The SBA has not announced when they will begin accepting applications – today’s release is a sample application and guide so that restaurants can review and prepare.
We have reviewed early drafts of the application and discussed them with the SBA. Our FAQ document, released earlier this week, reflects this.
The link to the SBA RRF page is here. We are organizing regional and national briefings with our state partners and you’ll be hearing more from us soon.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
Erika Polmar, of the Independent Restaurant Coalition, was joined this time by two representatives of the SBA: Patrick Kelley and Julie Verratti. These two were not just talking heads who simply touted how great the program is — instead they gave real guidance, solid explanations, and answered many questions from the IRC and attendees.
I was encouraged in part because Patrick and Julie are actually crafting the program, refining it, and working with groups such as IRC to make it happen. They showed an eagerness to make this program a success, and the skills to back it up. Julie Verratti in particular was a welcome change to what we’ve seen at the SBA over the past year — she was articulate, knowledgeable, humble, and seemed to have a real comprehension of the issues at hand and what is at stake; she gets why it’s so important to get this program right. She also has a good handle on what elements of the program come from statute and where the SBA has authority to interpret and administrate. Patrick indicated appropriate deference to her knowledge, and to the process of getting the program designed and tested properly — before opening the floodgates to applications. Let’s hope these two keep up the good work and have what they need to roll this out effectively.
As usual, I took notes — they did a full overview plus deep dives into certain areas and it’s worth your hour of time to watch. These notes are just the noteworthy new items from my own perspective.
The biggest news is that the SBA Administrator has chosen to preemptively extend the final date for expending the funds all the way to 3/11/2023 — the maximum allowed by statute.
Debt service will be considered a covered expense — both principal and interest payments count! (Clarification: no debt prepayments allowed, but regular debt service of all types is permitted.)
Also on the list of covered expenses is depreciation — but not “bonus or accelerated”.
Related follow-up question: does that mean we have to recalculate depreciation from the usual MACRS to straight-line? That doesn’t seem like what he meant, but we’ll need clarification. I suspect he was only referring to bonus depreciation and Section 179 expensing.
Women-owned, veteran-owned, socially/economically disadvantaged individuals – if anyone owns 20% or more and qualifies in one of these groups, add them together, to see if they reach 51%. If so, they can use the 21-day priority period.
Related follow-up question: to clarify — a 50/50 husband-wife owned company would NOT qualify as women-owned?
They said numerous times that everybody should apply on Day One.
Related follow-up question: How will the SBA avoid the system going down if everyone is applying on Day One, like what happened with the SVOG?
Related follow-up question: is this the case even if they’re not qualified to apply during the 21-day priority period? So a white-cis-male-owned restaurant under $500k revenue should still apply on Day One?
Timing of opening the program: SBA will have a 7-day pilot period to test their system (with people randomly selected from self-identifying as veteran, women-owned from PPP applications), and only then will go live with the 21-day advance application period for those who qualify.
Related follow-up question: How much notice will we have that the RRF is opening? Do we know when it is going live? As a CPA firm we are scrambling to calculate PPP1 Forgiveness and 2020 ERC so we can get the amount of ERC-eligible wages pulled off the 2020 returns before filing them. But we don’t have IRS guidance about whether 50%+ owners are allowed to take ERC… so all those returns are on extension right now. We want to make sure we wait as long as possible to get them all filed (in case IRS comes out with guidance), but that they are all submitted before this program goes live.
They will be working on allowing many different forms of documentation to prove the revenue decline, but tax returns, as they said last time, will be the easiest, most streamlined and efficient approach. Form 4506-T will be submitted through the docusign e-signature portion of the application, which allows SBA to confirm tax information with the IRS.
That’s it for now — I encourage you to watch the webinar and to start planning for an opening that’s more likely going to be a week or two away, rather than between now and the 19th (as was suggested last week). For planning purposes we at least know we’ll have a full week from when they start testing the application portal (though I’m not sure how we’ll know when that will begin).
