Finances and Taxes

How the American Rescue Plan Act Will Affect Small Businesses and Individuals

Gusto Editors  

On March 11, 2021, President Biden signed the American Rescue Plan Act, 2021 (ARPA) into law. This is the latest legislation aimed at helping American businesses and individuals find economic relief from the havoc created by the COVID-19 pandemic. Here’s what’s in the bill and how it may affect your life. 

Financial support for small business across states

The new bill has allocated $10 billion to the State Small Business Credit Initiative (SSBCI), which provides funding—through lenders—to support small businesses (defined as those with under 500 employees) and nonprofits to expand economic opportunities. Details vary state to state, so go to the SSBCI website to find out if you can get financial assistance for your business. 

Changes to the PPP

Even before ARPA was signed into law, the Biden administration was busy making key changes to the paycheck protection program (PPP). In case you aren’t caught up, here are the PPP changes that went into effect before this bill was signed: 

  • Eligibility for PPP was expanded to include businesses owned by those who: 1) are delinquent on student loan payments 2) have been convicted of non-fraud felonies 3) are non-citizen, lawful U.S. residents.  
  • Lenders were instructed to focus solely on businesses with fewer than 20 employees until March 10, 2021, giving smaller businesses the opportunity to get lender attention. 

Now that the bill has been signed, not much has changed with PPP—there is still over $120 billion left in the program, which means that if you haven’t applied for PPP yet, there’s still time. PPP applications remain open until March 31, 2021

The new bill:

  • Allocates $7 billion exclusively to businesses in the hardest-hit sectors. 
  • Extends eligibility to:
    • More non-profits listed under Section 501(c).
    • Larger non-profits including veteran organizations, internet-only news companies, and 501(c)(3) organizations with fewer than 500 employees (per location) and 501(c)(6) organizations with fewer than 300 employees (per location). 

If you’re considering applying for PPP, here’s what you need to know:

Changes to EIDL

The SBA’s Economic Injury Disaster Loan (EIDL) pre-existed COVID-19; this program was designed to help small businesses impacted by crises. The loan provides up to $150,000 in non-forgivable loan proceeds and may include a $10,000 grant advance payment that does not need to be repaid. (To get all the details on EIDL eligibility and how to apply, see this comprehensive post.)

The ARPA includes the following provisions for EIDL:

  • An additional $15 billion in EIDL funds
  • Instructions that lenders should prioritize businesses with fewer than 10 employees
  • Through April 9, 2021, any EIDL applicants who still have not received the loan amount for which they were approved will be prioritized to receive up to $10,000 (at $1,000 per employee)
  • From April 9, 2021 through April 23, 2021, the SBA will prioritize providing $5,000 grants (that do not have to be paid back) to businesses with 10 employees or fewer who have lost over 50 percent in revenue
  • From April 23, 2021 through May 7, 2021, the SBA will prioritize providing $5,000 grants (that do not have to be paid back) to businesses with 10 employees or fewer who have lost over 30 percent in revenue

Restaurant Relief Fund (RRF): Financial relief for restaurants

Applications for the Restaurant Revitalization Fund (RRF) are open! Funds will go quickly, so go here to apply.

The new bill established the Restaurant Revitalization Fund (RRF)—and allocated $28.6 billion to the fund—to provide grants to restaurants that have fewer than 21 locations (or are affiliated with restaurant groups—including franchises—that have fewer than 21 locations). An individual restaurant is eligible to receive up to $5 million and a restaurant group is eligible to receive a maximum of $10 million. 

In order to qualify, revenue loss will have to be demonstrated and the applicant is forbidden from having a pending application for shuttered venue operators. 

These grants will be distributed by the SBA and applications will be open within weeks. 

