The American Rescue Plan Act of 2021 (the “Act”), President Biden’s first major legislative effort of his administration, was passed by Congress following a 220-211 vote in the U.S. House of Representatives on March 10, 2021, following a 50-49 vote in the U.S. Senate on March 6, 2021. The final iteration of the Act is slightly narrower than the original version passed by the House on February 27, 2021 reflecting changes made by the Senate to conform the Act to the Senate’s budget reconciliation process and to gain support from several moderate Democratic Senators. President Biden signed the Act into law on March 11, 2021 – one day earlier than originally anticipated.
The Act, having a total price tag of approximately $1.9 trillion, primarily focuses aid to individuals, state and local governments including education organizations, and COVID response efforts with relatively modest allotments for businesses and non-profit entities compared to previous federal COVID-19 relief measures. To put the size of the Act in perspective compared to previous COVID-19 aid packages, the Act is about $400 billion smaller than the CARES Act and $900 billion larger than the Coronavirus Response and Relief Supplemental Act passed in late December, 2020 (the “CRRSA”). While many of the components of the original version of the Act passed by the House remain largely intact, several changes were made in the Senate version and adopted by the House. Most notably, the final version of the Act does not provide for an increase in the federal minimum wage, which remains at $7.25 per hour, it decreases the federal supplemental unemployment benefits from the $400 per week originally passed by the House to $300 per week, and lowers the income threshold for phasing out direct payments to individuals.
Summarized below are several key components of the Act that are likely to have the most impact for businesses, non-profit organizations, and schools:
Direct Economic Stimulus Payments: Individuals earning up to $75,000 and couples earning up to $150,000 per year are eligible for the full $1,400 direct economic stimulus payments, with the amounts decreasing for individuals earning above these thresholds. Individuals earning more than $80,000 and couples earning more than $160,000 are not eligible to receive direct stimulus payments. Additionally, individuals are eligible to receive $1,400 per dependent claimed on their tax returns, subject to the above income caps.
Extension of Federal Supplemental Unemployment Benefits: Federal supplemental unemployment benefits have been extended through September 30, 2021 and will remain at $300 per week. Additionally, $10,200 of unemployment benefits received by an individual will be exempt from federal income tax for households with annual income less than $150,000.
Aid for Restaurants: One of the most significant business aid provisions under the Act is the establishment of a $28.6 billion Restaurant Revitalization Fund (“RRF”) to make grants to eligible restaurants, bars, and similar businesses. This program will make cash grants – not loans – to eligible recipients representing a substantial aid package for this hard-hit industry. The RRF will be administered by the U.S. Small Business Administration and will make grants to restaurants and other eligible food and beverage businesses of up to $10 million per entity and up to $5 million per location, with a maximum of 20 locations. Eligible businesses include restaurants, food stands, food trucks, food carts, caterers, inns, taverns, bars, lounges, brewpubs, tasting rooms, and taprooms. Publicly-traded companies and businesses owning or operating (directly or through affiliates) more than 20 physical locations are not eligible to receive grants from the RRF. $5 billion of the RRF funds will be set aside for businesses with less than $500,000 in 2019 revenue. An additional $1.25 billion has been allocated to the SBA’s Shuttered Venue Operators Grant Program in an effort to revive previously closed businesses in this industry. The amount of a grant will be determined by subtracting a restaurant’s 2020 gross receipts from 2019 gross receipts in an effort to compensate for lost revenue during the worst of the COVID-19 pandemic. The amount of RRF grant will be reduced by the amount of any first or second draw PPP loan received by an eligible business and will be tax exempt. The RRF is in addition to the $15 billion restaurant venue grant program authorized by the CRRSA that the SBA has yet to launch.
Expansion of EIDL Grants: The Act provides an additional $15 billion for the Economic Injury Disaster Loan Advance program, now coined the “Targeted EIDL Advance” program. EIDL advances are $10,000 disbursements to EIDL loan applicants upon submission of the loan application in an effort to provide immediate financial relief to some of the hardest hit businesses. Targeted EIDL Advances will be exempt from federal taxation.
Expansion of Employer Paid Leave Tax Credit: The employer paid leave tax credit, a refundable federal tax credit, has been increased from $10,000 to $12,000 per employee. The existing extension of the tax credit was set to expire on March 31st but the Act extends the eligibility period through September 30, 2021.
Expansion of the Employee Retention Tax Credit: The employee retention tax credit, a refundable federal tax credit of up to $5,000 per employee for periods in 2020 and up to $14,000 per employee for periods through June 30, 2021, is available to businesses that chose to retain employees during the COVID-19 pandemic. Eligible employers may claim a tax credit against the employer’s share of Social Security tax equal to 70% of qualified wages paid to employees during the applicable tax periods subject to the limits above. The Act now allows employers to count all qualifying wages, including those wages paid to employees providing services that were previously excluded. The Act also expands the availability of the employee retention tax credit to certain start-ups.
Education/Private School Aid: The Act provides significantly more funding that may be used by states and municipalities for K-12 education purposes than the CARES Act or the CRRSA – upwards of $130 billion through several programs dedicated to education and potentially more in a governor’s discretion. The Act also provides approximately $39 billion in funds for public higher education institutions. In general, K-12 public schools are eligible to receive COVID-19 funds through the Governor’s Emergency Education Relief Fund (“GEER”), the Elementary and Secondary School Education Relief Fund (“ESSER”), and now, in a governor’s discretion, through funds allocated to state, local, and tribal aid under the Coronavirus Fiscal Recovery Fund. In addition to the above, the CRRSA provided $2.75 billion in dedicated emergency assistance to non-public schools through the Emergency Assistance to Non-Public Schools Fund (“EANS”) to help those non-public schools most impacted by COVID-19 and schools that have a significant percentage of students enrolled living in low-income families.
PPP Loan Program: The Act provides a modest additional $7.25 billion for the SBA’s Paycheck Protection Program in addition to the nearly $285 billion of previously authorized but unspent funds for the program. The PPP loan program was not extended beyond the current March 31, 2021 expiration date, but the Act did expand eligibility to additional nonprofits, including groups that engage in some lobbying activities and issue advocacy groups, as well as larger nonprofits.