President Biden signed the $1.9 trillion American Rescue Plan Act (ARPA) on March 11. This new law is best known for the provisions providing relief to individuals. In addition, the ARPA also provides several tax breaks and financial benefits for businesses.
Here are some of the tax highlights of the ARPA.
The Employee Retention Tax Credit extension is from June 30 until December 31, 2021. The ARPA continues the ERTC rate of credit at 70% for this extended period of time. It also continues to allow for up to $10,000 in qualified wages for any calendar quarter. Taking into account the Consolidated Appropriations Act extension and the ARPA extension, this means an employer can potentially have up to $40,000 in qualifying wages per employee through 2021.
In general, an eligible employee’s gross income doesn’t include amounts paid or incurred by an employer for dependent care assistance provided to the employee under a qualified dependent care assistance program (DCAP).
Previously, the amount that could be excluded from an employee’s gross income under a DCAP during a tax year wasn’t more than $5,000 ($2,500 for married individuals filing separately), subject to certain limitations. However, any contribution made by an employer to a DCAP can’t exceed the employee’s earned income or, if married, the lesser of employee’s or spouse’s earned income.
Under the American Rescue Plan Act, for 2021 only, the exclusion for employer-provided dependent care assistance is increased from $5,000 to $10,500. For married individuals filing separately, assistance is from $2,500 to $5,250.
This provision is effective for tax years beginning after December 31, 2020.
Changes under the ARPA apply to amounts paid with respect to calendar quarters beginning after March 31, 2021. 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. It also provides that paid sick and paid family leave credits may each be increased by the employer’s share of Social Security tax (6.2%) and employer’s share of Medicare tax (1.45%) on qualified leave wages.
Under the ARPA, eligible restaurants, food trucks, and similar businesses that provide food and drinks may receive restaurant revitalization grants from the Small Business Administration. For tax purposes, amounts that restaurants receive as revitalization grants aren’t included in the gross income of the person who receives the money.
These are only some of the provisions in the American Rescue Plan Act. There are many others that may be beneficial to your business. Contact us for more information about your situation.