Any eligible applicants must have experienced revenue loss that is related to the pandemic; here are the types of business that are eligible:  

  • Restaurants
  • Food trucks and/or food carts
  • Food stands and/or kiosks
  • Caterers
  • Bars
  • Lounges
  • Taverns and/or bistros
  • Snack bars
  • Bakeries (at least 33 percent of gross receipts must be made by sales from a physical location)
  • Breweries and/or microbreweries (at least 33 percent of gross receipts must be made by sales from a physical location)
  • Wineries (at least 33 percent of gross receipts must be made by sales from a physical location)
  • Distilleries (at least 33 percent of gross receipts must be made by sales from a physical location)
  • Tasting and/or taprooms (at least 33 percent of gross receipts must be made by sales from a physical location)
  • Inns (the sale of food and/or beverages from a physical location must make up at least 33 percent of gross receipts)

Get all the details on how to calculate your RRF grant amount and how to apply here.

Shuttered Venue Operators Grant (SVOG): Financial relief for venues

The application portal for the Shuttered Venue Operators Grant (SVOG) is now open! (Click on the red button that says APPLY HERE.)

The Shuttered Venue Operators Grant (SVOG) is a SBA program was established to provide financial relief to venues that have lost revenue due to the pandemic.

Eligible applicants may qualify for grants up to $10 million, or up to 45 percent of their gross revenue (whichever is less).

Eligible applicants for SVOG

The types of businesses that will be eligible for this grant include:  

  • Live venue operators
  • Live venue promoters
  • Theatrical producers
  • Live performing arts organization operators 
  • Motion picture theater operators
  • Theatre operators 
  • Museum operators 
  • Talent representatives

The program will distribute grants to qualified applicants. For businesses that were in operation before or on January 1, 2019, the grant amount will be equal to 45 percent of gross revenue earned in 2019, or $10 million (whichever is less).

For businesses that began operating after January 1, 2019, the grant will be equal to the average monthly gross earned revenue for each full month the business was in operation in 2019 multiplied by six, or $10 million (whichever is less).

$2 billion of the grant fund is being allocated to businesses with fewer than 51 full-time employees.

Businesses must meet eligibility requirements to receive SVOG. These include businesses that:  

  • Were fully operational by February 29, 2020.
  • Are able to demonstrate a reduction in gross revenue of at least 25 percent when comparing the same quarter from 2020 and 2019. 
  • Are not public. 
  • Did or do not meet all three of these attributes: 1) operate in more than one country 2) operate in more than 10 states 3) employ more than 500 FTE employees as of February 29, 2020. 
  • Did not receive more than 10 percent of its gross revenue from federal funding in 2019.
  • Did or do not present live performances of a sexual nature or earn gross revenue by selling products, services, or depictions that are overtly sexual. 

While those that received PPP funding after December 26, 2020 are eligible for this grant, the grant amount will be reduced based on the PPP loan amount.

The SBA has also outlined even more specific requirements by business type. See this table for all eligibility requirements defined by the SBA. 

SVOG grant releases

The SBA will be prioritizing grant releases according to revenue lost:

  • Within the first 14 days of the program, grants will be awarded to venues that experienced a gross revenue loss of at least 90 percent between April 2020 through December 2020 due to the COVID-19 pandemic.
  • Over the following 14 days, grants will be awarded to venues that experienced a gross revenue loss of at least 70 percent between April 2020 through December 2020 due to the COVID-19 pandemic.
  • Over the following 28 days, grants will be awarded to venues that experienced a gross revenue loss of at least 25 percent between any quarter of 2019 and the corresponding quarter of 2020.
  • After the prioritized grants have been allocated, supplemental funding may available to certain recipients.

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Eligible expenses for SVOG

You may spend the grant money on:

  • Payroll costs and compensation for independent contractors
  • Rent payments, mortgage payments, and operating leases
  • Utility payments
  • Insurance payments
  • Taxes
  • Scheduled debt payments (only for debt incurred on February 15, 2020 or after)
  • Necessary business expenses, like maintenance
  • Worker protection expenses
  • Advertising,
  • Production transportation

You may not spend the grant money:

  • To purchase real estate
  • To make loans or on investments
  • On debt payments for debt incurred after February 15, 2020
  • To make contributions to political parties or election candidates

After receiving a grant, you are required to keep records and documentation demonstrating that grant proceeds have been spent on eligible expenses. You will be required to keep these records for three year (after receiving the grant) and employment records for four years.

