It has been over one year since the COVID-19 pandemic arrived in Denver creating financial and economic challenges for both businesses and individuals. While the vaccine continues to be distributed and new cases decline, the challenges created have persisted. Despite the prior two COVID-19 relief bills many small businesses and individuals still need help. On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021, which provides targeted relief and new tax incentives for both businesses and individuals. For businesses, it includes an expansion of the Employee Retention Credit, new Restaurant Revitalization Fund and an extension for Family & Sick Leave Credits. For individuals, it includes another economic impact payment, an extension of federal unemployment, and an extension of benefits available under the Child Care Tax Credit. To help clients, prospects, and others, Hanson & Co has provided a summary of the key changes below.

Business Provisions

  • Restaurant Revitalization Fund – The Act creates a new $28.6B fund designed to provide immediate financial assistance to restaurants, food stands, food trucks or carts, caterers, bars, lounges, and tasting rooms. The amount of the grant will be determined by the amount of the pandemic-related losses incurred and the maximum amount is limited to $10M. Only those with less than 20 separate locations may apply and publicly held entities are excluded. Proceeds may be used to cover a number of expenses including payroll, rent, mortgage principal or interest, utilities, food and beverage expenses, covered supplier costs and more.
  • Employee Retention Tax Credit (ERC) – This popular payroll-based tax credit was extended by the Consolidated Appropriations Act, 2021, and was scheduled to expire on June 30, 2021. However, the Act has extended the expiration date to December 31, 2021. In addition, the credit has been expanded for severely financially distressed employers allowing them to treat all wages paid as qualifying wages, without concern for the number of full-time employees. There were also changes that allow start-up businesses, under certain conditions, to qualify for the credit as well.
  • Family & Sick Leave Credits – While the Act did not renew the requirement for companies to provide paid family and sick leave benefits originally created under the CARES Act, there was an extension of available tax credits for companies that voluntarily participate. Credit availability was originally scheduled to expire on March 31, 2021, but has been extended to September 30, 2021.
  • Tax Treatment EIDL Advances – The Act also clarified that any income received from an EIDL Advance will not be included in gross income. This means businesses will not be required to pay taxes on any EIDL advances received.
  • Additional Relief Program Funding – There was also an expansion of funding and eligibility criteria for various financial relief programs administered by the Small Business Administration (SBA), including
    • Paycheck Protection Program (PPP) – There was an additional $7.25B allocated to the PPP and expanded eligibility to include additional nonprofits and digital news services. However, no extension for the program was included which means PPP applications will stop being accepted on March 31, 2021.
    • Shuttered Venue Operators Grant (SOVG) – There were additional funds allocated to the program and a change in rules to allow businesses to apply for both a PPP loan and SOVG after December 27, 2020.
    • EIDL Advances – There was an additional $15B in funding allocated and $5B for the new Supplemental Targeted EIDL Advance specifically designed to help those businesses that have been hardest hit.

Individual Provisions

  • Economic Impact Payments – Another economic impact payment for individuals was approved and will be sent out within weeks. The amount of the payment is $1,400 for individuals, $2,800 for joint filers, and $1,400 for each qualifying dependent which includes any full-time students younger than 24 and adult dependents. Phase-outs start for individuals with an Adjusted Gross Income (AGI) of $75,000 ($150,000 for couples).
  • Federal Unemployment Benefits –The Act includes an extension of the federal unemployment benefit of $300 which was set to expire this month. The benefit amount was renewed at the current rate with a termination date of September 6, 2021.
  • Child Care Tax Credit – The credit is available to taxpayers that support and have children/ stepchildren under the age of 17 living with them. The Act increases the maximum credit amount to 50% of qualifying expenses limited to $3,000 per child for those between the ages of 6 and 17. It also increases the maximum to $3,600 for those under age 6. The phase-out rules have been lowered to $150,000 for married filed jointly, $112,500 for heads of households, and $75,000 for other taxpayers. The credit has also been changed from partially to fully refundable which could result in a refund if the credit amount exceeds an individual’s income tax liability.
  • Earned Income Tax Credit – The credit is designed to provide support to low- and middle-income taxpayers equal to a percentage of earnings. The Act raises the maximum credit amount for adults without children from $543 to $1,500 and lowers the eligibility age for taxpayers without children from 25 to 19. In addition, the rule prohibiting taxpayers from claiming children without a social security number has been eliminated. Finally, separated couples can now claim the credit assuming they live with their child for more than half a year.
  • Dependent Care Credit – The credit is designed to help taxpayers who pay out-of-pocket expenses to pay for the care of a qualifying child or a disabled dependent while working or looking for work. The Act now makes the credit refundable, increases the maximum allowable expenses to $8,000 for one dependent and $16,000 for two or more. In addition, the credit has been expanded to cover 50% of qualifying expenses.
  • 2020 Unemployment Tax Exclusion – For 2020, taxpayers with an AGI of less than $150,000 that received any unemployment benefits can qualify to receive a tax exemption of up to $10,200.

Contact Us

The American Rescue Plan Act provides an additional dimension of relief for Denver businesses and individuals managing through another year of the pandemic. Given the depth of the changes, it is important to consult with a qualified tax advisor to determine the best approach. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Hanson & Co can help. For additional information call us at 303-388-1010 or click here to contact us. We look forward to speaking with you soon.