Julie Verratti used the phrase “working in the world of reality and not in a vacuum” to describe their relationship with IRC and why they are doing this kind of outreach — some of the most encouraging words the SBA could possibly offer to us after the past year of jumping through hoops for financial relief.
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Still no word on the SBA guidance we had hoped for this past Friday, but the end of the week did bring us some new info about the Restaurant Revitalization Fund.
There were only two new pieces of info on the FAQ since the notes I took at the IRC webinar, as far as I could tell: 1) PPP loans are deducted from total eligible funds, but EIDLs and ERTCs will likely not be. This makes sense, since an Employee Retention Credit does not show up as income on a tax return, but it’s nice to know NRA doesn’t expect it to count as income, either. 2) The minimum grant award may be set at $1,000. This is apparently to address the effort that goes into applying — so many got paltry PPP loans unexpectedly and were frustrated at so little reward after so much effort.
It also reiterates the following details: – The covered period may extend through March 2023 – Permanently closed and bankrupt businesses without reorganization plans are ineligible – Businesses owned by women, veterans and socially/economically disadvantaged individuals will require self-certification – Eligible expenses include maintenance and construction – RRF grants will not be taxed as income, but are eligible for federal tax deductions
Cross your fingers for upcoming guidance from the SBA, a draft application, and a date for the program opening. We are hoping for at least a week’s notice between the draft being released and the program going live, so that small business owners and their accountants have sufficient time to prepare.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
The Restaurant Revitalization Fund (RRF) is a grant calculated by subtracting 2020 revenue from 2019 revenue to calculate the total drop between the two years — presumably caused by the Covid-19 pandemic. To substantiate the amount of the revenue decrease between 2019 and 2020, the SBA will be requesting tax returns for both years. There are other documents that will be acceptable, but the way to get the application through the system as quickly as possible – processed by computers rather than slowed down by human review – is to use tax returns.
(In the past two days, both the AICPA and Tony Nitti, two of my most trusted sources, have weighed in on this with a big “why is the IRS dragging their heels on this” reaction. Nitti went as far as to say, “Are wages paid to greater than 50% owners eligible for the credit? If I had a nickel for every time someone emailed me this question, I could afford to stop shamelessly and relentlessly shilling this newsletter. It is absolutely amazing that a full year after the ERC was created, we still don’t have a definitive answer.”)
So the options are:
#1 Calculate ERC as if owners are eligible and file 2020 income tax returns accordingly. This would result in a higher tax for clients (because more wages are disallowed as deductions). Submit PPP Forgiveness applications, but hold off on submitting ERC claims (941-Xs) until guidance is released. If guidance indicates that owners are eligible, file the ERC claims accordingly. If guidance says owners are not eligible, then amend the income tax returns and file the ERC claims accordingly.
This approach may make the most sense when there are two 50%-owners on payroll, and not many other other staff — as the increased credit would be worth the wait, compared to the total credit without owners.
#2 Calculate ERC as if owners are not eligible and file 2020 income tax returns accordingly. This would result in a lower tax for clients (because fewer wages are disallowed as deductions). Submit PPP Forgiveness applications, and submit ERC claims (941-Xs) — rather than holding off on these as in the above option. If guidance is eventually released that indicates owners are not eligible, then no action is needed. If guidance indicates that owners are eligible, then decide whether it is worth amending the income tax returns and ERC claims to get the additional funds.
This approach may make the most sense with only one 50%+ owner and many employees, as the cost to amend all returns and claims will probably not be worth the additional credit.
To clarify, neither approach will hold up the RRF or cause a smaller amount to be awarded, because ERC is not considered income (that’s why the wages they pay for cannot be deducted). The goal with both approaches is to get tax returns ready for the RRF application as soon as possible, with the best balance between wage deductions and potential wage credits.
