President Biden’s “Build Back Better” policy initiative, which targets economic recovery, includes a $1.8 trillion American Families Plan (AFP) and a $2.3 trillion American Jobs Plan. The administration plans to fund both initiatives through a Made in America Tax Plan. Below is an overview of what’s included in this far-reaching tax overhaul.
American Jobs Plan
Estimated to cost around $2.3 trillion over the next eight years, this part of Biden’s “Build Back Better” initiative would consist of clean energy projects; affordable housing; the reconstruction or repair of 20,000 miles of road and 10,000 bridges; as well as funding for those who provide care for the elderly and disabled, and direct investment in rural and tribal areas by equipping them with 100% broadband coverage.
American Families Plan
Estimated to cost over $1.8 trillion over the next ten years, the American Families Plan would include universal preschool; two years of free community college; paid family and medical leave; extensions of the Child Tax Credit, the Earned Income Credit, and the Child and Dependent Care Credit. It would also extend certain provisions set forth in the Biden administration’s economic stimulus bill, the American Rescue Plan.
Funding for the American Families Plan would come through a series of tax increases on high-income Americans, including: increasing the top individual income tax rate from 37% to 39.6%; taxing unrealized capital gains above $1 million at death; and adjusting the threshold for the 3.8% Medicare tax to all income above $400,000.
Made in America Tax Plan
The administration plans to pay for these initiatives with a “Made in America Tax Plan” over the next 15 years. It is estimated that the tax reform plan will raise over $2 trillion over the next decade and a half by increasing various taxes on American corporations, including:
Raising the corporate tax rate from 21% to 28%
Increasing the global minimum tax that multinational corporations must pay to 21%. This is much higher than the 12.5% minimum rate recently discussed by the Organization for Economic Cooperation and Development (OECD).
Intensifying tax enforcement of U.S. corporations that invert (relocate operations overseas) or claim tax havens
Imposing a 15% minimum tax on book income reported to investors.
Individual Tax Rates
The Biden administration’s proposals on individual taxation are intended to avoid increasing taxpayers with annual incomes less than $400,000. The plan aims to increase the tax rate for the top income bracket from the current 37% to 39.6%. The top rate on capital gains would nearly double, increasing from 20% to 39.6%. Further, the current net investment income surtax of 3.8% levied on high-income taxpayers presumably would still apply. This means that the new top federal tax rate on capital gains would total 43.4%, nearly double the current law top combined rate of 23.8%.
The Paycheck Protection Program (PPP) was created in 2020 by the CARES Act to help small businesses withstand the economic fallout from the COVID-19 pandemic. The recently passed PPP Extension Act of 2021 extends the deadline for PPP applications from March 31 to May 31. This move also grants the Small Business Administration an additional 30 days beyond May 31 to process loans. Here’s what small businesses need to know.
New Deadline Provides Breathing Room
According to the National Federation of Independent Business (NFIB), nearly one in every six small business owners reported the likelihood of needing to close their doors forever if current economic conditions did not improve within six months. The extension to May 31 will benefit these businesses, as well as lenders and businesses that have experienced errors and delays from technical difficulties in the application process. The SBA has also increased security in order to detect fraud, which has delayed processing in some cases. It’s important to note that May 31 is Memorial Day, so borrowers should have their applications in by May 28, before the start of the long weekend.
Opportunities for New First Draw PPP Loan Borrowers
The additional time may also benefit small businesses that received their first PPP loan this year. Because typically eight weeks must pass between the loans in order to spend money on payroll, this may give businesses enough time to use up those funds and apply to a Second Draw PPP Loan. Keep in mind that in order for a small business to qualify for a second draw loan, additional criterion must be met, according to the SBA:
no more than 300 employees
must be able to show at least a 24% reduction in gross receipts between comparable quarters in 2019 and 2020
The PPP Extension Act does not provide for further funding of the PPP. At the time of signing, however, the SBA said there was about $80 billion in funding that had yet to be disbursed to small businesses.
The American Rescue Plan Act of 2021 was signed into law by President Biden on March 11, 2021. Intended to facilitate the United States’ recovery from the devastating economic and health effects of the COVID-19 pandemic, this economic rescue legislation is one of the most expensive in U.S. history. Below is a broad overview of some of the larger components of the package.
