On March 11, another round of COVID-19 relief legislation was signed into law. The American Rescue Plan Act (ARPA) includes funding for individuals, businesses, and state and local governments, but also some significant tax-related provisions.
ARPA extends and expands some tax provisions in the CARES Act and the Consolidated Appropriations Act (CAA) and also includes some new tax-related provisions.
A quick look
Here’s a quick look at some of the tax provisions that may affect you:
- Recovery rebates of up to $1,400 for singles and heads of households and $2,800 for married couples filing jointly — plus $1,400 per qualifying dependent (including adult dependents) — subject to adjusted gross income (AGI) phaseouts starting at $75,000 for singles, $112,500 for heads of households and $150,000 for joint filers and ending at $80,000, $120,000 and $160,000, respectively
- Increased Child credit, including advance payments of part of the credit later this year
- Expanded child and dependent care tax credit
- Tax-free treatment of forgiven student loan debt
- Exclusion from gross income of the first $10,200 in unemployment benefits received
Businesses and other employers
- Extended and expanded tax credits for retaining employees, through Dec. 31, 2021
- Extended and modified payroll tax credits for paid sick and family leave, through Sept. 30, 2021
- Extended excess business loss limitation, through Dec. 31, 2026
- Expansion of the Section 162(m) limits on the tax deduction public companies can take for executive compensation to cover the CEO, the CFO and the five next highest paid employees, beginning in 2027
How will you benefit?
This is just a brief overview of the tax-related provisions of ARPA. Additional rules and limits apply. Contact your tax advisor for more details on these provisions and how you might benefit.
Can Your Business Benefit From the Enhanced Employee Retention Credit?
Over the course of the COVID-19 pandemic, many businesses have had to shut down or reduce operations, causing widespread furloughs and layoffs. Fortunately, employers that have kept workers on their payrolls may be eligible for a refundable employee retention credit. Three laws have created, extended and enhanced the credit.
The original law
The CARES Act created the employee retention credit in March of 2020. The credit originally:
- Equaled 50% of qualified employee wages paid by an eligible employer in an applicable 2020 calendar quarter,
- Was subject to an overall wage cap of $10,000 per eligible employee, and
- Was available to eligible large and small employers.
The credit covered wages paid from March 13, 2020, through Dec. 31, 2020.
The Consolidated Appropriations Act (CAA), signed into law in December of 2020, extended the covered wage period to include the first two calendar quarters of 2021, ending on June 30, 2021. And now the American Rescue Plan Act (ARPA), signed into law on March 11, has extended it again through Dec. 31, 2021.
In addition, for the first two quarters of 2021, the CAA increased the overall covered wage ceiling to 70% of qualified wages paid during the applicable quarter. And it increased the per-employee covered wage ceiling to $10,000 of qualified wages paid during the applicable quarter (versus a $10,000 annual ceiling under the original rules). Because of the ARPA extension, these higher wage ceilings now apply to all four quarters of 2021.
Substantial tax savings
Additional rules and limits apply to the employee retention credit, and these are just some of the changes made to it. But the potential tax savings can be substantial. Contact your tax advisor for more information about this tax saving opportunity.