While I was tempted to pick one of these two approaches and inform all clients of our choice, I decided — especially with advice from the AICPA Town Hall yesterday — that this is a decision that each client needs to make for themselves. We’re happy to explain the potential costs and benefits of each approach and make a personal recommendation for each client’s individual situation, but the decision should be theirs. We recommend other CPA firms take a similar approach.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
Spinning J Bakery & Soda Fountain, Chicago, IL – photo credit Clayton Hauck
(For an overview of the new Restaurant Revitalization Fund (RRF), please see my recent blog post.)
Today I attended an excellent zoom “roundtable” hosted by the Independent Restaurant Coalition. Erika Polmar did a great job presenting, and Devita Davison monitored chat — they covered a lot of ground and answered many questions.
It was not recorded, as it was designed for participants to ask specific questions that may have revealed personal info. But there is a second session happening tomorrow (Wednesday 4/7) that I strongly encourage you to attend. Type your question in the chat and they will address it, or email questions@restaurantcoalition.com — they also have an FAQ at saverestaurants.com/resources that you can also download here.
There are still outstanding questions — see my notes below — but my main takeaway is that as a CPA firm, we are going to be pivoting to try to prepare draft 2020 tax returns for all restaurant clients before the program opens in the next two weeks. This will be a challenge, as we are simultaneously working on Employee Retention Credit calculations, 1Q 2021 estimates, and corporate tax returns; but we’re doing everything we can to make sure our clients have both 2019 & 2020 tax returns — at least in draft format — in time to apply for this grant the day it opens.
They are expecting guidance at the end of this week (4/9) and a draft application at the beginning of next week (4/12). – They think the process will open end of next week (4/16) or beginning of the following week (4/19).
There are funds set aside for 60 days for businesses with <$500k in receipts. – Also funds set aside for women-owned, veteran-owned, and “disadvantaged” groups and first 21 days of the application period are specific for them. – We don’t know if they will change the 51% ownership rule to 50% or not yet, but it is under consideration.
If you opened before 2019, take 2019 revenue minus 2020 revenue, minus PPP loan. That’s the grant amount. – If you opened in 2019, take average monthly revenue from 2019 and divide by 12, then do the same as above. – If you opened in 2020, funding amount is equal to eligible costs incurred minus revenue received.
You may use the grant for expenses incurred during the period of 2/15/2020-12/31/2021 for: payroll capped at $100k per EE, benefits, mortgage, rent, utilities, maintenance, build-out for outdoor/indoor safe dining, supplies, food & beverage inventory, operating expenses. – May be extending it through 12/31/23 soon; hopefully before application goes live. – Cannot double-dip and use funds for anything you paid for with PPP, EIDL or other federal funds. – Very likely but not confirmed that Owner’s Draw will be considered an eligible operating expense.
Documents needed to prove revenue loss — must be able to show revenue loss between the two years (or alternatively as above if opened after 1/1/19): – Preferably 2019 & 2020 tax returns – may use certified P/L statement or documentation from Point of Sale system for 2020 instead, if tax return is not done. – Acceptable documents would be as follows (keeping in mind that if you use anything other than a tax return, a human being will have to review your application (rather than a computer) and that will slow it down: * Business tax returns (IRS Form 1120 or IRS 1120-S); * IRS Forms 1040 Schedule C; IRS Forms 1040 Schedule F; * For a partnership: partnership’s IRS Form 1065 (including K-1s); * Bank statements; * Externally or internally prepared financial statements such as Income Statements or Profit and Loss Statements; * Point of sale report(s), including IRS Form 1099-K.
For hybrid businesses like bowling alleys, RRF revenue replacement will only be for food/beverage portion of business (not wholesale or entertainment). – F+B revenue has to be 33% or greater to qualify as a “restaurant”.
You may not use the RRF to pay off any other federal program, like the EIDL or PPP. (This might change.) – You CAN use it to pay off other debt, just not federal debt.
