American Rescue Plan Act provides PPP funding and tax breaks

Editor’s note: Regulations and guidance from the SBA and the U.S. Department of Treasury on the PPP are evolving rapidly. Please refer to the latest guidance from SBA and Treasury to confirm current program rules and how they apply to your particular situation.

More pandemic relief is on the way. President Joe Biden signed into law on March 11 the American Rescue Plan Act, a $1.9 trillion coronavirus relief bill that provides additional funding for small businesses, issues another round of stimulus payments to eligible taxpayers, and amends some existing tax provisions.

New funding for EIDL and PPP

The new law allocates over $50 billion to benefit small businesses through a variety of programs. Of that funding, $28.6 billion is dedicated to restaurants and bars, many of which have struggled to recover amid social distancing regulations. Another $15 billion is distributed to the Economic Injury Disaster Loan program, which has been extended through the end of 2021. Additionally, $7.25 billion will continue to fund the latest round of Paycheck Protection Program loans.

Additional amounts will be disbursed to health care entities supporting vaccine distribution and testing related to COVID-19. Schools, colleges, and universities will see more funding, as well as state and local governments.

5 things you need to know about the new act

In addition to small business funding, the American Rescue Plan Act amends several tax provisions and creates a new round of stimulus payments for eligible taxpayers. Some key updates include:

1. $1,400 stimulus checks for eligible taxpayers

A new round of economic impact payments, or stimulus checks, will be issued to qualifying individuals. Just as before, these payments are advance payments of a recovery rebate credit issued by the IRS.

These payments begin at $1,400 for individual taxpayers or $2,800 for married taxpayers filing jointly. This round includes an additional $1,400 for each dependent, including college students and qualifying relatives claimed as dependents.

The individual credit amount is based on the taxpayer’s adjusted gross income (AGI). AGI is gross income minus any adjustments such as student loan interest, tuition and fees, alimony payments, contributions to a retirement account, and certain expenses of teachers and self-employed individuals. The act uses the taxpayer’s 2019 AGI to determine individual eligibility for the stimulus payment — unless a 2020 return has already been filed.

For single taxpayers, the credit begins to phase out at an AGI of $75,000 and will phase out entirely at $80,000. For married taxpayers who file jointly, the credit begins to phase out at an AGI of $150,000 and will phase out entirely at $160,000. For heads of household, the phaseout starts at $112,500 and ends at $120,000.

2. Extended Families First Coronavirus Response Act

These tax credits, initially enacted by the Families First Coronavirus Response Act, compensate employers and self-employed individuals for coronavirus-related paid sick, family, and medical leave. The American Rescue Plan Act extends these credits through September 30, 2021.

Additionally, the new law:

• Increases the limit on the credit for paid family leave to $12,000
• Increases the number of days a self-employed individual can take into account when calculating the qualified family leave equivalent from 50 to 60
• Allows workers to use paid leave credits for leave related to a COVID-19 vaccination or to waiting for a COVID-19 diagnosis or test result
• Resets the limitation of days taken into account for sick leave on March 31, 2021
• Expands credits to allow 501(c)(1) government organizations to take them

3. Extended unemployment benefits

The American Rescue Plan Act extends the $300 per week supplement to unemployment benefits from March 14 to September 6, 2021. Additionally, the act makes the first $10,200 in unemployment benefits tax-free in 2020 for taxpayers making less than $150,000.

4. Extended Employee Retention Credits

The Employee Retention Credit (ERC) allows certain employers to claim a tax credit for paying qualified wages to employees. The act extends the ERC through the end of 2021.

5. Additional funding option for PPP borrowers

The Shuttered Venue Operators (SVO) Grant program was established in December 2020. The program includes $15 billion in grants to shuttered venues, including theatrical producers, motion picture theater operators, and more. Previously, PPP loan recipients were unable to receive funding from or even apply for both programs. The American Rescue Plan Act allows eligible entities that have received a first- or second-draw PPP loan after December 27, 2020, to receive an SVO grant in addition. However, the amount of the grant will be reduced by the amount of PPP funds received.

For more information about the American Rescue Plan Act, tax changes, and provisions, please visit the White House website.