The American Rescue Plan Act (ARPA) was signed into law earlier this month, providing a massive infusion of much-needed relief to nearly every corner of the American economy — from individuals to businesses to nonprofits to healthcare organizations and state and local governments.

If you’re a business or self-employed individual here in Maine, there are several tax-related provisions in this bill that could impact your federal income taxes for 2020 and 2021. Here are a few notable ones.

Expanded Employee Retention Tax Credit

Before ARPA passed, this credit had been scheduled to end on June 30. It is now extended through the end of 2021 and expanded to apply to recovery startup businesses that launched after February 15, 2020, and have average annual gross receipts under $1 million. The exclusion for assistance provided under a qualified dependent care assistance program has been increased to $10,500 ($5,250 for married people who filed separate returns) for 2021.

Exclusion for EIDL advances

Certain eligible small businesses may be able to exclude Economic Injury Disaster Loan (EIDL) advances from their gross income for federal tax purposes. Because these advances are treated as tax-exempt income, they will be allocated to partners or shareholders and increase their bases in their ownership interests.

Exclusion for restaurant revitalization grants

The restaurant industry in Portland and throughout Maine certainly felt the impacts of the COVID pandemic. ARPA includes funds for restaurant revitalization grants from the U.S. Small Business Administration. These can go to businesses that provide food or drinks, such as restaurants, food trucks and bars.

Extension of limitation on excess business losses

Noncorporate taxpayers are currently subject to a limit on excess business losses of $250,000 ($500,000 for a married joint-filing couple). These limits are adjusted annually for inflation. Losses that are disallowed under this rule are carried forward to later tax years, then they can be deducted under the rules that apply to net operating losses. But the CARES Act suspended the excess business loss rule for tax years 2018 through 2020. The limitation does return in 2021, but ARPA will have them scheduled to expire at the end of 2026.

Need Help?

These are just a few of the provisions in the expansive new law. If your business has been impacted by COVID-19 and would like to know how ARPA can help you recover, contact us at Filler & Associates.