Individuals and their families became the focus of the most-recent governmental stimulus package. However, there are several key business incentives that should be noted depending on your industry and need.
Restaurant Revitalization Grant
Congress has directed the SBA to administer a new grant to the targeted restaurant industry who have been severely impacted by the COVID-19 pandemic and mandatory shutdowns.
Eligible entities include restaurant, food stand, food truck, food cart, caterer, saloon, inn, tavern, bar, lounge, brewpub, tasting room, taproom, licensed facility or premise of a beverage alcohol producer where the public may taste, sample, or purchase products, or other similar place of business in which the public or patrons assemble for the primary purpose of being served food or drink.
Excluded entities include those who have received the live-venue grant or have an application pending for such a grant under Section 324 of Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act, as well as those types of entities stated above with more than 20 locations, regardless of whether those locations do business under the same or multiple names. Publicly-traded companies are also excluded.
Eligible entities must make a good-faith certification, similar to the PPP, that “the uncertainty of current economic conditions makes necessary the grant request to support the ongoing operations of the eligible entity”.
The aggregate amount of grants made to an eligible entity and any affiliated businesses of the eligible entity are capped at $10,000,000, and limited to $5,000,000 per physical location of the eligible entity. Grant amounts will be equal to the eligible entity(ies)’s “pandemic-related revenue loss” (PRRL).
For those entities who were in operation for the full calendar years of 2019 and 2020, the “pandemic-related revenue loss” is, to the extent the result is greater than zero:
Annual 2019 Gross Receipts – Annual 2020 Gross Receipts = PRRL
For example, if a restaurant had 2019 gross receipts of $5 million, and 2020 gross receipts of $2 million, the PRRL (and therefore the amount of the grant) would be $3 million.
For those entities who were not in operation for the entirety of 2019, the “pandemic-related revenue loss” is, to the extent the result is greater than zero:
(Avg. 2019 Monthly Gross Receipts x 12) - (Avg. 2019 Monthly Gross Receipts x 12) = PRRL
For example, if a restaurant had 2019 average monthly gross receipts of $300,000, and 2020 average monthly gross receipts of $100,000, the PRRL (and therefore the amount of the grant) would be $2.4 million.
($300,000 x 12) – ($100,000 x 12) = $2,400,000
For those entities who began operations after January 1, 2020, the “pandemic-related revenue loss” is, to the extent the result is greater than zero:
Payroll costs from February 15, 2020 and forward – Gross receipts received during that period = PRRL
For those entities who have yet to begin operations, the “pandemic-related revenue loss” is, to the extent the result is greater than zero:
Payroll costs from February 15, 2020 and forward = PRRL
Recipients of the grant may use the funds during February 15, 2020 thru December 31, 2021 in the following areas as a direct result of, or during, the COVID-19 pandemic:
Payments of principal or interest on any mortgage obligation
Rent payments (excluding prepayment of rent)
Maintenance expenses, including:
- Construction to accommodate outdoor seating.
- Walls, floors, deck surfaces, furniture, and equipment
Supplies, including PPE and cleaning materials
Food and beverage expenses that are within the scope of the normal business practice of the entity
Covered supplier costs, like those forgivable under the PPP
Paid sick leave
To the extent a grant recipient fails to use the full amount of their funds by December 31, 2021, or permanently ceases operations on or before December 31, 2021, the recipient shall return to the Treasury/SBA any funds that were not used for allowable expenses, as stated above. This Act does not indicate that interest will be due on any portion of unused funds.
Similar to the PPP, the funds which are used by the borrower are deemed not taxable and the expenses paid with such funds will remain tax deductible.
Employee Retention Credit Extension
The Employee Retention Credit (ERTC) has been extended for both Q3 and Q4 of 2021. Previously, the Consolidated Appropriations Act of 2021 had only provided for the credit for Q1 and Q2 of 2021.
Various technical amendments have been made to the credit, applicable only for the second half of 2021. This includes the ERTC being allowed against Medicare tax under I.R.C. § 3111(b). Implications from these changes are still being understood and we will provide you that information when it becomes available.
FFCRA Modifications and Continuation
Payroll tax credits for sick and family leave, originally made available under the Families First Coronavirus Response Act (FFCRA), specifically Section 3131 for paid sick leave, 3132 for paid family leave, and 3133 for the special rule related to tax on employers, have been extended to September 30, 2021. As a reminder, these credits are available to compensate employers and self-employed individuals for coronavirus-related paid sick leave and family and medical leave.
The modifications to the FFCRA, include:
Increasing the credit limit for paid family leave to $12,000 (previously $10,000).
The number of days a self-employed individual can consider in calculating the qualified family leave equivalent amount for self-employed individuals is now 60 days (previously 50 days).
Paid leave credits will be allowed for leave that is due to a COVID-19 vaccination.
The limitation on the overall number of days taken into account for paid sick leave will reset after March 31, 2021.
Credits are now available to 501(c)(1) governmental organizations.
This Act provides that targeted EIDL grants (discussed below) are not included in the borrower’s/taxpayer’s gross income, as well as the expenses used with the funds remain tax deductible.
