The American Rescue Plan (ARP) of 2021 is now a reality. The $1.9 trillion bill – mostly known for its 1stimulus payments – also includes several provisions that could impact a security business.
Chief among them is an extension of the Paycheck Protection Program (PPP), which is already taking applications for second-round loans. The program received an additional $7.25 billion. Although just a small fraction of the amounts allocated in previous legislation, as with earlier versions of the PPP, loans will be fully forgiven if at least 60% 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.
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 2 years and carry an interest rate of 1%.
Loan payments will be deferred for six months and no collateral or personal guarantees are required; additionally, small businesses will not be charged any fees by either the government or lenders. While the PPP loan application process is slated to end on May 31, Congress is pressing for an extension because of the large amount of unexpended funds.
For federal tax purposes, forgiveness of a PPP loan is not taxable income, and the associated expenses are deductible. Unfortunately, that may not be true on the state level. At least five states include loan forgiveness as income with at least one state treating loan forgiveness as income for partnerships, S corporations and sole proprietors – but not for corporations.
To encourage employers to keep workers on their payroll, last year’s CARES Act created the Employee Retention Credit (ERC), which allows 70% (up from 50%) of a security business’s qualified wages to be immediately refundable via reductions in the required employment tax deposits.
Additionally, the ARP earmarks $15 billion to the Emergency Injury Disaster Loan (EIDL) Program, which provides long-term, low-interest loans from the SBA. Severely impacted small businesses with fewer than 10 workers will reportedly be given priority for some of these funds; in fact, under the ARP, “Targeted EIDL Advances” to small businesses in amounts 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% is required for loans that are less than $25,000; and, 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.
Other Relevant Provisions
Also important for security business owners and managers are provisions that include the following:
Small business financing. Creators of the ARP hope to leverage $35 billion in government funds into $175 billion in additional small business lending and investment with an investment in successful state, local, tribal and non-profit small business financing programs. The goal is to provide low interest loans and venture capital to help entrepreneurs – including those in the clean energy sector – innovate, create and maintain jobs and provide the essential goods and services.
Unemployment benefits: The ARP features a provision on unemployment insurance that continues to extend benefits for the self-employed and “gig” workers – along with those who have exhausted their regular jobless benefits – with a $300 weekly boost in jobless benefits into September. Best of all, the first $10,200 of unemployment benefits is exempt from federal taxes for those earning up to $150,000.
Workplace safety enforcement: The ARP provides $150 million to the U.S. Department of Labor to carry out worker protection activities related to the COVID-19 pandemic. 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.
Paid sick and family leave: Last year, lawmakers guaranteed two weeks pay to many workers quarantining because they contracted COVID-19. They also mandated an additional 10 weeks of paid family leave to those staying home with children whose schools were closed. Although the requirement for employers to pay these benefits expired in Dec. 2020, ARP will allow tax credits for wages voluntarily paid through Oct. 1, 2021.
The credit is, as mentioned, 70% 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.
Tax considerations: Finally, since no rescue plan is complete without taxes, the 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.
These provisions and taxes are only a small part of the overall ARP. There are many more items included in the bill, which is one of the largest relief measures Congress has ever considered. To guide security business owners and managers 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. Learn more at https://www.sba.gov/local-assistance/community-navigators.
Although the Community Navigators, the SBA, banks and other financial institutions will provide invaluable services, security businesses should consider professional guidance to maximize benefits.
Mark E. Battersby is a freelance writer who specializes in tax-related issues. Email him at [email protected].
