American Rescue Plan’s Impact on Not-for-Profits
The American Rescue Plan (ARP) Act of 2021 passed in March is the second largest COVID-19 stimulus measure to date and brought significant benefits to individuals, organizations, and benefits offerings. Among the individual rebate checks and expansion to tax credits for parents, there are a handful of provisions of particular interest for not-for-profit organizations. A brief recap of the most notable changes follows.
Employee Retention Tax Credit Gets Extended
First introduced for COVDI-19 relief by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Employee Retention Tax Credit (ERTC) was extended by the American Rescue Plan Act of 2021. It can now be used for the entire year.
This is the second modification in a short window to the payroll tax credit, so not-for-profit organizations may want to take a closer examination of its benefits. The ERTC has been significantly expanded since its initial rollout. Below is a brief summary of notable evolutions.
| Provision | CARES Act | Consolidated Appropriations Act, 2021 | ARP Act |
| Eligible Time Period | March 13, 2020 – Dec. 31, 2020 | Expanded benefits available Jan. 1, 2021 – June 30, 2021 | Expanded benefits available Jan. 1, 2021 – Dec. 31, 2021 |
| Economic Impact Threshold | 50% decline in gross receipts for a quarter compared to same quarter in 2019 | 20% decline in gross receipts for a quarter compared to same quarter in 2019 | 20% decline in gross receipts for a quarter compared to same quarter in 2019 |
| Available for Paycheck Protection Program Loan Recipients | No | Yes (Retroactive to 2020) | Yes |
| Percentage of Qualified Wages | 50% | 70% | 70% |
| Qualified Wages Cap | $10,000/year | $10,000/quarter | $10,000/quarter |
| Maximum Benefit | $5,000/employee | $14,000/employee | $28,000/employee |
Considerations Based on Employer Size
Organization size plays a role in the ultimate benefit of the ERTC as well. The 2020 ERTC stipulated that for organizations with more than 100 employees, the credit could only be taken for wages paid to employees who were not providing services to the organization during the quarter in which the credit is claimed. Organizations with fewer than 100 employees could claim the credit regardless of whether employment services were rendered (i.e., all employees would potentially be eligible for the credit). The 2021 ERTC threshold has increased to 500 employees. An employer with more than 500 employees can only consider wages paid to employees who were not working. An employer with less than 500 employees can claim the credit for wages paid to all employees. Organizations that can demonstrate they were severely affected by the pandemic, defined as experiencing a 90% reduction in gross receipts compared to the same quarter in 2019, can take the payroll tax credit for all employees, regardless of headcount size.
Start-Up Eligibility
In addition to extending the time period of the ERTC, the ARP also opens up the payroll tax credit to be used more broadly for start-up organizations that began operations in 2020. For organizations with less than $1 million in annual gross receipts and that were not in operation before Feb. 15, 2020, the credit is calculated based on $50,000 of eligible wages per calendar quarter.
Paycheck Protection Program Interaction
In 2020, the ERTC could not be claimed by Paycheck Protection Program (PPP) loan recipients. The Consolidated Appropriations Act permitted loan recipients to retroactively claim the credit (using the 2020 ERTC parameters) but the credit could not be claimed for wages used to justify PPP loan forgiveness. PPP loan recipients can continue to claim the 2021 ERTC with the same restriction on the wages already being covered by PPP loan or second-draw Paycheck Protection Program (PPP2) loan proceeds.
Paycheck Protection Program
The PPP in 2020 provided unique guidelines to make it easier for not-for-profit organizations to qualify for the potentially forgivable loans, but only made the program available for organizations considered to be 501(c)(3) or 501(c)(19) organizations under the Internal Revenue Code.
Under the ARP Act, 501(c)(6) entities could qualify for the PPP, and the ARP Act takes it a step further by broadening eligibility to all not-for-profits except 501(c)(4) entities. Large not-for-profit organizations may also qualify for the PPP, because the ARP Act changes the parameters for the PPP so that the maximum headcount is 500 employees per physical location (rather than 500 total) for 501(c)(3), 501(c) (6), and 501(c)(19) entities. For all other types of not-for-profit organizations, the per-location-headcount maximum is 300.
Credits for Paid Sick and Family Leave
Not-for-profit-organizations that provide paid sick and family leave may take the payroll tax credit for employees using up to 10 days of qualified leave related to COVID-19. The credit had originally been set to expire on March 31, 2021, but has now been extended to Sept. 30, 2021 and expanded from $10,000 to $12,000/employee. Leave also is expanded to cover vaccine-related absences.
Employee Benefits Impacts
For pension plans, the ARP Act temporarily delays the designation of multiemployer plans as endangered, critical, or critical and declining status. To help preserve health benefits for workers who were terminated due to the COVID-19 disruption, the ARP Act also provides a COBRA premium subsidy. Further details on the changes affecting employee benefits in the act can be found in our recent “At Issue” here.
For More Information
For more information about the changes in the stimulus legislation, please contact a member of our team.
Published on March 22, 2021