12 minute read
The American Rescue Plan of 2021
by Mark E. Battersby
The American Rescue Plan (ARP), the controversial $1.9 trillion pandemic relief bill is now a reality. Included in the new bill were 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.
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The new bill’s provision on unemployment insurance contained a $300 weekly boost in benefits into September with the first $10,200 tax-free for workers in households earning up to $150,000 a year. Best of all, the new bill continued to extend benefits for the self-employed and “gig” workers.
In addition to the self-employed, hard-hit ice cream and frozen dessert businesses will reap their share of benefits from a number of programs including more, much needed funding.
Funding, We’ve Got Funds
The ARP allocated a whopping $350 billion in 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 how a frozen dessert business can tap these funds, other funding programs appear more accessible.
A whopping $10 billion has been allocated to help states assist their 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 goal is to provide low interest loans and venture capital to help entrepreneurs -– including those in the clean energy sector -– innovate, create and maintain jobs and provide the essential goods and services that communities depend on.
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 got an additional $7.25 billion in funding.
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 February 15, 2019, and February 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 of the PPP, loans will be fully 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 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.
Businesses that receive PPP loans may have the loan 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 2
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 because of the large amount of unexpended funds, giving the operators of ice cream businesses until the end of May to apply.
Although a forgiven PPP loan is not taxable income for federal tax purposes and associated expenses are deductible, that might not be the case when it comes to state taxes. At least five states include loan forgiveness as 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 originally created to provide economic relief to businesses that are experiencing a temporary loss of revenue due to the pandemic. The EIDL helps ice cream and frozen dessert retailers meet their financial obligations and operating expenses.
The ARP is providing $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 are, reportedly, being given priority for a portion of this funding.
In fact, under the ARP, so-called “Targeted EIDL Advances” for small business funding 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.
Restaurant Revitalization Fund
The ARP also provided $25 billion for a new grant program specifically for bars and restaurants. While it may be difficult for many ice cream and frozen dessert businesses to qualify as: “restaurants, food stands or trucks, food carts, caterer, saloon, inn, tavern, bar, lounge, brewpub and more where patrons assemble for the primary purpose of being served food or drink,” it deserves investigation.
After all, eligible businesses can receive up to $10 million to be used for a variety of expenses including payroll, mortgage and rent, utilities and, of course, food and beverages. Remember, however, not everyone is eligible.
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 were 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 an ice cream 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 fulltime 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 that provide 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 requirement, it allows employers who voluntarily choose to offer the benefit through September 30, 2021 to claim the credit.
Although employers are no longer required to pay employees forced to 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 selfemployed 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.
No Rescue Without Taxes
Since no rescue plan is complete without taxes, ARP included 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 allowed Targeted Economic Injury Disaster Loans (EIDL) and Restaurant Revitalization Grants received from the SBA to be ignored for federal tax purposes. 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.
Help
To guide ice cream and other business owners or operators through this maze of new rules and benefits the socalled 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 Community Navigators, the SBA, banks and other financial institutions continue to provide invaluable services, professional guidance may be necessary in order to reap the maximum benefits available under the American Rescue Plan for the ice cream and frozen dessert business and/ or its owner. v
About the Author
Mark Battersby’s columns, currently serving readers in a variety of fields, provide a wealth of topical information on a regular basis. Mr. Battersby writes and sells more than 200 features for trade magazines and journals every year in addition to writing and syndicating a column of general business tax information to over 45 business journals each week, newspapers and periodicals. Mr. Battersby also writes three topical columns every week and 13 trade magazine columns every month.
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