President Biden has signed into law a third COVID-19 related stimulus bill, entitled the American Rescue Plan Act of 2021 (the “Act”), which expands and provides additional funding for programs previously established under the CARES Act and the Consolidated Appropriations Act, as well as creates several new relief programs designed to help struggling businesses.
Paycheck Protection Program
The Act provides an additional $7.25 billion in funding to the Paycheck Protection Program (“PPP”) and expands PPP loan eligibility to a wider group of nonprofit entities and internet publishing organizations. Now, eligible nonprofit organizations who employ not more than 500 employees per physical location (300 per physical location for Second Draw loans) qualify for a PPP loan as long as they meet all other criteria. Previously, PPP eligibility was limited to nonprofits with no more than 500 employees per entity. In addition, some advocacy and lobbying nonprofits may apply, as long as they do not spend more than 15% of their funds on lobbying efforts or receive more than 15% of their revenue from lobbying activities, among other things.
Notably, the Act does not extend the March 31st PPP application deadline, but House lawmakers have introduced a bill to extend the deadline for an additional two months to May 31 and give the Small Business Administration (“SBA”) the authority to continue to process pending applications for another 30 days beyond that.
Employee Retention Tax Credit
The Act extends the availability of the Employee Retention Tax Credit (“ERTC”) through December 31, 2021 for eligible employers. The maximum amount of the ERTC remains at $7,000 per employee per quarter (70% of qualified wages of up to $10,000 per quarter).
In addition, beginning on June 30, 2021, startup businesses established after February 15, 2020, with annual gross receipts not in excess of $1 million in the last three taxable years and that otherwise do not meet the ERC eligibility tests, are now eligible for an ERTC of up to $50,000 per quarter.
The revised ERTC rules also include relief for “severely financially distressed employers,” which is defined as an eligible employer that experienced a reduction in 2020 quarterly gross receipts of more than 90% compared to the same quarter in 2019. Beginning with the third quarter of 2021, if an employer meets this definition, it may treat all wages paid to employees as qualified wages up to the $10,000 cap, regardless of how many employees it has (i.e., the 500-employee limitation does not apply).
“Qualified wages” for purposes of the ERTC do not include wages taken into account as payroll costs for purposes of a PPP Second Draw Loan, a Shuttered Venue Operators Grant or a Restaurant Revitalization Fund grant.
Restaurant Revitalization Fund
The Act establishes a $28.6 billion Restaurant Revitalization Fund grant program for 2021 that will be administered by the SBA. Of this funding, $5 billion is available to restaurants with gross receipts in 2019 of not more than $500,000. During the first 21 days of the program, the SBA will give priority to small businesses owned by women, veterans, or socially and economically disadvantaged individuals. After the first 60 days of the program, the SBA may make grants to any eligible business regardless of its annual gross receipts.
Eligible entities include restaurants, food trucks, bars, caterers, taprooms, and other similar places of business in which the public or patrons assemble for the primary purpose of being served food or drinks. On the other hand, eligible entities do not include publicly traded companies, state or local government-operated businesses, entities that (together with their affiliates) have more than 20 locations, and entities that applied for a Shuttered Venue Operator Grant.
Grant amounts are generally equal to an eligible entity’s pandemic-related revenue loss, which is calculated by subtracting 2020 gross receipts from 2019 gross receipts. If the eligible entity was not in operation for the entirety of 2019, the entity must calculate its annual gross receipts by multiplying its average monthly gross receipts (presumably for its operational months only) by 12 for each of 2019 and 2020, and then comparing the difference. Eligible entities who opened during 2020 will have pandemic-related revenue loss equal to eligible expenses incurred less gross receipts received. Eligible entities who have not yet opened as of the date of their grant applications but who have incurred eligible expenses can receive a grant equal to the amount of such expenses. Grants are capped at $10 million and are limited to $5 million per physical location. Further, an entity who has received PPP loan funds (including through Second Draw) must reduce its pandemic-related revenue loss by the amount of such loan funds. Eligible entities must make a good faith certification that the uncertainty of current economic conditions makes necessary the grant request to support the ongoing operations of the eligible entity.
Grant funds may be used to cover payroll costs, mortgage payments, rent, utilities, maintenance expenses, supplies and supplier costs, food and beverage expenses, operational expenses and paid sick leave. If the recipient does not use all of the funds for eligible expenses or ceases operation prior to December 31, 2021, the recipient must return the remaining funds to the Department of the Treasury.
Grant funds are not includible in an eligible entity’s gross income, and expenditures paid with grant funds will still be deductible.
Additional Funding for Other Relief Programs
The Act also provides an additional $15 billion in funding for the SBA’s Economic Injury Disaster Loan program. Of this funding, $5 billion is set aside to make $5,000 grants to businesses that have suffered a revenue loss of greater than 50 percent and employ no more than 10 people. The Act also includes additional funding for the Shuttered Venue Operators Grant program established under the prior stimulus bill.
If you have any questions about your eligibility for any relief afforded by the Act, please contact Jason Navarino, Rich Lomuscio, Hannah Greendyk or any member of Riker Danzig’s Tax and Corporate Departments.