Direct Financial Payments
Direct stimulus payments in the amount of $1,400 will be sent to individuals with an adjusted gross income (AGI) of $75,000 or less. This amount augments the $600 payments in the second stimulus package signed by former president Trump in December of 2020 in order to hit the $2,000 mark originally requested by Trump. Married couples with AGIs of $150,000 or less will receive $2,800 ($1,400 for each), and each qualified dependent regardless of age will receive $1,400. Payments are reduced for individuals who make over $75,000 and disappear completely for individuals who make $80,000 or more ($160,000 for married couples).
Extended Unemployment Benefits
Pandemic Unemployment Assistance (PUA) benefits of $300 a week are extended through September 6, 2021. These benefits were created for workers such as independent contractors, who do not typically qualify for unemployment insurance. The total number of eligibility weeks increases as well, from 50 to 79.
Federal Pandemic Unemployment Compensation (FPUC) benefits, which boost unemployment benefits by $300 per week, are also extended through September 6, 2021.
Pandemic Emergency Unemployment Compensation (PEUC), which provides added weeks of unemployment insurance benefits to workers who have depleted their state unemployment benefits, has been extended through September 6, 2021. The total number of eligibility weeks also increases from 24 to 53 weeks.
Additionally, the first $10,200 in 2020 benefits is tax free for families making $150,000 or less. Taxpayers who had taxes withheld from unemployment benefits in 2020 will be authorized to reclaim them when they file their 2020 taxes. If they’ve already filed taxes, they can file an amended tax return.
The Act also grants a 100% subsidy of COBRA health insurance premiums so unemployed and furloughed workers, as well as those who’ve had hours reduced, can continue their group health care plans through the end of September.
Expanded Child Tax Credit
For couples who make $150,00 or less in a year ($112,500 or less for single parents), the Act increases the Child Tax Credit maximum to $3,600 a year for each child under age 6, and $3,000 a year for each child ages 6 to 17. The law grants one year of credit payments, which will be sent by direct deposit on a monthly basis, possibly beginning this summer. The remaining amount can be claimed on 2021 tax returns.
Employer Tax Credits
The Act extends tax credits to employers who implement Families First Coronavirus Response Act (FFCRA) emergency paid sick leave or expanded family and medical leave to employees. In addition to previously acceptable FFCRA reasons for sick leave, from April 1, 2021 through September 30, 2021, credits are also available for sick leave wages paid when an “employee has been exposed to COVID-19 or the employee’s employer has requested such test or diagnosis, or the employee is obtaining immunization related to COVID-19 or recovering from injury, disability, illness, or condition related to such immunization.” Too, tax credits for emergency paid family leave are permissible for leave granted when an employee is incapable of working, either in person or remotely, due to the necessity of caring for a child whose school is closed at any point during the pandemic.
Help for Businesses
The “Restaurant Revitalization Fund” is a new program established under the American Rescue Plan Act that allocates $25 billion in pandemic assistance grants to eligible entities such as restaurants, bars, lounges, and caterers. The grants are able to administer up to $10 million per company with a limit of $5 million per physical location. The funds can be used to cover payroll, rent, utilities, and other expenses.
Two programs established under the CARES Act receive additional funding. The Economic Injury Disaster Loan (EIDL) program receives an added $15 billion, and the Paycheck Protection Program receives an added $7.25 billion. The PPP’s current application deadline of March 31, 2021, is not extended.
President Trump recently signed a second stimulus package—called the Consolidated Appropriations Act, 2021 (Act)—into law. The legislation includes over $300 billion in aid for small businesses. Below is a breakdown of some of the business tax changes and extenders in the new COVID-19 relief bill.
Payroll Tax Credit for Paid Sick and Family Leave
The refundable payroll tax credit for paid and sick family leave, established in the Families First Coronavirus Response Act, is extended until March 31, 2021. The tax credits are modified so that they now apply to practically any payments made to workers for these purposes.
Payroll Tax Repayment
The time frame for employees to repay deferred employment taxes under the President’s executive order, which was issued in August 2020, has been extended from April 2021 to December 31, 2021.
Employee Retention Credit
The Employee Retention Credit (ERC) under the CARES Act has extended to July 1, 2021. Further, the refundable tax credit has increased from 50% to 70%, the per-employee wages limitation has increased from $10,000 per year to $10,000 per quarter, and the determination of a large employer for purposes of the ERC has increased from 100 to 500 employees.
