By Mark E. Battersby / Published May 2021
The American Rescue Plan (ARP), the controversial $1.9 trillion pandemic relief bill, is now a reality. Included in the new bill is the much-publicized provision that will send $1,400 payments to individuals earning up to $75,000 and couples earning up to $150,000 based on either 2019 or 2020 tax returns.
The new bill’s provision on unemployment insurance contains a $300 weekly boost in benefits into September, with the first $10,200 as tax-free unemployment payments for workers in households earning up to $150,000 a year. Best of all, the new bill continues to extend benefits for the self-employed and “gig” workers, along with those who have exhausted their regular jobless benefits.
In addition to self-employed contractors, pressure washing businesses will reap their share of benefits under the new legislation. After all, small businesses sustain half of the private sector jobs in America but have struggled in the wake of COVID-19. Nationally, small business revenue is down 32 percent and over 400,000 businesses have permanently closed.
To help hard-hit businesses survive the pandemic and fully recover, lawmakers included a number of
benefits aimed at small businesses, including much needed funding.
A whopping $10 billion has been allocated to help states assist their small businesses. The State Small Business Credit Initiative, with $2.5 billion set aside for businesses owned and controlled by socially and economically disadvantaged individuals, including minority-owned businesses, will enable state governments to make low-interest loans and other investments to help their small business economies recover.
As with the original SSBCI, participants are expected to leverage their SSBCI funds to generate new small business lending that is at least 10 times the amount of their SSBCI funds. The funding is to be used to expand existing or create new state small business investment programs, including state capital access programs, collateral support programs, loan participation programs, loan guarantee programs, and venture capital programs.
The Paycheck Protection Program (PPP) was created to help borrowers meet their payroll and operating costs with the potential of being forgiven. Already taking applications for second-round loans, the PPP is getting an additional $7.25 billion.
As with earlier versions of the PPP, loans will be fully forgiven if at least 60 percent of the money is used to support payroll expenses with the remainder going to mortgage interest, rent, utilities, personal protective equipment, or certain other business expenses. Loan payments will be deferred for six months and no collateral or personal guarantees are required. Nor will either the government or lenders charge small businesses any fees.
Businesses that receive PPP loans may have the loan forgiven if they meet certain criteria, including not laying off employees during an eight-week period covered by the loan. If they are not forgiven, the loans have a maturity of two years and carry an interest rate of one percent. And, while the PPP loan application process is slated to soon end, Congress is pressing for an extension because of the large amount of unexpended funds, hopefully giving the owners and operators of pressure cleaning businesses until the end of May to apply.
Although a forgiven PPP loan is not taxable income for federal tax purposes, and associated expenses are deductible, it may not be the case when it comes to state taxes. At least five states include loan forgiveness as income, and at least one state treats loan forgiveness as income for partnerships, S corporations, and sole proprietors—but not for corporations.
The Economic Injury Disaster Loan (EIDL) program was created to provide economic relief to businesses that are currently experiencing a temporary loss of revenue due to the pandemic. The EIDL helps pressure cleaning businesses meet their financial obligations and operating expenses.
The ARP will provide $15 billion to the Emergency Injury Disaster Loan Program (EIDL) for long-term, low-interest loans to be made by the Small Business Administration (SBA). Severely impacted small businesses with fewer than 10 workers will reportedly be given priority for some of the funds.
In fact, under the ARP, Targeted EIDL Advances for small businesses of up to $10,000 may be converted to grants if used to cover a business’s operating expenses. An interest rate of 3.75 percent is required for loans under $25,000 while, for the record, EIDL grants are exempt from federal tax.
Early in March 2021, the SBA announced that borrowers will have until 2022 to meet their obligations under the EIDL program. While interest will continue to accrue on the loan’s outstanding balance throughout the deferment, borrowers will resume their regular payment schedule before March 31, 2022.
While putting $1,400 payments in the pockets of many Americans, the ARP also contains a number of helpful tax credits to help many employers weather the continuing COVID-19 storm. For example, to encourage employers to keep workers on their payroll, last year’s CARES Act created the Employee Retention Credit (ERC) to encourage employers to keep employees on the payroll, even if they are not working during the covered period due to the effects of the COVID-19 outbreak.
Under the new ARP, the ERC allows 70 percent (up from 50 percent) of a business’s qualified wages to be immediately refundable via reductions in the required employment tax deposits. The ARP also extended the increased ERC through the end of 2021.
For 2021, the definition of large employer changes from more than 100 to more than 500 employees, creating a broader definition of wages. Generally, a pressure washing business can count wages paid to both active (working) employees and those not providing services. What’s more, a business with fewer than 500 full-time equivalent employees is now allowed advance ERC payments during the quarter in which wages were paid to those employees—including seasonal employers, part-time employees, and employers not in existence in 2019.
The credit is, as mentioned, 70 percent of qualified wages (including amounts paid towards health insurance) per full-time employee up to a cap of $10,000 of wages per employee. In other words, the employer can get a credit of up to $7,000 per employee, per calendar quarter.
One of the first relief measures provided by our lawmakers to lessen the financial impact of the pandemic was the payroll tax credit for employers providing paid sick and family leave. There was also a similar credit for the self-employed.
The ARP extended the Family First Coronavirus Response Act (FFCRA) that originally required employers to provide sick pay and emergency family and medical leave pay through the third quarter of 2021. Although employers are no longer required to pay employees forced to miss work due to COVID-19, employers subject to FFCRA in 2020 who voluntarily continued to offer FFCRA paid leave into 2021 were given an extension to the corresponding tax credits for qualified wages for paid leave through September 30, 2021.
Payments voluntarily made to a qualified employee, subject to a maximum of $1,400 per week, are refundable, dollar-for-dollar, as a federal payroll tax credit by employers with fewer than 300 employees. The bill also increases the limit on applicable wages for which the credit can be claimed to $12,000 from $10,000, effective after March 31, 2021.
Furthermore, the plan eliminates FFCRA exemptions provided earlier for employers with more than 500 employees or less than 50 employees. For self-employed individuals attempting to claim the credit, the number of days for which the credit can be claimed has been increased to 60 days (from 50 days)—retroactive after December 31, 2020.
Workplace safety has also been addressed, with the bill providing $150 billion for the Department of Labor’s worker protection activities, including $100 million for the Occupational Safety and Health Administration (OSHA). Of the OSHA funding, a portion is reserved for occupational health and safety training grants for non-profits and another portion for coronavirus-related enforcement activities at high-risk workplaces, including healthcare facilities.
Since no rescue plan is complete without taxes, ARP includes a number of tax provisions, including the already-mentioned payroll tax credits for employers and changes related to retirement plan funding.
On the plus side, the ARC provides that Targeted Economic Injury Disaster Loans (EIDL) and Restaurant Revitalization Grants received from the SBA will not be subject to income tax. Nor will the exclusion result in the denial of a tax deduction, reduction of tax attributes, or denial of increases in basis or book value.
To guide a business owner, operator, or manager through this maze of new rules and benefits, the so-called Community Navigator Services has been funded to the tune of $100 million to provide outreach, education, and technical assistance with the SBA’s programs.
Although the SBA, Community Navigators, community organizations, or banks and other financial institutions will provide invaluable services, professional guidance will be required to maximize the benefits for a pressure cleaning business.