The American Rescue Plan (ARP), the controversial $1.9 trillion pandemic relief bill, is now a reality. Included in the new bill are the much-publicized provisions that will send $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 unemployment payments 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.
Because small businesses sustain half of the private sector jobs in America but have struggled in the wake of COVID-19, helping hard-hit small businesses survive the pandemic and fully recover is a priority. Lawmakers included a number of benefits in the bill aimed at small businesses including more, much-needed funding.
FUNDING, WE’VE GOT FUNDS
A whopping $10 billion has been allocated to help states assist their small businesses. The State Small Business Credit Initiative (SSBCI), 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.
As with the original SSBCI, participants were expected to leverage their SSBCI funds to generate new small business lending that is at least 10 times the amount of their SSBCI funds. The funding is to be used to expand existing or create new state small business investment programs, including state capital access programs, collateral support programs, loan participation programs, loan guarantee programs, and venture capital programs.
THE PPP BUSINESS RESCUE
The Paycheck Protection Program (PPP) was created to help borrowers meet their payroll and operating costs with the potential of being forgiven. Already taking applications for second-round loans the PPP is getting an additional $7.25 billion.
As with earlier versions of the PPP, loans will be fully forgiven if at least 60 percent of the money is used to support payroll expenses with the remainder going to mortgage interest, rent, utilities, personal protective equipment, or certain 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.
If they are not forgiven, PPP loans have a maturity of two years and carry an interest rate of 1 percent. And, while the PPP loan application process is slated to soon end, lawmakers are pressing for an extension because of the large amount of unexpended funds, giving car wash operators and other business owners until the end of May to apply.
A word of caution, however. Although a forgiven PPP loan is not considered taxable income for federal tax purposes and while associated expenses are deductible, that is not always the case when it comes to state taxes. Currently, five states include loan forgiveness as taxable income with at least one state treating loan forgiveness as income for partnerships, S corporations, and sole proprietors — but not for corporations.
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 is already helping car care services and detailing businesses meet their financial obligations and operating expenses.
The ARP will provide an additional $15 billion to the 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, so-called “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 percent is charged for loans under $25,000 while, for the record, EIDL grants are exempt from federal tax.
Early in March 2021, the SBA announced that borrowers will have until 2022 to meet their obligations under the EIDL program. While interest will continue to accrue on the loan’s outstanding balance throughout the deferment, borrowers will resume their regular payment schedule before March 31, 2022.
RESCUING THE PAYROLL
While putting $1,400 payments in the pockets of many Americans, the ARP also contained a number of helpful tax credits to assist many employers weather the continuing COVID-19 storm. For example, last year’s CARES Act created the Employee Retention Credit (ERC) 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 percent (up from 50 percent) of a car care 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.
For 2021, the definition of large employer changes from more than 100 to more than 500 employees creating a broader definition of wages. Generally, a car wash operation can count wages paid to both active (working) employees and those not providing services. What’s more, a business with fewer than 500 full-time equivalent employees, is now allowed advance ERC payments during the quarter in which wages were paid to those employees -– including seasonal employees, part-time employees, and employees not in existence in 2019.
The credit is, as mentioned, 70 percent 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.
EMPLOYER-PROVIDED SICK PAY AND FAMILY LEAVE PAY
One of the first relief measures created 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 mandatory paid family and sick leave, it allows employers who voluntarily choose to offer the benefit through September 30, 2021 to claim the tax credit.
That’s right, although employers are no longer required to pay employees forced to miss work due to COVID-19, employers subject to FFCRA in 2020 who voluntarily continued to offer FFCRA paid leave into 2021, were given an extension to the corresponding tax credits for qualified wages for paid leave through September 30, 2021.
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 for most 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 up from the earlier $10,000 ceiling, effective after March 31, 2021.
Furthermore, the plan eliminates FFCRA exemptions provided earlier for employers with more than 500 employees or fewer than 50 employees. For self-employed individuals attempting to claim the credit, the number of days for which the credit can be claimed has been increased to 60 days (from 50 days) — retroactive after December 31, 2020.
In the area of workplace safety, the bill provides $150 billion for the Department of Labor’s worker protection activities, including $100 million for the Occupational Safety and Health Administration (OSHA). Of the OSHA funding, a portion is reserved for occupational health and safety training grants for non-profits, and another portion earmarked for coronavirus-related enforcement activities at high-risk workplaces.
NO RESCUE WITHOUT TAXES
Since no rescue plan is complete without taxes, ARP includes a number of tax provisions, including the already-mentioned payroll tax credits for employers and changes related to retirement plan funding.
On the plus side, the ARP provides that Targeted Economic Injury Disaster Loans (EIDL) and Restaurant Revitalization Grants received from the SBA will not be subject to income tax. Nor will the exclusion result in the denial of a tax deduction, reduction of tax attributes, or denial of increases in basis or book value.
To guide a business owner, operator, or manager through this maze of new rules and benefits, the so-called Community Navigator Services has been funded to the tune of $100 million to provide outreach, education, and technical assistance with the SBA’s programs.
Although the SBA and Community Navigators program has been funded to help guide business owners and supplement advice from banks and other financial institutions, professional guidance will be required to maximize the benefits a car wash operator can reap from the ARP.
Mark E. Battersby is an Ardmore, PA-based freelance writer, specializing in finance and tax issues.