Financial relief for childcare providers 

The bill has allocated $39 billion to childcare providers that can be used to:

  • Pay Employees
  • Pay rent
  • Cover operating expenses
  • Financially assist customers (families who are struggling to pay the cost)
  • Purchase PPE

The Community Navigator Program

The ARPA allocated $175 million for the Community Navigator program. 

The Community Navigator program is an SBA-led effort to encourage business assistance organizations to reach out and provide support to small businesses and members of the entrepreneurial community, particularly women, veterans, POC, and those who are economically disadvantaged. This program will begin with a pilot that targets businesses owned by women and/or by Native Americans. 

Learn more about the SBA Community Navigator program here

Tax Credits 

The ARPA has extended, expanded, and tweaked certain tax credits; some of these tax credits affect employers and some affect individuals, but we’ll cover them all. Here’s what you should know. To get all the details on tax credits that were borne out of the covid-19 pandemic or tax credits that have changed due to legislation aimed at providing financial assistance due to the pandemic, see the COVID-19 tax credit guide

Changes to the Employee Retention Credit (ERC) 

The Employee Retention Credit (ERC) is a tax credit that affects employers and it provides a refundable tax credit to help businesses with the cost of keeping their staff employed. Employers can claim a tax credit for 70 percent of qualified wages they pay employees (up to $10,000 per employee). 

If you are a sole proprietor or do not employ W2 employees, you can disregard ERC because it isn’t relevant to your business; we’ll see ya later! As for the rest of you: pay close attention. 

Under the American Rescue Plan:

  • The ERC program is extended through the end of 2021.
  • ERC can be used to offset an employer’s Medicare and Social Security taxes.
  • It has been clarified that wages paid to inmates who perform services in penal institutions are not considered “qualified wages” for ERC.
  • The ERC has been made available to “recovery start-up businesses” that were in operation after February 15, 2020, and have annual gross receipts of $1 million or under (these businesses do not have to demonstrate a decline in gross receipts to be eligible for ERC). 
    • The total amount this type of “recovery start-up business” may claim from ERC cannot exceed $50,000 in a quarter.
  • Gross receipts have been defined for non-profit organizations.
  • Certain ERC exclusions have been made for government employers.
  • Certain ERC requirements have been clarified for employers of over 500 employees.
  • The statute of limitations for assessment has been extended to five years. 

Under the new bill, small clarifications were made—in certain cases—to the calculation used to determine ERC eligibility. Let’s take a step back: in order to be eligible for ERC, a business must compare a quarter in 2020 to the corresponding quarter in 2019. If the gross receipts in 2020 are less than 50 percent of gross receipts in 2019, the business is eligible for ERC—that 50 percent drop determines initial eligibility. Once initial eligibility has been determined, the following quarters continue to be eligible for ERC until the year-over-year drop in gross receipts in a quarter is under 20 percent. 

In the ARPA bill, it was clarified that: 

  • When comparing 2020 and 2019 calendar quarters, if the business was not in existence in the corresponding calendar quarter in 2019, the business may substitute ‘2020’ for ‘2019.’
  • Seasonal employers may substitute using the wages for the corresponding quarter in 2019 for ‘the average quarterly wages paid by the employer in the calendar year 2019’. 

ERC can be tricky, so make sure to read the full ERC guide here.

Changes to family and sick leave tax credits

Providing Emergency Paid Sick and Family Leave is no longer mandatory (it hasn’t been since the start of 2021 and the new bill didn’t change this), however, employers who voluntarily provide this leave will be eligible for tax credits. 