They are looking into payments to related parties like self-rental to see whether they will qualify or not.
If you close your doors temporarily, you can get RRF — if you closed permanently, you are not eligible. If you close permanently while using RRF money, you will have to repay it.
This money is very likely to run out quickly. Apply the moment it goes live on Day One. – The SBA will then hopefully go back to Congress to say “here’s how many applications for $X we have in the queue; please replenish the fund so we can continue funding the requests.” So even if you apply “too late”, there’s hope.
Questions I still have:
Will the Employee Retention Credit (ERC) and FFCRA Emergency Leave Credits count as gross receipts? Or will they be exempted like the PPP funds? If treated like PPP funds, will they have to be subtracted from the RRF grant amount?
Is other financial relief — local and industry grants — considered as part of revenue?
For a restaurant that has no outdoor space to build out for safe dining; could they use RRF money to buy/outfit a food truck so they could use it in place of outdoor dining?
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
4/7/2021 UPDATE: I attended yesterday’s Independent Restaurant Coalition zoom call, and wrote up notes here. Please give it a read after you’ve taken a look at the blog post below, as it answers some FAQs.
4/1/2021 UPDATE: the SBA just announced that RRF applicants will not need a DUNS number or SAM account. This is a change from March, when it was expected that applications would require this process as they currently do under the Shuttered Venues Operators (SVO) grant program. The shift by SBA recognized the significant demand for the program – up to hundreds of thousands of applicants are expected.
From the start of the Paycheck Protection Program (PPP), my small business clients — specifically the restaurants, bars, cafes and caterers — were confused and frustrated. We put so much time and effort into applying for PPP funds, working through the tortuous planning for spending in a way that would lead to 100% forgiveness, and had practically nothing left to show for it. Shuttered or take-out only, there was simply not enough revenue coming in to support the extremely high labor, inventory, and overhead costs typical of the industry. Had it not been for state and local grants, most of them would have had to close their doors permanently.
They weren’t alone — in fact, restaurant lobbyists have been working for many months on crafting financial relief legislation that suits the specific needs of the hospitality industry. And I’m amazed to say — they did a great job, and most of it made it into the final law. Unlike the constantly-changing mess that the PPP has been, this new program is thought-through, carefully-written, and has clearly learned from PPP’s mistakes. (It’s also taken the better part of a year to bring it into existence, so there are two sides to this coin, as is usually the case.) And it will be opening soon.
The Restaurant Revitalization Fund (RRF), as it is now known, was signed into law as part of the recent American Rescue Plan Act. Unlike the PPP, which was based on payroll costs, the RRF is structured to disburse tax-free federal grants in the amount of a restaurant’s “pandemic-related revenue loss“.
Grants are calculated by subtracting 2020 receipts from those of 2019. PPP funds received will offset (reduce) the grant amount, but those funds will not be considered part of gross receipts. The total grant amount for an eligible business and any affiliated businesses is capped at $10 million and is limited to $5 million per physical location of the business.
In addition to basing the award amount on revenue loss rather than any other measure, other features of the RRF program that seem a better fit for restaurants are the flexibility on how the funds can be spent and over how long (Feb 15, 2020-Dec 31, 2021). Categories of eligible costs include:
payroll;
principal or interest on mortgage obligations;
rent;
utilities;
maintenance (including construction to accommodate outdoor seating);
supplies such as protective equipment and cleaning materials;
normal food and beverage inventory;
operational expenses;
and many other expenses that the SBA determines to be essential to maintaining operations.
Another area where there is a great deal of flexibility — eligible entities can be “a 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.”
There will be an initial 21-day period when the SBA will prioritize awarding grants for businesses owned by women, veterans, or socially and economically disadvantaged individuals.
To learn more, I strongly encourage you to read the Independent Restaurant Coalition’s FAQ, and attend one of their upcoming zoom “round table” webinars. The next ones will be held on Tuesday, April 6th at 12pm ET / 9am PT, and Wednesday, April 7th at 11am ET / 8am PT.
