), the same agency that administers the PPP, the EIDL program, and the SVOG program. You can help your clients prepare for the program launch by cleaning up their accounting reports. Your clients will need to prove that they lost revenue in 2020 compared to 2019.

Grant maximums are $5 million for single restaurants or $10 million for restaurant groups. If your clients apply for and receive a grant, their grant will not be taxable, but they will need to prove they used those funds only on pre-approved expenses that occurred between February 15, 2020 and the end of 2021. Allowable expenses include payroll (including paid sick leave), mortgage or rent payments, utilities, supplies, inventory, and others.

Check back with the SBA periodically to see when the program will become available. The $28.6 billion of funds will go fast, so make sure your clients are some of the first to apply.

Below is a summary of how the American Rescue Plan funded each of the following programs.

Program Funding Provided by the American Rescue PlanAmount
Targeted Economic Injury Disaster Loan Advance
$15 billion
Paycheck Protection Program
$7.25 billion
Shuttered Venue Operators Grant
$1.25 billion
Restaurant Revitalization Fund
$28.6 billion

Other Benefits to Businesses

Your clients can apply for one (or more than one) of the loan/grant programs listed above, but there are a couple tax credits that they may also want to take advantage of.

Paid Leave Credit

Beginning in March of last year, businesses could receive a tax credit in exchange for offering paid sick and family leave. Offering paid leave was obligatory for much of 2020, but businesses could voluntarily provide paid leave to their employees in 2021 and continue to receive the credit. The ARP extended this eligibility period from March 31, 2021 to September 30, 2021.

Employee Retention Credit

The Employee Retention Credit (ERC) was expanded with the Consolidated Appropriations Act at the end of 2020, but the ARP broadened eligibility even further. Under prior guidelines, employers with more than 500 employees were not eligible for the tax credit. Under the ARP, employers with a 90% or higher reduction in gross receipts may qualify for the ERC even if they have more than 500 employees.

The ARP also extended the ERC through the end of 2021. Now, employers can receive up to $7,000 per employee in all four quarters of 2021, for a maximum credit of $28,000 per employee in 2021.

Tax Planning for American Rescue Plan Subsidies

Most of the benefits provided under the American Rescue Plan will have a neutral or positive tax effect on your clients. For most taxpayers, receipts under the EIDL, PPP, SVOG, and the RRF will not be taxable, and expenses they incur to help them qualify for these programs will continue to be deductible. You can show your clients how this boost to revenue will help them from a cash flow perspective, but you’ll likely not need to adjust your tax plans for these programs. But the paid leave and employee retention credits will have a tax impact, and it will be a positive one. With your tax planning software, you can calculate how these programs will reduce your clients’ tax liabilities in 2021. It’s important to tell your clients about these tax credits because reducing tax liabilities can translate to extra cash flow that can be used on other business ventures, like paying down debt, upgrading equipment, or expanding business operations. Our tax planning software produces a deliverable that shows your client exactly how much money they can save by employing one of your recommended strategies. If you’d like to see a demo, reach out today.

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