The ARPA:

  • Increased the limit on the tax credit to $12,000.
  • Extended this tax credit program through September 30, 2021.
  • Emergency paid leave that will be eligible for tax credits has been expanded to include leave that is due to getting a COVID-19 vaccination.
  • Emergency paid leave that will be eligible for tax credits has been expanded to include leave that is due to waiting for a COVID-19 diagnosis or results from a COVID-19 test.
  • Expanded the tax credit program to make certain government employers eligible after March 31, 2021. 
  • Clarified that tax credits will not be made available to employers who only offer Emergency Paid Sick and Family Leave to certain employees because this means that company leave policy may discriminate against certain workers. 
  • Increased the number of days from 50 to 60 that a self-employed individual can take into account in calculating the qualified family leave equivalent amount.
  • Clarified that the overall number of days counted toward emergency paid sick leave will reset on April 1, 2021.  

Understand more about the tax credit program for emergency paid leave here.

Changes to the Child Tax Credit (CTC)

The Child Tax Credit (CTC) has been around since 1998 and is a tax credit that affects individuals. Basically, it offers a tax credit to families that have dependent children and earn under a certain amount per year. 

The new bill will significantly expand the tax credit in 2021:

  • The tax credit is fully refundable for 2021
  • 17-year-olds now qualify as children 

Under the new bill, the tax credit amount has been increased for certain taxpayers. The following taxpayers will see an increase of the credit amount to $3,000 per child ($3,600 for children five years old and under):

  • Taxpayers who are married and filing jointly and make $150,000 or under
  • Taxpayers who are Heads of Household and make $112,500 or under
  • Taxpayers who are individuals and make $75,000 or under  

Taxpayers who make more than the limits indicated above will still get tax credits but the amount will be less: the credit will be reduced by $50 for every $1000 of income earned over the limits. 

The IRS will estimate the taxpayer’s child credit amount and pay the out monthly via direct deposit from July 2021 through December 2021. 

Changes to the Child and Dependent Care Credit

This is a separate credit from the CTC; the Child and Dependent Care Credit is another tax credit that affects individuals. This credit is applied against the money you spend on childcare. 

The ARPA made this tax credit refundable for 2021. 

For those who spend money on childcare and make $125,000 or less per household, 50 percent of eligible childcare expenses can be refunded with this credit, up to $4000 for an individual or $8000 for two or more. Once an annual income of $125,000 is exceeded, the percentage of expenses that can be refunded with the credit starts to decrease. 

Changes to the Earned Income Tax Credit (EITC) 

The Earned Income Tax Credit (EITC) is a refundable tax credit that affects individuals. Those who qualify will see a dollar-for-dollar reduction in the amount owed to the IRS, and if the amount you owe is less than the amount of the credit, you will receive a refund. Understand more about EITC by reading the guide

ARPA has tripled the maximum credit amount for workers without children and extended eligibility for the credit. The minimum age to claim the childless credit will come down from 25 to 19 and the upper age limit will be eliminated. 

Get help with your PPP forgiveness needs.

Health Insurance and COBRA

Days after President Biden was sworn in, his administration opened the Affordable Care Act (ACA) health insurance marketplace, which will remain open through May 15, 2021 to offer health insurance to Americans who need it. 

The new bill increases subsidies to help individuals pay their ACA monthly insurance premiums. Here’s how it works: depending on how much an individual earns, that individual may pay anything from 0 to 100 percent of their ACA health insurance premium. 

Meanwhile, those who earn between 100 percent to 150 percent of the federal poverty level, will not have to pay anything for their ACA premium. Those who make 400 percent of the federal poverty level will have to pay 8.5 percent of their income for their ACA premium. 

Find out what the federal poverty level is here

Changes to COBRA

Changes made by the ARPA to COBRA will affect individuals and employers: Individuals who were terminated during the pandemic (not for-cause) can enroll in COBRA benefits (even if the deadline has expired). 

This will be 100 percent reimbursed to employers via tax credits, however, those reimbursements will happen quarterly, which means that employers must have the cash flow to cover the COBRA payments in between quarterly reimbursements. 

Employers are responsible for sending out notices notifying employees of their rights. 