4/1/2021 UPDATE: In today’s AICPA Town Hall, they shared that the SBA has announced that RRF applicants should prepare with the following next steps —
The “checklist similar to SVOG” refers to another program, the Shuttered Venue Operators Grant — their checklist can be found on a download via the SBA website. We expect a similar one to be released specifically for RRF soon, but this is probably a good guideline.
I’m looking forward to seeing at least one Covid-19 financial relief program play out right and run smoothly — which I recognize may be too much to ask, but for the sake of all our beloved community watering holes, gathering spots, and the places that nourish our bodies and souls, I will keep my fingers crossed. They’ve been through so much already and I would love to see this program help them make it to the finish line.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
However, many have already filed their taxes and have scheduled their tax payments to be direct-debited on April 15th. IDOR has released instructions for how to move these payments to the new due date.
If you scheduled an electronic payment for 2020 income taxes to be paid on or before April 15, 2021, your payment will not automatically be rescheduled to May 17, 2021. If you do nothing, the payment will be made on the date you chose.
If the payment has not been processed, you may be able to cancel or reschedule it. You must cancel or reschedule the payment before its scheduled date.
Here is information on how to cancel and reschedule your payment:
If you scheduled a payment through MyTax Illinois, you can login to your account and cancel any pending payment. If you made your payment through the non-login option, you can use Retrieve Saved or Submitted Request to view and withdraw any pending future payment using the email address and confirmation code associated with your payment. For specific instructions, see Cancel a MyTax Illinois Payment.
If you scheduled a payment through a credit card or your bank, you must contact your financial institution to stop the payment. (financial institution stop payment fees may apply.)
If you scheduled a payment through a tax professional or using tax preparation software, you may cancel your payment or request the date be changed. You must email us at REV.TaxPay@illinois.gov to make a payment cancellation no later than 11:59 p.m. CT two business days prior to the scheduled payment date and include ALL of the following information:
Your first and last name or your company name if you are a business
Identification number:
For individuals, last four of your social security number (SSN) or your Illinois PIN
Mailing address and phone number
Specify if you are requesting to Cancel or Reschedule your payment
Exact dollar amount of your original payment
Date the original payment was scheduled to be paid (Month, Day, and Year)
If rescheduling, you must include the new date to which the payment will be changed.
Note: Checks and money orders are cashed upon receipt. We are unable to stop these transactions, therefore your check or money order will be cashed. You may contact your financial institution for more information regarding your options.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
My trusted colleagues over at Wegner CPAs are putting on a two-week series of FREE webinars geared toward small business owners. They will go through each of the following current Federal relief programs designed to help small businesses make it through to a brighter day:
Employee Retention Credit 2021
Employee Retention Credit 2020
Shuttered Venue Operator Grants
Paycheck Protection Program
Restaurant Revitalization Fund
Economic Injury Disaster Loans
All of these programs have been changed over the past month to make them more useful to small business owners — often with the effect that multiple programs are available simultaneously. The resulting complexity is a real challenge, but the amount of financial relief available makes it worth learning what you can (and potentially working with a professional to make it happen).
We have been reaching out directly to clients who we believe qualify for each of these programs — but if you work with us and think you are eligible, yet haven’t been contacted, please let me know.
