ARPA, CARES, and CAA: What these government acts mean for your business and personal expenses!

Guest Blogger Daniel Alvarado shares:



The American Rescue Plan Act of 2021

President Biden signed the American Rescue Plan Act (ARPA) into law on March 11, 2021 triggering the release of $1,400 Economic Impact Payments (EIP) along with tax breaks for

stimulating the economy. The bill also extends the employee retention credit, adds more money to the Paycheck Protection Program, and expanded unemployment benefits, which

have now been extended through Sept. 6. Here are some tax benefits from this Act.


Economic Impact Payments

The IRS has started sending the $1,400 per person EIP payments. If for some reason you did not receive yours yet, you may be receiving it later this year or it can be claimed on your 2021 tax return.


Unemployment Benefits

Another provision exempts the first $10,200 in unemployment benefits for households earning up to $150,000.


Child Tax Credit

The expansion of the child tax credit also could bring huge benefits to taxpayers, especially large families, and could substantially reduce child poverty, at least for a year. The child tax credit was $2,000 for eligible children maximum for 2020. For 2021, one year only, it’s going to go up to $3,600 for each child [ages] zero to five, and $3,000 for children six to 17. That’s up $1,600 and $1,000, respectively, over the year before. So if you earn [up to] $75,000 if you're single or head of

household, or $150,000 if you’re married filing joint, you get that full benefit. The IRS is supposed to start issuing half of the expected amount in periodic payments starting in July. More details are expected to be released by the IRS as to how this will work.


Child and Dependent Care Credit

Many families will also benefit from the child and dependent care expenses. It’s a one-year deal for 2021 only and it went up from qualifying expenses of $3,000 for one child, or $6,000

for more than one child, all the way up to $8,000 and $16,000, respectively, for 2021.


Health Insurance Premium Tax Credit

For tax year 2020, if you received too much advance premium tax credit, you do not need to pay it back. For tax years 2021 and 2022, the amount your family is expected to contribute towards your health insurance is reduced, and households over 400% of the federal poverty line are potentially eligible for a premium tax credit.


Employee Retention Credit

One of the most significant provisions for businesses involves the Employee Retention Credit, which was introduced in the $2.2 trillion CARES Act that Congress passed last March during the Trump administration with the goal of keeping workers on the payroll by providing tax credits to employers in the early days of the pandemic. Congress extended the tax credit in December in the $900 billion Consolidated Appropriations Act, which allowed employers to use the ERC along with the Paycheck Protection Program that provides forgivable loans backed by the Small Business Administration to companies that retain workers.


Business Meals


Full deduction for business meals provided by a restaurant

The “Taxpayer Certainty and Disaster Tax Relief Act of 2020” (the Act), enacted as part of the “Consolidated Appropriations Act, 2021” (CAA 2021), allows a full deduction for certain business meal expenses—an increase from the 50% deduction limit. The expenses must be paid or incurred during calendar year 2021 or 2022, and the relevant food and beverages provided by a restaurant. The Act itself does not specifically extend the full deduction to entertainment expenses.


Summary

The deduction for food or beverage expenses generally is limited to 50% of the amount that would otherwise be allowable, subject to certain exceptions. To be deductible as a business meal, section 274(k) provides that the food or beverages must not be lavish or extravagant under the circumstances and the taxpayer or an employee of the taxpayer must be present at the furnishing of the food or beverages. In 2017, the “Tax Cuts and Jobs Act” (TCJA) revised the rules for deducting expenditures for meals and entertainment, effective for amounts paid or incurred after December 31, 2017. Specifically, the TCJA repealed deductions for entertainment, amusement, and recreation—even when directly related to the conduct of the taxpayer’s trade or business. The 50% deduction limitation for food and beverage expenses associated with a trade or business was generally retained. However, the TCJA increased the scope of the deduction limitation for expenses related to food and beverages provided by employers by eliminating some of the existing exceptions. Certain food and beverages that were previously fully deductible, such as de minimis food and beverage items, are now subject to the 50% deduction limitation. The CAA 2021 Act, now allows a 100% deduction for business related expenses for food and beverages provided by a restaurant and that are paid or incurred in calendar years 2021 and 2022. The Act did not provide further clarification or guidance on the application of this provision. This limited expansion of the deductibility for food and beverage provided by a restaurant appears intended to benefit the restaurant industry and encourage businesses to utilize restaurants for business meals. The term “restaurant” is not generally defined in the Internal Revenue Code. As a result, much is dependent upon that definition for purposes of this provision. Until such guidance is provided, a best practice could be to consider the general definition of restaurant in developing expense policies and complying with this provision. Taxpayers frequently wonder whether the expenses for this purpose are broad enough to cover fees in addition to the food and beverage cost. Fortunately, the final section 274 regulations provide that food and beverage expenses include the full cost of food or beverages, including any delivery fees, tips, and sales tax. Based on this definition, delivery fees and tips from a separate food delivery service may be deductible, so long as the food and beverages are provided by a restaurant.

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