American Rescue Plan Act tax credits

ALERT: American Rescue Plan Act extends tax credits for employers

March 25, 2021

ARPA extends and expands tax credits previously established under COVID-19-related stimulus bills.

The American Rescue Plan Act (ARPA), which was signed into law on March 11, extends and expands tax credits previously established under the Families First Coronavirus Response Act (FFCRA) and Coronavirus Aid, Relief, and Economic Security Act (CARES).

Employee Retention Tax Credit extended

ARPA extends the Employee Retention Tax Credit through the end of 2021 for eligible employers that continue to pay employee wages during COVID-19-related closures or experience reduced revenue through 2021. This includes “recovery startup businesses” (those businesses that launched after February 15, 2020, with average annual gross receipts of $1 million or less).

The Employee Retention Tax Credit was initially included in the CARES Act and enhanced and extended as part of The Consolidated Appropriations Act, 2021. You can read our previous alert on this topic. Organizations with a Paycheck Protection Program (PPP) loan from 2020 and/or 2021 may still be eligible for this credit as long as the same wages are not claimed for both the Employee Retention Credit and PPP forgiveness. If eligible, organizations may retroactively amend quarterly payroll tax returns to claim the credits for 2020.

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FFCRA tax credits extended and expanded

FFCRA originally provided a payroll tax credit for employers that were required to offer Emergency FMLA or paid sick leave. While the ARPA does not require employers to provide FFCRA paid and emergency leave, it does expand the FFCRA tax credits and extends the credits through Sept. 30, 2021. The tax credits provide incentives for small and midsize employers who elect to provide paid time off for FFCRA and new COVID-19-related reasons.

Private businesses with 500 or more employees were not covered by FFCRA, and ARPA did not change that.

The FFCRA had two major provisions: the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act. You can read our original alert from 2020 on this topic.

Additional COVID-19-related reasons: Under ARPA, leave coverage for certain coronavirus-related reasons now includes the following additional reasons for employees who are:

  • Getting a COVID-19 vaccine,
  • Recovering from complications due to receiving the vaccine, or
  • Awaiting the results of a COVID-19 test or diagnosis for coronavirus.

10-day limit reset: ARPA resets the 10-day limit for the tax credit for paid sick leave under FFCRA as of April 1. Any days an employee took before that date will not count toward the cap following that date.

Other new tax credit provisions for paid sick and family leave: The tax credit provisions for paid sick and family leave also include the following items:

  • Increasing family leave covered wages from $10,000 to $12,000 per employee.
  • Increasing the number of days of paid leave for self-employed workers from 50 days to 60 days.
  • Adding employer restrictions on receiving credits if paid-leave policies favor highly compensated employees, full-time workers or employees based on tenure.
  • Providing for reimbursement of pension plan and apprenticeship program contributions made by employers under a collective bargaining agreement that are allocable to employee paid sick and family leave.

While this is an individual choice for each employer, now is the time to consider whether such benefits are reasonable for an extended, but temporary basis while we see what the remainder of 2021 will entail for the pandemic.

Additional information

AGH professionals are available to discuss how these tax credits can be applied within your organization. To discuss your situation or employer-related questions, contact your AGH tax advisor, Shawn Sullivan, Carrie Cox or Cindy McSwain using their information below.

Shawn Sullivan

Executive Vice President
Tax Services

Shawn leads the firm’s tax group and serves on AGH’s board of directors. In addition to enhancing business performance to minimize tax consequences, he has extensive experience in mergers and acquisitions, international tax and business structuring. Shawn has public and private experience in the fields of tax and accounting and works frequently with clients in the manufacturing, automotive, wholesale distribution, real estate development and construction industries.

A certified public accountant, Shawn is a member of the American Institute of Certified Public Accountants, the Kansas Society of Certified Public Accountants (KSCPA) and chairs the KSCPA Committee on Taxation.

Carrie Cox

Senior Consultant
HR & Org. Development Services

Carrie has experience in a variety of human resource functions, including labor laws, compensation structures, employee classification, benefits administration, performance management and human resource best practices. She has served clients in a number of industries, including manufacturing, construction, banking and not-for-profits. Carrie is a member of the national and local chapters of the Society of Human Resource Professionals (SHRM) and serves on the Wichita chapter board of directors.

She is a certified practitioner for the Myers-Briggs Type Indicator® and the Hay Group’s Emotional and Social Competency Inventory. Her additional certifications include Professional in Human Resources (PHR) from the Human Resource Certification Institute and SHRM-CP designated by the SHRM.

Cindy McSwain

Senior Vice President
Outsourcing Services

Cindy McSwain leads AGH’s outsourcing services group. Her team provides payroll, accounting, funds disbursement, controller, and other financial outsourcing services to numerous clients throughout the U.S. Prior to joining the outsourcing group, Cindy served AGH’s audit clients for 10 years, working with a wide range of middle-market, closely held and family-owned organizations.

Her current clients cross many industry sectors, including manufacturing and distribution, restaurants, retailers, medical and not-for-profit. She has participated in numerous SEC filings and public registrations and has experience in mergers and acquisitions. Cindy is a certified public accountant and a member of both the American Institute of Certified Public Accountants and the Kansas Society of Certified Public Accountants.

NOTE: Any advice contained in this material is not intended or written to be tax advice, and cannot be relied upon as such, nor can it be used for the purpose of avoiding tax penalties that may be imposed by the IRS or states, or promoting, marketing or recommending to another party any transaction or matter addressed herein.

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