The ongoing COVID-19 pandemic has prompted legislation over the past year. First came the CARES Act and the FFCRA, most recently President Biden signed the American Rescue Plan (ARP) into law on March 11, 2021.
This is the most expansive tax relief bill so far, with an almost $2 trillion price tag. This plan includes both tax relief for individual taxpayers and businesses. Here is an overview of the American Rescue Plan with a focus on the areas of the act that may affect your business.
Let’s dive right in.
An Overview of the American Rescue Plan
Let’s start out with a broad overview of the American Rescue Plan and the highlights before we go into more detail. The ARP introduced another stimulus payment of $1,400 to individuals making $75,000 or less and couples making under $150,000 annually.
The ARP also extended federal unemployment benefits through September 2021, to provide assistance to individuals that have been continually out of work due to the pandemic.This unemployment payment is $300 a month. In addition, the Eviction and Mortgage Moratoriums were continued until March 31 and additional funding to help these individuals is available beyond this. The plan introduces an expanded child tax credit, providing parents with a monthly $250-$300 depending on the age of the child.
The Payment Protection Plan and the new Restaurant Revitalization Form and the Shuttered Venue Operators Grants have been available to organizations. Both of these new programs offer grants to restaurants and performance venues that have suffered financial losses due to the pandemic.
What more information? Here is an IRS overview of the American Rescue Plan.
Now, let’s get into the nitty gritty details that will definitely affect you as a business owner. In addition to programs like the Paycheck Protection Program (PPP), COVID-19 tax credits have also been available to employers. The American Rescue Plan extended the availability of tax credits for qualified sick and family leave wages, but also amended them.
Under the ARP, employers can continue to, but are not required to provide paid leave to their employees effective April 1, 2021- September 30, 2021. Employers offering their employees paid leave can now expand this to include time off for getting the vaccine, recovering from any illness brought on by the vaccine, and paid leave while they wait for COVID-19 test results. Qualified paid sick leave and qualified paid family leave wages are a tax credit against Medicare taxes.
The Employee Retention Credit was also extended by the ARP. Employers can claim this credit throughout the 2021 tax year, however the IRS has only released guidance on claiming this credit for the first two quarters of 2021. The current IRS guidance currently allows employers to claim 70% of qualified wages paid to an employee throughout the quarter with a maximum of $7,000.
The ARP has introduced a new credit, the COBRA Premium Assistance Credit. This is effective from April 1, 2021 through September 30, 2021. Just for some context, COBRA is an option for individuals that have lost their employer-sponsored health insurance through no fault of their own. While COBRA is a helpful option, it is also a very costly option. With COBRA, the individual is responsible for the entire premium, their (former) employer doesn’t make any contribution.
For additional guidance on the COBRA Premium Assistance Credit, check out this IRS publication.
Many Individuals have found themselves involuntarily terminated or have had their hours reduced to part-time during the pandemic. The COBRA Premium Assistance Subsidy covers the premium cost for these individuals. Employers must cover the cost of the premium, then should report the number of individuals they are providing COBRA for to the IRS. They can claim a refundable tax credit from the IRS to offset the costs.
To learn more about the IRS guidance for these tax credits, check out this IRS Fact Sheet
Reporting Tax Credits to the IRS
You may be wondering, how will I report these tax credits to the IRS? The answer is on your Employer’s Quarterly Federal Tax Return, Form 941. This is where you can claim the qualified wages for sick and family leave, the COBRA Premium Assistance Credit and the qualified wages for the employee retention credit.
How can you ensure that you track these hours and wages accurately? This is where your payroll process comes in! If you are going it alone with your payroll, this could be just another reason to consider a payroll provider. Take PayWow for instance, we help you withhold, calculate, and pay your taxes. We even take care of your quarterly and annual tax forms!
Great payroll doesn’t have to come with a huge price tag, let us show you!