PPAI Unpacks New Federal Stimulus Legislation
On March 11, President Biden signed H.R. 1319, the American Rescue Plan Act of 2021 and the latest round of coronavirus relief funding. At $1.9 trillion, it is among the largest stimulus packages in U.S. history. By renewing or expanding existing programs, the legislation includes several provisions that benefit individuals and companies in the promotional products industry.
“Small business can thrive with proper capitalization,” says Judith Friedman, CEO of Sonoma, California, supplier Sonoma Promotional Solutions. “They can create innovation, maintain employees and extend special offers and discounts. It is unknown, at this date, how the plan will impact the busines climate, greatly or somewhat, but we optimistically look forward to the administration’s actions benefiting our community.”
Here’s what’s included in the plan:
SMALL BUSINESS AID
Paycheck Protection Program
The relief package includes an additional $7.25 billion for the Paycheck Protection Program (PPP) that was created in the CARES Act, increasing that program’s total appropriation to $813.7 billion. PPP loans can be fully forgiven if companies keep employees on their payrolls.
The legislation clarifies that business owners can write off expenses that were paid with forgiven PPP loans, which gives small companies a tax break that could amount to more than $100 billion according to Congressional Budget Office estimates. This provision overrides an IRS decision that prevented businesses from claiming deductions on costs, such as rent and wages, that were paid with tax-free PPP funds.
The same rules from previous tranches of PPP funding apply; borrowers must spend 60 percent of PPP loan funds on payroll costs during their covered periods to qualify for loan forgiveness.
The measure provides $15 billion for additional advance payments to eligible entities under the SBA’s Economic Injury Disaster Loan (EIDL) program.
The legislation requires the SBA to allocate $10 billion to covered entities that did not receive their full eligible advance payments under the previous relief package. Those entities include recipients with 300 or fewer employees and economic losses of at least 30 percent over eight weeks compared with a similar period before the pandemic.
The remaining $5 billion would be designated to make new supplemental payments of $5,000 to covered entities with 10 or fewer employees that had economic losses of more than 50 percent during the covered period.
Funding For State-Based Initiatives
The reconciliation measure provides $10 billion for the State Small Business Credit Initiative. The Treasury Department was also directed to set aside:
- $1.5 billion for states to support businesses owned by socially and economically disadvantaged people.
- $1 billion for an incentive program to boost funding tranches for states that show robust support for such businesses.
- $500 million to support small businesses with fewer than 10 employees.
The department could set aside an additional $500 million for states to provide legal, accounting and financial advisory services. It could also transfer the funds to the Commerce Department’s Minority Business Development Agency to provide similar technical assistance.
The department is required to complete all disbursements by September 30, 2030. Any remaining amounts would be rescinded.
The bill provides another round of direct payments of as much as $1,400 for individuals, $2,800 for joint filers and $1,400 for each qualifying dependent. Dependents include full-time students younger than 24 and adult dependents. Individuals who died before January 1, 2021 wouldn’t be eligible for the payments.
The payments begin to phase out for individuals with adjusted gross incomes of $75,000 and would be zero for people with incomes of $80,000 or more. Those amounts are doubled for joint filers.
The payments are based on 2019 or 2020 tax returns. The Treasury Department could provide payments to individuals who have not filed based on return information available to the department.
Employee Retention Credit
The measure extends through December 31 an employee retention credit established by the CARES Act. It was expanded and extended to July 1 under the Consolidated Appropriations Act, signed in December 2020.
The measure also expands eligibility for the credit to new startups that were established after February 15, 2020, and companies if their revenue declined by 90 percent compared to the same calendar quarter of the previous year. The credit would be capped at $50,000 per calendar quarter for startups.
Earned Income Tax Credit
The measure expands the earned income tax credit (EITC) for taxpayers without children for 2021 by increasing the credit percentage and phase-out thresholds.
It also allows taxpayers ages 19 and older without children to qualify, eliminating the 25 to 64 age range for the year. Individuals who are homeless or were in foster care could claim the credit beginning at age 18, and full-time students could claim it beginning at age 24.
Paid Leave Credits
The bill extends tax credits for employer-provided paid sick and family leave, which were established under the Families First Coronavirus Response Act.
The value of the credits are increased to match an employer’s share of contributions to defined benefit plans and registered apprenticeship programs.
The measure also:
- Increases the wages covered by the paid family leave credit to $12,000 per worker, up from $10,000.
- Covers as many as 60 days of paid family leave for self-employed individuals.
- Expands the paid leave credits, including for self-employed individuals, to cover COVID-19 vaccinations or wait times for test results or diagnoses.
- Bars employers from receiving credits if their paid leave favors highly-compensated employees, full-time workers or employees based on tenure.
Child Tax Credit
The measure expands the child tax credit (CTC), which provides a credit of as much as $2,000 for each child younger than 17, for 2021.
The bill’s changes to the CTC would include:
- Making it fully refundable, meaning the entire credit could be provided as a refund if it exceeds an individual’s income tax liability, instead of partially refundable under current law.
- Increasing the maximum credit to $3,600 for each child younger than six and $3,000 for other children.
- Allowing it to be claimed for 17 year olds.
The measure changes several pandemic-related unemployment benefits created under the CARES Act and extended under Public Law 116-260.
It extends the extra $300 Federal Pandemic Unemployment Compensation through September 6.
The bill also extends other CARES Act jobless benefits that were set to expire on March 14, with changes that include:
- Increasing the duration of Pandemic Unemployment Assistance (PUA) benefits to as long as 79 weeks, from 50 weeks, for individuals who don’t qualify for regular benefits.
- Extending to 53 weeks, from 24 weeks, benefits under the Pandemic Emergency Unemployment Compensation program for those who’ve exhausted regular benefits.
The first $10,200 of unemployment benefits received can be excluded from certain taxpayers’ adjusted gross income beginning in 2020. This provision applies to taxpayers with income less than $150,000.
This summary report of recent laws is not, and should not be construed as, legal or tax advice, and the summary report should not be relied upon as such. Each reviewer is encouraged to consult independent legal and tax counsel before making any decisions concerning the matters in this communication.