How Small Businesses could benefit from American Rescue Act in 2021
Tom LR Griffiths is a tax advisor and consultant, specialising in US expatriate tax matters
Tom LR Griffiths
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The American Rescue Act | How Biden’s Covid Relief Could Benefit Small Businesses

Tom Griffiths - The American Rescue Act | How Biden’s Covid Relief Could Benefit Small Businesses

The American Rescue Act | How Biden’s Covid Relief Could Benefit Small Businesses

Joe Biden recently signed the American Rescue Act, following which, over $5 trillion has been spent on multiple stimulus programs in an attempt to combat the impact covid-19 has had on the US economy. A large amount of this money is being used to help the funding of small businesses who have being impacted by the pandemic. Programs such as the economic injury disaster loan program and the paycheck protection program are examples of tax incentives that Small Businesses can use to save money on taxes in 2021. Below are some other examples of incentives that businesses should consider using this year that could reduce their taxes and, in some instances, even entitle them to cash back.


The Carryback of Losses

If your company made a loss in either 2018, 2019 or 2020, using the Cares Act, you are eligible to carry back those losses for up to five years. Consequently, if in previous years your business has paid taxes, you may be due money back given the overall amount of tax owed would be less due to the losses being carried back.


Work Opportunity Tax Credit

This incentive that has been extended until 2025 provides companies credit on income taxes if they hire someone off of welfare, a veteran, or a worker that has been unemployed for longer than six months. In order to ensure this would be beneficial to your business, employers are recommended to calculate the value of the credit before making a hire. If you require assistance doing this, you may want to consult a Tax Advisor.


Employee Retention Tax Credit

Initially part of the Cares Act, this credit that has been extended through to December 2021 qualifies businesses for tax credits if they have been fully or partially shut down as a result of the pandemic. Additionally, if a business has not been shut down but has seen their revenue decline by more than 20% when compared to revenue in 2019, they will also qualify.


Qualification will result in a business being able to take a credit for up to $7,000 per employee. This will be calculated based on the wages of an employee against their employer’s payroll taxes owed. If upon calculation the credit due to the employers happens to be larger than the payroll taxes owned, that employer can claim back the difference in cash.


The Cobra Tax Credit

This federal law requires employers to make health insurance available to their employees as part of their corporate health plan. If an employee loses these benefits because of reduced hours or layoffs, the employer is required to keep their plans in place for a certain period of time.


A new provision within the American Rescue Plan states if a company is paying for health insurance on behalf of an employee who is no longer entitled to these benefits, there are tax credits available to them.


Families First Coronavirus Response Act Tax Credit

If employees have had to take any time off work due to covid-19 because they or their family members were affected by the virus, this legislation requires employers to compensate them for this time off. Being affected by the virus does not simply mean to be infected but can also apply to supervising children attending virtual classes and taking time off to get (and recover from the potential side effects of) a vaccine.


This Act provides a tax credit to businesses that allows them to claim money back from federal payroll tax returns for any wages they’ve had to pay to employees who have taken time off having been affected by covid.


How Small Businesses Can Save On Taxes in 2021

As evidenced above, there are multiple programs available to small businesses in 2021 that could help them save on taxes and even be entitled to cash back. Whilst these programs are potentially incredibly beneficial, it can be difficult pinpointing which directly apply to your business or may be easiest to implement. If you would like more information on this, you may want to consider contacting a Tax Advisor who specialises in US Tax matters and they will be able to give you advice that caters specifically to your business.