Employee Retention Credit 2021 Tuesday, March 30, 2021 10:00 am – 10:30 am CDT (8:00 am PT / 11:00 pm ET) ERC in 2021 can result in big dollars for your organization. We will discuss how to determine if you’re eligible and how to be sure you file for the credit timely. Register
Employee Retention Credit 2020 Wednesday, March 31, 2021 10:00 am – 10:30 am CDT (8:00 am PT / 11:00 pm ET) Were you eligible for ERC in 2020? Find out as we take a deeper dive into the credit eligibility requirements and rules for last year. We’ll also review what you need to do to claim the credit for 2020. Register
Shuttered Venue Operator Grants Thursday, April 1, 2021 10:00 am – 10:30 am CDT (8:00 am PT / 11:00 pm ET) The SVOG portal opens on April 8th. Are you eligible and ready to apply? Join us to learn more about the program and what you need to be doing now to prepare. Register
Paycheck Protection Program Tuesday, April 6, 2021 10:00 am – 10:30 am CDT (8:00 am PT / 11:00 pm ET) Updates continue to roll out for PPP. We’ll discuss what the soon to be signed extension means for applicants and tips on getting through the application process. We’ll also review the updated loan calculation for Schedule C filers. Don’t forget about PPP loan forgiveness! Register
Restaurant Revitalization Fund Wednesday, April 7, 2021 10:00 am – 10:30 am CDT (8:00 am PT / 11:00 pm ET) The SBA announced that they hope to have RRF up and running by early April. We will review timely released guidance and how to prepare for applying to the program. Register
Economic Injury Disaster Loans Thursday, April 8, 2021 10:00 am – 10:30 am CDT (8:00 am PT / 11:00 pm ET) The EIDL program has continued to evolve over this last year. There are EIDL loans and EIDL grant advances. Are you eligible for either? Learn more about this program and the changes that have come from the last two stimulus bills. Register
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
UPDATE on the new rules on taxation of unemployment income (I’ll call them the NEW new rules) — jobless benefits no longer count toward the income “cliff” threshold.
Original guidance from the IRS (3/12/21) said that the $150,000 AGI limit includes unemployment income. As an example: if AGI without unemployment is $140,000 and unemployment is $12,000, then modified AGI is $152,000 and no exclusion will be allowed. (We have been recommending clients consider an IRA contribution in this case.)
Today (3/23/21) the IRS changed course 180-degrees and says now that modified AGI does NOT include unemployment income. This is great news… but my tax software JUST updated to the 3/12/21 guidance. Sigh.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
The American Rescue Plan Act (ARPA), just recently signed into law, offers many generous tweaks to federal programs for employers trying to take care of their staff, and for former employees. There are six in particular every employer should research on their own behalf and for the benefit of workers:
Paid Sick & Family Leave
COBRA Subsidies
Dependent Care FSAs
Employee Retention Credit
Short-Time Compensation
Unemployment Insurance
The Department of Labor will be issuing regulations or other guidance regarding these changes to the FFCRA.
Under the previously passed Families First Coronavirus Response Act (FFCRA), companies with fewer than 500 employees were required to provide paid leave to employees who were unable to come to work for a number of Covid-19 related reasons. FFCRA provided employers a refundable tax credit, which would offset for employers the costs of providing the paid leaves.
The requirement to provide paid leave expired for employers with fewer than 500 employees at the end of last year. But employers can still voluntarily choose to provide FFCRA paid sick or paid family leave to employees and receive refundable tax credits for costs related to providing the leave through March 31, 2021.
This is a great value for staff and to employers, and helps keep customers and the community safer as well.
With the passage of the American Rescue Plan Act of 2021, employers should note the following additions and changes:
Refundable Tax Credits Available through September 30, 2021: Employers who choose to voluntarily provide FFCRA paid sick or paid family leave may now receive refundable tax credits through September 30, 2021.
Additional Covered Reasons for Providing Paid Sick Leave: Previously under the FFCRA, qualifying reasons for providing paid sick time were limited to if the employee is unable to work (or telework) because (s)he: (1) is subject to a federal, state or local quarantine or isolation related to Covid-19; (2) has been advised by a healthcare provider to self-quarantine; (3) is experiencing Covid-19 symptoms and seeking a diagnosis; (4) is caring for an individual who is subject to quarantine or is self-quarantining; (5) is caring for a child whose school or place of care is closed (or child care provider is unavailable) because of Covid-19; or, (6) is experiencing any other substantially similar condition specified by the US Secretary of Health and Human Services.
