- Learn more about the extension of the Employee Retention Credit (ERC).
- Find out how the exclusion for the employer-provided dependent care assistance has increased.
- Paid sick and family leave credits will see big changes.
- Learn more about the ARPA’s grants to restaurants.
President Biden signed the $1.9 trillion American Rescue Plan Act (ARPA) on March 11. You’ve probably heard a lot about the provisions providing relief to individuals. However, you should know about several tax breaks and financial benefits for businesses.
Fiducial has some of the tax highlights of the ARPA.
The Employee Retention Credit (ERC) under the American Rescue Plan Act (ARPA)
The American Rescue Plan Act extends this valuable tax credit from June 30 until December 31, 2021. The ARPA continues the ERC rate of credit at 70% for this extended period of time. It also continues to allow for up to $10,000 in qualified wages for any calendar quarter. Taking into account the Consolidated Appropriations Act extension and the ARPA extension, this means an employer can potentially have up to $40,000 in qualified wages per employee through 2021.
Employer-Provided Dependent Care Assistance
In general, an eligible employee’s gross income doesn’t include amounts paid or incurred by an employer for dependent care assistance provided to the employee under a qualified dependent care assistance program (DCAP).
Previously, the amount that could be excluded from an employee’s gross income under a DCAP during a tax year wasn’t more than $5,000 ($2,500 for married individuals filing separately), subject to certain limitations. However, any contribution made by an employer to a DCAP can’t exceed the employee’s earned income or, if married, the lesser of employee’s or spouse’s earned income.
Under the ARPA, the exclusion for employer-provided dependent care assistance increases from $5,000 to $10,500 (from $2,500 to $5,250 for married individuals filing separately). However, this applies to 2021 only.
This provision is effective for tax years beginning after December 31, 2020.
Paid Sick and Family Leave Credits
Changes under the ARPA apply to amounts paid with respect to calendar quarters beginning after March 31, 2021. Among other changes, the law extends the paid sick time and paid family leave credits under the FFCRA from March 31, 2021, through September 30, 2021. It also provides that paid sick and paid family leave credits may each be increased by the employer’s share of Social Security tax (6.2%) and employer’s share of Medicare tax (1.45%) on qualified leave wages.
American Rescue Plan Act includes grants to restaurants
Good news for eligible restaurants, food trucks, and similar businesses that provide food and drinks! Under the ARPA, they may receive restaurant revitalization grants from the Small Business Administration. For tax purposes, amounts received as restaurant revitalization grants aren’t included in the gross income of the person who receives the money.
These are only some of the provisions in the ARPA. There are many others that may be beneficial to your business. Want more information about how the ARPA can benefit your business? Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations to discuss your situation.
For more small business COVID-19 resources, visit Fiducial’s Coronavirus Update Center to find information on SBA loans, tax updates, the Paycheck Protection Program, paid sick and family leave, and more.