The American Rescue Plan Act of 2021 was passed by congress and signed into law by the president on March 11, 2020. The law has provisions effecting individuals, businesses, pension plans and payroll in addition to funding many other unrelated items. In this post we concentrate on the provisions of the Act affecting Businesses in other posts we have dealt with the provisions that affect individuals and we will be adding posts that address the other portions of the ACT as well as information that clarifies and defines how the law will be applied as released by the IRS, Treasury, SAB and other government agencies.

COBRA Premium Subsidy

Assistance-eligible individuals (AEIs) may receive a 100% subsidy for COBRA premiums for any period of COBRA coverage beginning on April 1, 2021 (the first day of the first month beginning after enactment) and ending on September 30, 2021. Employers are required to administer and will be allowed a quarterly tax credit against the Medicare payroll tax equal to the premium amounts not paid by AEIs. If the credit amount exceeds the quarterly Medicare payroll tax, the excess will be treated as an overpayment refundable. Assistance-eligible individuals will not be eligible for the Health Care Tax Credit for any period of coverage in which they receive a COBRA subsidy.  The requirements are complex and require a business to provide notice to employees and employers to claim the refundable credit on their quarterly federal payroll tax returns.

Employer-Provided Dependent Care Assistance Exclusion Increased

The exclusion for employer provided dependent care expense, directly or through a 125-cafeteria plan, is increased for the year 2021 only, from $5,000 to $10,500, and from $2,500 to $5,250 in the case of a separate return filed by a married individual.

Targeted Economic Injury Disaster Loan Advances

Eligible small businesses may receive targeted Economic Injury Disaster Loan (EIDL) advances from the Small Business Administration. Amounts received as targeted EIDL advances are not included in the gross income of the person or entity that receives the amounts. Expenses paid using these funds are fully deductible

Since the targeted EIDL advances are treated as tax-exempt income, they will be allocated to the partners or shareholders and increase their bases in their partnership interests.

Restaurant Revitalization Grants

Eligible restaurants, food trucks, and similar businesses may receive Restaurant Revitalization Grants from the Small Business Administration.  Amounts received as Restaurant Revitalization Grant are not included in the gross income of the person or entity who receives the amounts. (How to apply has not yet been announced.)

Expansion of Rule on Deduction of Compensation of Publicly Held Corporation Employees

The compensation limit for deduction of publicly held corporations of $1 million per year for compensation paid to any “covered employee” has been expanded to cover more employees and now includes the eight highest-paid employees, rather than the three other highest-paid employees.

It’s important to understand that new laws means that regulations and instructions are not yet in place to provide guidance. The information provided here is meant to assist in awareness of changes, not to be a definitive guide as to how these changes must be implemented or just how they will affect any specific person or business. If you have questions consult a qualified tax advisor.