30-Year Depreciation of Certain Residential Rental Property
The new law determines that the recovery period relevant to residential rental property placed in service before Jan. 1, 2018, and held by an electing real property trade or business, is 30 years.
Business Meal Deduction
Rather than the current 50% business expense deduction for meals, the bill temporarily allows a 100% expense deduction for meals provided by restaurants in 2021 and 2022.
Deduction for Energy Efficient Commercial Buildings
The deduction for energy-efficient improvements to commercial buildings, such as lighting, heating, cooling, ventilation, and hot water systems was made permanent. The amount will be inflation-adjusted after 2020.
Changes to the Work Opportunity Tax Credit
If employers hire workers who are members of one of more of ten targeted groups under the Work Opportunity Tax Credit (WOTC) program, they are permitted to use an elective general business tax credit. Previously applicable to hires before 1/1/2021, the TCDTR extends the credit through 2025.
Employer Payments of Student Loans
Section 127, which permits employers to provide certain educational assistance to employees on a tax-free basis, was modified under the CARES Act to authorize the payment by an employer of principal or interest on specific employee qualified education loans through December 31, 2020. The Consolidated Appropriations Act expands this through December 30, 2025. As the pandemic subsides, employers may want to consider this valuable tax-free benefit.
Health and Dependent Care Flexible Spending Arrangements
The bill allows taxpayers to roll over unused funds in their health and dependent care flexible spending accounts from 2020 to 2021 and from 2021 to 2022. This arrangement also permits employers to grant employees a 2021 midyear prospective adjustment in contribution amounts.
A group of centrist lawmakers recently revealed an economic relief bill totaling approximately $908 billion. The plan has gained some traction among both congressional Democrats and Senate Republicans, getting talks moving again after Democrats and Republicans have been unable to reach a compromise on a second relief package for months. Here’s a summary of what’s included in the proposal.
Business Aid
The largest chunk of the $908 billion bipartisan bill—$288 billion—is reserved for U.S. businesses, with a focus on primarily assisting small firms, most likely as another round of funding for the Paycheck Protection Program (PPP). This would allow businesses that have since depleted their PPP funding to apply for another round of payments. This time, however, businesses will most likely be required to prove considerable downturns in revenue in order to qualify for assistance. Part of the $288 billion would also likely include another round of Economic Injury Disaster Loans (EIDL), which provide smaller loan amounts than PPP.
Unemployment Aid
The next largest chunk of funding consists of $180 billion, which is dedicated to unemployment benefits for jobless Americans. The bipartisan plan proposes $300 per week to each American on unemployment on top of existing state unemployment benefits at least through March. This is half of the $600 per week that Congress approved in March (that expired in July), but in line with the $300 per week unemployment bonus that was approved in August (most of the funds allocated for that bonus expired in October). One question that has not been addressed is whether the unemployment benefits will be made retroactive to compensate for prior months without jobless benefits.
State and Local Funding
The relief bill offers $160 billion to state and local governments to assist them through the next several months without additional cuts to personnel or services. This has been one of the biggest sticking points in getting an additional relief bill passed as Congressional Republicans contest that that such aid is wasteful “bailouts”. As a condition for their support of the broader package, some Republican lawmakers are considering a compromise by looking to establish new boundaries on state and local funds.
Temporary Protection from Liability Lawsuits
The other big sticking point comes from Democratic opposition for the “liability shield” sought by the GOP. Senate Republicans have tried for months to give business entities immunity from coronavirus-related lawsuits. This bipartisan plan offers a temporary moratorium on COVID liability lawsuits, which would allow time for individual states to draft their own laws.
What’s Not Included?
The bipartisan plan markedly excludes a second round of $1,200 stimulus checks, a measure that has long been supported by congressional Democrats and President Trump. Congressional Republicans have been forthcoming on their resistance to spending more than $1 trillion on another stimulus package, and once unemployment assistance, aid to state and local governments, and small business relief is added up, it’s unfeasible to both include direct checks and keep the overall price-tag below $1 trillion. (Republican Senator Josh Hawley and Sen. Bernie Sanders have since teamed up to propose an amendment to this plan that would include direct stimulus checks to Americans.)
The plan also leaves out Republican-backed tax cuts, including Trump’s call for a payroll tax cut for firms, and Democrats’ push for bonuses to essential workers and health-care professionals. Also missing from the plan is a renewal of the federal moratorium on evictions that is set to expire at the end of the year.