ARPA expands on the list and now allows employers to provide leave to employees for three additional reasons: (1) obtaining a Covid-19 immunization; (2) recovering from an injury, disability, illness or condition related to the immunization; or, (3) seeking or awaiting the result of a Covid-19 test or diagnosis when the employee has either been exposed to Covid-19 or the employer has requested the test or diagnosis.
Additional Covered Reasons for Providing Paid Family Leave: The scope of reasons for providing emergency family leave is now expanded. Originally, tax credits were available to employers for providing paid family leave only if the employee was unable to work (or telework) to care for a child whose school or place of care was closed or unavailable because of the public health emergency. Now, employers can claim tax credits for providing family leave which arises from any of the six qualifying reasons provided for in the FFCRA and the additional three reasons added under ARPA (noted above).
Duration of Paid Sick and Family Leave for Receiving Tax Credits: ARPA allows employers to receive the tax credit for providing up to 10 days of paid sick leave beginning on April 1, 2021, even if the employer previously took a tax credit for providing paid sick leave to an employee for a covered reason before April 1, 2021. In addition, employers can receive a tax credit for providing up to 12 weeks of paid family leave. In other words, the clock sort of “re-sets” on sick and family leave.
Amount of Tax Credits Availablefor Paid Sick Leave: Employers providing voluntary paid sick leave receive a tax credit, up to a cap of $511 a day, at the employee’s regular rate of pay if the employee is on leave because of coronavirus quarantine, self-quarantine or has symptoms. ARPA now includes the additional covered reasons (discussed above) for receiving tax credits at the employee’s regular rate of pay. For any other paid sick leave reason, the amount of tax credit available to an employer is calculated at two-thirds the employee’s regular rate of pay and capped at $200 a day.
Amount of Tax Credits Available for Paid Family Leave: Employers providing paid family leave receive a tax credit, up to a cap of $200 a day, at two-thirds the employee’s regular rate of pay for leave which is due to any of the covered reasons for providing paid family leave. ARPA also removes the two-week waiting period (during which the leave was unpaid) for taking paid emergency family leave. The Act also increases the cap on the aggregate paid leave from $10,000 to $12,000, meaning employers can now take an additional $2,000 in tax credits per employee for providing qualifying leave.
Addition of Non-Discrimination Rules: Employers who are voluntarily providing leave and receiving tax credits must also follow the new non-discrimination rule. The anti-discrimination rule makes the tax credit available only to those employers who provide leave to all employees without discriminating against certain categories of workers. Specifically, the tax credit is not available to those employers who discriminate (1) in favor of highly compensated employees, (2) full-time employees or (3) on the basis of the employment tenure of the employee.
Cobra Subsidies
Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage allows employees to continue to remain covered under their employer’s health insurance for up to 18 months after coverage is lost because of a reduction in work hours or the employee’s involuntary termination of employment.
Prior to ARPA, workers and dependents assumed full responsibility for payment of premiums. ARPA now provides up to six months of 100% subsidized COBRA coverage to those who are eligible for COBRA because of an involuntary termination from employment or a reduction in work hours. The premium subsidy will last from April 1, 2021, through September 30, 2021, and sponsors of group health plans will be subject to new notice requirements. Employers will receive reimbursements for the subsidy through a payroll tax credit.
Employers must provide three notices to eligible former employees notifying them of the premium subsidy, the extended opportunity to elect coverage, and when the premium subsidy will be terminated.
In addition, employers may, at their option, allow former employees who are currently electing COBRA to elect coverage under a different plan offered by the employer as long as (i) the premium for the new coverage does not exceed the premium for the current coverage, (ii) the new coverage is not an excepted benefit, a QSEHRA, or a FSA, and (iii) the employee did not voluntarily terminate employment.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
