The American Rescue Plan Act
Happy Spring! Today I want to talk about a couple of key points in the American Rescue Plan Act which was signed into law on March 11, 2021 and revisit other credits for small businesses.
“The American Rescue Plan Act”
The American Rescue Plan Act or ARPA contains extensive tax changes and stimulus provisions. We are still learning the details, however, there are two provisions I wanted to address today. The first is a retroactive change to 2020 tax law and the second is the 3rd round of stimulus checks.
For 2020 recipients of unemployment income, the new law excludes the first $10,200 of unemployment income from Federal taxes if your other income is below $150,000. The $150,000 is calculated without the unemployment income. Many states, including Colorado, have opted out of this tax exclusion. This means you will see the $10,200 added back to your Colorado tax return before calculating taxable income. At the moment, this is only for 2020 unemployment, not 2021, so current recipients of unemployment should continue to have taxes withheld.
The ARPA provides a third round of stimulus payments up to $1,400 for adults and dependents. This is different from the prior stimulus amounts which provided reduced amounts for dependents. The stimulus is being advanced to qualifying households based on 2020 or 2019 tax return information. If your income is expected to decline in 2021 to a qualifying level, but you do not qualify for the advance based on your 2020 tax return, you will likely see this $1,400 stimulus as a refund when you file your 2021 tax return.
Tax filing deadline
Recently, the US Treasury extended the filing date for individual tax returns and tax payments for 2020. This is not the same postponement that we had last year! This time, the extended date only applies to form 1040 filing and taxes. The April 15th deadline still applies to your 1st quarter estimated tax payment as well as to the filing deadline for Trust tax returns and Corporate tax returns.
Covid-19 Related Funding for Small Businesses
We often discuss the various stimulus packages available to small businesses. Three of the most popular programs have recently been updated as follows:
- PPP Loans
Last week, Congress passed the PPP Extension Act which extends the filing deadline for PPP applications by 60 days out to May 31st. PPP Loans are a great way to provide much needed capital funding for small businesses struggling in the pandemic. This extension provides additional time for small business owners to file for PPP2 loans.
- ERC or Employee Retention Credits
The ERC was extended out to the end of 2021. This credit is a fantastic credit for the hardest hit businesses. You can qualify for the credit, even if you receive PPP Loan funding and the credit applies by quarter. As you prepare to file for Q1 2021 payroll be sure to evaluate the ERC for your business.
- COVID-19 Sick Pay Credit (as extended by the ARPA)
The Families First Coronavirus Response Act provided paid sick leave for employees who were unable to work due to COVID-19. The December stimulus plan extended the program through March 31st and, recently, the ARPA created a new but similar program which extends through September. The ARPA’s new program starts a new bank of hours/pay for which the tax credit will apply. The new program allows for expanded reasons for the pay including access to the vaccine and potential recovery time. While the program is now voluntary, the government will still reimburse the business owner for this sick pay if the business opts into the program through the end of September! The credit is claimed on your quarterly form 941s.
This is not a complete list. Be sure to check out your local government websites for grant opportunities as well.
Next week we are going to revisit the new 2021 rules for Colorado business owners regarding minimum wage, sick pay requirements and overtime pay. We are also going to review other Colorado issues such as the enterprise zone credits and the restaurant & bar special sales tax deduction. Please reach out if you have questions in the interim. To read more please visit our website and navigate to our BLOG page.
Please email or call to get on our schedule if you want to meet or zoom interview for your tax prep this year! Due to the extended deadline for individual tax returns, we are still accepting new clients and 2020 tax documents for timely filing and we are always happy to extend and file over the summer as well!
Thank you for reading to the end! It has been great to see and talk to many of you this year and we look forward to seeing many more of you either live or through video in the next few months.Thank you,
The owner of McNurlin, Hitchcock & Associates, PC a certified public accounting firm located in Lakewood, Colorado. Kim specializes in all areas of accounting, tax strategy planning, business management, and financial statement reporting. Kim can be reached directly at email@example.com.