The American Rescue Plan, the controversial $1.9 trillion pandemic relief bill is now a reality. Included in the new bill are the much-publicized provisions that are sending $1,400 payments to individuals earning up to $75,000 and couples earning up to $150,000 based on either 2019 or 2020 tax returns. The new bill’s provision on unemployment insurance contains a $300 weekly boost in benefits into September with the first $10,200 as tax-free for workers in households earning up to $150,000 a year. Best of all, the new bill continues to extend benefits for the self-employed and “gig” workers, along with those who have exhausted their regular jobless benefits.
In addition to self-employed snow and ice removal professionals, businesses will reap their share of benefits under the new legislation. After all, small businesses sustain half of the private sector jobs in America but have struggled in the wake of COVID-19. Nationally, small business revenue is down 32% and over 400,000 businesses have permanently closed.
To help hard-hit businesses survive the pandemic and fully recover, lawmakers included a number of benefits aimed at small businesses including more much needed funding.
FUNDING, WE’VE GOT FUNDS
The ARP allocates $350 billion for new Coronavirus Relief Funds for states, localities, the U.S. Territories and the Tribal Governments to help keep critical workers on the job. Although the bill provided no information about accessing these funds, another federal funding program appears more accessible.
A whopping $10 billion has been allocated to help states assist small businesses. The State Small Business Credit Initiative, with $2.5 billion set aside for businesses owned and controlled by socially and economically disadvantaged individuals, including minority-owned businesses will enable state governments to make low-interest loans and other investments to help their small business economies recover.
Under the ARP, another small business financing program has been created to leverage $35 billion in government funds into $175 billion in additional small business lending and investment. The funds will be invested in successful state, local, tribal and non-profit small business financing programs.
THE PPP BUSINESS RESCUE
Already taking applications for second-round loans the Paycheck Protection Program (PPP) is getting an additional $7.25 billion. The PPP was created to help borrowers meet their payroll and operating costs with the potential of being forgiven.
Seasonal businesses are eligible for program loans even if the business was dormant or not fully operating on February 15, the primary PPP loan eligibility date. Instead, if the business was operating for any 12-week (up from the previous 8-week) period between Feb. 15, 2019, and Feb.15, 2020, it is eligible for a PPP loan.
For the record, seasonal employers and businesses are ones that don’t operate for more than 7-months in any calendar year or during the previous year had gross receipts for any 6-months that were not more than 33.33% of the gross receipts for the other six months of that year.
As with earlier versions, loans will be fuly forgiven if at least 60% of the money is used to support payroll expenses with the remainder going to mortgage interest, rent, utilities, personal-protective equipment or other business expenses. Loan payments will be deferred for six months and no collateral or personal guarantees are required. Nor will either the government or lenders charge small businesses any fees.
Businesses receiving PPP loans may have it forgiven if they meet certain criteria, including not laying off employees during an eight-week period covered by the loan. If they are not forgiven, the loans have a maturity of two years and carry an interest rate of 1%. And, while the PPP loan application process is slated to soon end, Congress is pressing for an extension, giving the operators of snow removal and ice businesses until the end of May to apply.
EIDL FOR MORE RESCUE
The Economic Injury Disaster Loan (EIDL) program was created to provide economic relief to businesses that are currently experiencing a temporary loss of revenue due to the pandemic. The EIDL helps snow and ice removal businesses meet their financial obligations and operating expenses.
The ARP will provide $15 billion to the Emergency Injury Disaster Loan Program (EIDL) for long-term, low-interest loans to be made by the Small Business Administration (SBA). Severely impacted small businesses with fewer than 10 workers will reportedly be given priority for some of the funds.
In fact, under the ARP, Targeted EIDL Advances for small businesses of up to $10,000 may be converted to grants if used to cover a business’s operating expenses. An interest rate of 3.75% is required for loans under $25,000 while, for the record, EIDL grants are exempt from federal tax.
RESCUING THE PAYROLL
To encourage employers to keep workers on their payroll, last year’s CARES Act created the Employee Retention Credit (ERC). The purpose of the ERC was to encourage employers to keep employees on the payroll, even if they are not working during the covered period due to the effects of the COVID-19 outbreak.
Under the new ARP, the ERC allows 70% (up from 50%) of a snow removal and ice management business’s qualified wages to be immediately refundable via reductions in the required employment tax deposits. The ARP also extended the increased ERC through the end of 2021.
The credit is, as mentioned, 70% of qualified wages (including amounts paid towards health insurance) per full-time employee up to a cap of $10,000 of wages per employee. In other words, the employer can get a credit of up to $7,000 per employee, per calendar quarter. Plus, the ERC now can be used to offset an employer’s Medicare tax liability in addition to the Social Security tax.
EMPLOYER-PROVIDED SICK PAY AND FAMILY LEAVE PAY
One of the first relief measures provided by our lawmakers to lessen the financial impact of the pandemic was the payroll tax credit for employers providing paid sick and family leave. There was also a similar credit for the self-employed.
The ARP extended the Family First Coronavirus Response Act (FFCRA) that originally required employers to provide sick pay and emergency family and medical leave pay through the third quarter of 2021. While the plan does not reinstate the mandatory paid family and sick leave, it allows employers who voluntarily choose to offer the benefit through September 30, 2021.
Although employers are no longer required to pay employees who miss work due to COVID-19, payments voluntarily made to a qualified employee, subject to a maximum of $1,400 per week are refundable, dollar-for-dollar as a federal payroll tax credit by employers with fewer than 300 employees. The bill also increases the limit on applicable wages for which the credit can be claimed to $12,000 from $10,000, effective after March 31, 2021.
The plan also eliminates FFCRA exemptions provided earlier for employers with more than 500 employees or less than 50 employees. For self-employed individuals attempting to claim the credit, the days for which the credit can be claimed has been increased to 60 – retroactive after December 31, 2020.
NO RESCUE WITHOUT TAXES
Since no rescue plan is complete without taxes, ARP includes tax-related provisions, including the already-mentioned payroll tax credits for employers and changes related to retirement plan funding. Also, Targeted Economic Injury Disaster Loans (TEIDL) received from the SBA will not be subject to income tax. Nor will the exclusion result in the denial of a deduction, reduction of tax attributes or denial of increases in basis or book value.Not too surprisingly, lawmakers are already floating proposals to pay for this massive bill. The proposals for increased taxes include:
- Raising the top corporate tax rate to 25% from the current 21% – and phasing out the 20% qualified business income deduction for owners of pass-through entities such as S corps, partnerships, etc., and
- Climate change will be addressed with enhanced tax credits for electric vehicles, energy-efficient homes and businesses, carbon recapture, use and storage and eliminating tax breaks for fossil fuels.