A new version of Form 941 will be released that will allow employers to show the tax credit amount for eligible COBRA premiums paid by the employer. 

Stimulus payment for individuals

Individuals who earn up to $75,000 per year and married couples who file jointly and earn up to $150,000 per year will be eligible for a  $1,400 payment. This payment will be based on taxes filed for the 2020 tax year, but if you have not yet filed, then this will be based on your 2019 filing. 

Individuals making between $75K and $80K and couples making between $150K and $160K will still be eligible for a stimulus payment, but the stimulus amount they receive will be less than $1,400.

Under the new bill, adult dependents will be eligible for stimulus payments. 

The government has stated that checks begin going out later this month. 

Changes to unemployment

Under the new bill, changes have been made to the three pandemic unemployment programs.

ProgramPurpose Under the new American Rescue Plan
Pandemic Unemployment Assistance (PUA)Provides unemployment insurance to those who may not have been eligible before COVID-1950 weeks of coverage
Pandemic Emergency Unemployment Compensation (PEUC)Extends unemployment benefits after they have been exhausted53 additional weeks of coverage after benefits have been exhausted (which  means that eligible recipients in certain states may receive benefits for up to 79 weeks in total)
Federal Pandemic Unemployment Compensation (FPUC)Provides additional money (from a federal fund) on top of regular unemployment 
  • $600 added to unemployment benefits will expire March 14, 2021
  • Between March 14, 2021 and September 6, 2021 $300 will be added to unemployment benefits

For households earning less than $150,000 per year, the first $10,200 of the unemployment benefits will not be taxable.

Financial support for education, schools, and students

$40 billion has been allocated for colleges and $130 billion has been allocated to K12 schools. The bill also instructs that and COVID-19-related student loan relief will not be taxable through 2025.

$1.25 billion has been allocated for summer education funding, $1.25 billion for after-school programs, and $3 billion for education technology.

Other financial relief under the American Rescue Plan

More details and other funding allocations under the new bill. 

Shelter assistance:

  • $510 million will go to the FEMA Emergency Food and Shelter program, which will support homeless services providers for overnight shelters.
  • $5 billion will be allocated to help states and localities assist those at risk of homelessness. 
  • $5 billion for emergency housing vouchers for homeless individuals to go toward one month’s rent and mortgage assistance, and one month’s utility payments. 
  • $20 billion to help low-income households cover back rent, rent assistance, and utility bills.
  • $10 billion to help struggling homeowners pay mortgages, utilities, and property taxes.

Food assistance: 

  • The 15 percent increase in food stamp benefits has been extended through September
  • $880 million will be allocated to the Special Supplemental Nutrition Program for Women, Infants, and Children (known as WIC).
  • States are allowed to continue the Pandemic-EBT program which provides families whose children’s schools are closed with funding to replace free- and reduced-price meals the kids would have received, through the summer.

Healthcare assistance: 

  • $7.7 billion to hire public health workers
  • $50 billion for COVID-19 testing
  • $20 billion for vaccine distribution
  • $8.5 billion to the Provider Relief program to assist rural health care providers

Local and state assistance: 

  • $10 billion infrastructure program to help local governments continue capital projects
  • $350 billion for the creation of the State and Local Coronavirus Relief Fund to provide critical support to state, local, tribal, and territorial governments

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Updated: May 5, 2021

Gusto Editors
Gusto Editors

Comments

  • Kym DeWitt

    Can you please share the source for this sentence of the article?

    Any restaurant that opened in 2020, or plans to open in 2021, can receive a grant amount that is equal to eligible expenses that the business has incurred minus any PPP loan amounts that have been received.

    I cannot find anything regarding help for restaurants that plan to open in 2021.

    Thank you!

    Reply
    • Gusto Editors

      Hi Kym! Here’s the source we used, which states:

      “Entities not yet opened as of the date of application for the grant, but that have incurred expenses as of March 11, 2021: the grant will equal the amount of those expenses, or an amount based on a formula determined by the SBA Administrator.”

      Reply

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