On March 11, 2021, the American Rescue Plan Act of 2021 (the ARPA), the third set of legislation aimed at assisting individuals and businesses during the COVID-19 pandemic, was signed into law by President Biden. Along with extending several of the relief measures enacted as a part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act and further extended by the Consolidated Appropriations Act of 2021 (the CAA), the ARPA includes certain changes to existing federal tax rules, including the rules related to third-party payor reporting requirements.
The ARPA provides additional funds for Paycheck Protection Program (PPP) loans for non-profits and internet publishing organizations. The PPP was previously extended as a part of the CAA, which provided expanded eligibility requirements and a simplified forgiveness application for loans under a certain threshold. The second round of PPP funds is still open for applications. For more information on the key provisions of the PPP, see our prior legal alert.
Paid sick time and family leave credits that were first provided for in the CARES Act are extended and expanded under the ARPA. The provision was last extended in the Families First Coronavirus Response Act (the FFCRA). Employers can claim up to $12,000 (up from the previous limit of $10,000) for eligible sick and family leave provided to each eligible employee. Self-employed individuals are eligible to claim up to 60 days of leave, up from the previous limit of 50 days. Employees are now eligible for paid leave as a result of exposure to COVID-19 requiring quarantine, illness from COVID-19, and time necessary to receive and recover from the COVID-19 vaccine. After March 31, 2021, the credit will be structured as a refundable payroll tax credit against the hospital insurance tax. The prior extension of the credit is elaborated on in our prior alert.
The employee retention tax credit (ERTC) also has been extended for the second half of 2021, and eligibility was expanded to cover start-up businesses with average annual gross receipts under $1 million. Similar to the credit for paid sick and family leave, after June 30, 2021, the ERTC acts like a refundable payroll tax credit against the hospital insurance tax. The extension comes after the IRS worked to release guidance regarding the intersection of the tax credit with rules under the PPP. For further detail on the ERTC, see our prior alert.
Third-party settlement transactions will be subject to a sharply lower reporting threshold. The ARPA amends section 6050W to decrease the threshold for third party settlement organizations to report on Form 1099-K, from $20,000 and 200 transactions to $600. The change will affect income earned by platform sellers and certain independent contractors in so-called gig economy jobs. The change also conforms the federal reporting threshold to the $600 reporting threshold that has already been adopted in a number of states. Finally, the bill clarifies that that reporting is not required on transactions which are not for goods or services. For example, under the clarification, funds transfers made through a third party settlement organization would not be required to be included in the threshold amount.
Finally, the ARPA also repeals section 864(f) of the Code, which provided an election to allocate interest expense in a multinational group on a worldwide basis. The effective date of this provision had been repeatedly deferred since its enactment in 2004, typically as a revenue offset for other spending provisions. The repeal of section 864(f) means that deferral can no longer be used as a revenue offset, although because the rule never became effective it has limited practical impact.
For information on the substantial changes made to employee benefits, including certain tax exempt benefits, and pension plans, see our prior alert. The exemption from tax for certain unemployment benefits adds to the already complicated filing season.1 The tax filing deadline for 2020 is extended to May 17, 2021 to allow taxpayers and the IRS time to implement ARPA changes.2
1 The IRS amended Form 1040 to account for these changes. See https://www.irs.gov/faqs/irs-
2 See I.R.S. News Release No. 2021-59, https://www.irs.gov/newsroom/tax-day-for-individuals-