Two weeks following enactment, the SBA is directed to begin processing applications for payments, and making such payments, to eligible entities that have not received the full amounts of the EIDL Advances payable under the Consolidated Appropriations Act of 2021 from December 2020.
Four weeks following enactment (and subject to fund availability), the SBA is directed to begin processing new applications for EIDL Advances for “severely impacted small businesses”, as well as continuing the process above, on a first-come-first-serve basis.
Six weeks following enactment (and subject to fund availability), the SBA is directed to begin processing new applications for EIDL Advances for “substantially impacted small businesses”, as well as continuing the processes above, on a first-come-first-serve basis.
“Severely Impacted Small Businesses” are those that have suffered an economic loss of greater than 50% and employ not more than 10 employees. We are interpreting this economic loss to represent a 50% decline in revenue as other EIDL guidance would suggest. However, this definition is subject to change.
“Substantially Impacted Small Businesses” are those that do not employ more than 10 employees. There is no economic loss requirement for this definition.
Other Business Provisions
The act extends the Sec. 461(l) limitation on excess business losses of noncorporate taxpayers for one year, through 2027.
The act also repeals Sec. 864(f), which allows affiliated groups to elect to allocate interest on a worldwide basis.
The act temporarily delays the designation of multiemployer pension plans as in endangered, critical, or critical and declining status and makes other changes for multiemployer plans in critical or endangered status.
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Individual Stimulus Checks
Advanced payments of a 2021 refundable tax credit of $1,400 per person, including children, for individuals with AGI less than $75,000 ($150,000 MFJ). Individuals are completely phased-out from the credit with an AGI exceeding $80,000 ($160,000 MFJ).
For purposes of determining income, the IRS will use the individual’s 2020 tax return, or to the extent such returns have not been filed, the individual’s 2019 tax return.
Child Tax Credits
Expanded child tax credit:
Children under the age of 6 are eligible for $3,600
Children 6 and older, but under the age of 18 are eligible for $3,000
This expanded child tax credit would be fully refundable, and optionally payable in monthly installments throughout the tax year.
Child and Dependent Care Credits
Expanded child and dependent care tax credit, for 2021 only:
50% credit on eligible expenses, up to a limit based on income
- Maximum $4,000 for one qualifying child/individual
- Maximum $8,000 for two or more qualifying children/individuals
The exclusion for employer-provided dependent care assistance has also been increased to $10,500 for 2021.
The House of Representative’s proposal of increasing the minimum wage to $15.00 per hour, by 2025, was defeated within the Senate as the Senate Parliamentarian ruling that the proposal did not meet the guidelines to be included in the reconciliation process. An amendment was introduced by Sen. Bernie Sanders for this inclusion in the Senate package, but requiring 60 affirmative votes to move forward, was defeated.
Expanded Unemployment Benefits
The contentious issues that held up the Senate’s “vote-a-rama” on package amendments centered around the extension of expanded unemployment benefits. The Senate amendment called for an additional $300 per week in federal unemployment through September 6, 2021 (previously $400 per week through August 29, 2021 in the House of Representative’s package).
However, the Senate added an additional benefit for unemployment recipients during 2020, making the first $10,200 of federal unemployment benefits non-taxable on recipients 2020 tax return. This exclusion is only available to recipients with income less than $150,000.
Student Loan Income Exclusion
I.R.C. § 108(f) has been amended to exclude from gross income any amount that would otherwise be included due to the discharge of any student loan from January 1, 2021 thru December 31, 2025.
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Contained within the stimulus package, $130 billion is being appropriated to K-12 schools to assist in having students return to school. Such funds may be used to improve ventilation systems, reduce class sizes, purchase PPE, and hire additional support staff. However, schools must use at least 20% of the funding received to address “learning loss”, for example, by providing extended school days or summer school. Funding will be available through September 2023.
An additional $40 billion is being appropriated to colleges and universities for relief, requiring at least 50% ($20 billion) being made available for emergency financial aid grants to students.
For younger children, this package provides $39 billion to child care providers, with funding based on operating expenses. Funds are available to pay employees, pay rent, assist families in paying child care costs, and to purchase PPE and/or other supplies.
State and Local Assistance
As state aid became a point of contention during the December 2020 stimulus package, the controlling Democratic party has appropriated $350 billion (up from the $150-$160 billion proposed in December) to aid state and local governments. By comparison, the CARES Act from March 2020, appropriated $150 billion of state and local government aid.
While this appropriation has far doubled its predecessor, state governments have not only utilized the funding to fight the coronavirus pandemic, it also paved the way for state and local business relief. For example, Ohio’s Small Business Relief Grant (up to $10,000 per small business), Hamilton County’s Small Business Relief Program (up to $10,000 per small business), and various local incentives were made available using CARES Act funding.
Therefore, while the federal government has not included additional small business relief for all industries as part of this package, we fully expect such assistance to come via state and local economic development groups.
We realize there is a lot to digest in these provisions. At Cassady Schiller, we are prepared to help you understand how these provisions can apply to your specific situation. Accordingly, please reach out to us to see how we can help you take full advantage of these new provisions.