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BOSTON — Gov. Charlie Baker signed a $4 billion spending plan on Monday to support continued recovery across key priority areas, making substantial investments in housing and home ownership, healthcare, workforce development, premium pay for essential workers, and infrastructure. The funding, first proposed by the Baker-Polito administration in June, will put to work a portion of the Commonwealth’s direct federal aid from the American Rescue Plan Act (ARPA).

“The pandemic has had a significant impact on Massachusetts workers, families, communities, and businesses for nearly two years, and today’s signing directs billions of dollars in relief toward those hardest hit across the Commonwealth,” Baker said. “While this package falls far short of the investment I called for to address the housing shortage, the important investments included in this bill will help to accelerate Massachusetts’ economic recovery and provide long-lasting benefits to infrastructure, healthcare, education systems, and small businesses.”

The bill authorizes up to $2.55 billion in spending from the $5.29 billion ARPA Coronavirus State Fiscal Recovery Funds provided to Massachusetts in May. This direct federal aid is intended to support urgent COVID-19 response efforts, replace lost revenue, support immediate economic stabilization for households and businesses, and address unequal public health and economic challenges in Massachusetts cities and towns. After accounting for spending in this bill and previously announced commitments, approximately $2.3 billion of the Coronavirus State Fiscal Recovery Funds will remain to be further appropriated.

“The Commonwealth has worked diligently over the past two years to deploy billions worth of federal support to strengthen our economic recovery, support those in disproportionately impacted communities, and get people back to work,” said Secretary of Administration and Finance Michael Heffernan. “We appreciate the collaboration of our colleagues in the Legislature on this bill to invest in healthcare, housing, and the Massachusetts workforce and look forward to even more critical investments in 2022 with the remaining ARPA funds.”

Coupled with the authorized ARPA dollars, $1.45 billion in spending is appropriated from the Transitional Escrow Fund, made up of state fiscal year 2021 surplus funds. The bill assigns the secretary of Administration and Finance the responsibility of matching expenditures to the most appropriate funding source, which provides important flexibility in recognition of the significant federal rules and regulations associated with federal funds.

Highlights of the plan include:

Housing

• $150 million to finance the statewide production of housing for various populations, including seniors and veterans;

• $150 million for public housing maintenance;

• $115 million for rental housing production and to provide increased housing options to residents of disproportionately impacted communities;

• $115 million to support housing production in disproportionately impacted communities through MassHousing’s CommonWealth Builder Program and similar efforts; and

• $65 million to support expanded home-ownership opportunities, focused on first-time home buyers who are residents of disproportionately impacted communities.

Healthcare

• $400 million for addiction treatment and related behavioral-health services, workforce, and infrastructure;

• $260 million for fiscally stressed hospitals in disproportionately impacted municipalities;

• $200 million for local and regional public health, including local boards of health staffing, technology, and training;

• $50 million for workforce retention and capital improvements at nursing facilities and $30 million to support loan repayment, retention, and recruitment programs for human-service workers; and

• $37.5 million for grants to reduce juvenile delinquency, youth homelessness, and summer jobs.

Workforce Development

• $500 million to support the Unemployment Compensation Trust Fund;

• $500 million for premium pay for low-income essential workers;

• $107.5 million for workforce and career technical skills training; and

• $24.5 million for workforce development and capital grants to YMCAs and Boys & Girls Clubs.

Economic Development

• $135 million to support cultural facilities and tourism assets throughout Massachusetts; and

• $75 million for grants to small businesses, $50 million of which will go to businesses reaching underserved markets and minority, women, and veteran owned businesses; and $25 million reserved for small businesses that did not qualify for prior programs.

Infrastructure Investment

• $100 million to fund grants for water and sewer infrastructure improvements;

• $100 million to improve culverts, dams, and other environmental infrastructure;

• $90 million for marine port development;

• $50 million to close the digital divide and increase broadband internet access;

• $44.8 million for food security; and

• $25 million for greening gateway cities.

Education

• $105 million for a variety of education supports, including recovery grants to state universities and community colleges, workforce support for special-education schools, and support for recruiting educators of color;

• $100 million for public school-district HVAC grants; and

• $100 million for capital grants to vocational high schools and career technical education programs.

Commercial Real Estate Special Coverage

A Time to Think Big

 

With more than $3 billion being directed to area cities and towns through the American Rescue Plan Act, there is no end to speculation about these funds should be put to use. While infrastructure projects and other municipal needs certainly need to be addressed, area economic leaders and developers are urging communities to think big and make investments that will spur additional private-sector development and allow these cities and towns to take full advantage of the changing times and the opportunities they present.

‘Unprecedented.’ ‘Once in a lifetime.’ ‘Once in a generation.’ ‘Transformative.’ ‘Totally unique.’

These are just some of the words and phrases people are using to describe the federal money now flowing into the state and its individual cities and towns from the American Rescue Plan Act (ARPA) to help them, their residents, and their businesses recover from the hard sting of COVID-19. Area communities are in line for windfalls ranging from hundreds of thousands of dollars for the smallest of towns in Franklin and Hampshire Counties to more than $130 million for Springfield. And the state itself is receiving more than $5 billion.

By and large, there are few strings attached to this money, so the $64,000 question (or the ‘fill in an amount’ question, as the case may be with individual communities) concerns how this windfall will be spent.

Keith Nesbitt

Keith Nesbitt

“There are very safe investments that can be made, and everyone would benefit. But there are game-changing investments that can be made, and I hope that they are.”

The debate is continuing on Beacon Hill and all across the region as mayors, city and town councilors, selectmen, and town administrators mull myriad options for spending these funds — and how other federal money, such as that included in the infrastructure bill recently passed into law, might be put to use.

Much of the talk on the local level concerns infrastructure — roads, bridges, sewer and water lines — as well as new roofs, HVAC systems, and more for municipal buildings, new parking garages, parks, etc., etc., etc.

And while these options have merit, those who spoke with BusinessWest on the broad subject of how this spending spree, especially the ARPA money, should be conducted said that, from an economic-development standpoint, area cities and towns — and the state itself — would do well to think bigger, and more long-term, with an eye toward using this money in ways that justify that word ‘transformative,’ and also spark private-sector development in housing (especially market-rate housing), new businesses, and more.

“These can’t be ‘bridge-to-nowhere’ kinds of investment — they have to be meaningful investments that all of us can benefit from,” said Jeff Daley, president and CEO of Westmass Development Corp., who also warned against a rush to commission studies that would likely yield reports that sit on shelves for years.

Keith Nesbitt, Berkshire Bank’s senior vice president for Business Banking for the Pioneer Valley and Connecticut, agreed.

“There are investments that are needed, and I think they come in a variety of forms,” he said. “I don’t know how we’re going to attract significant private investment without that pump priming that government resources are going to provide. I think this is a once-in-a-generation opportunity, and I really hope that local leaders are bold enough to dream big when it comes to how we use these funds.

“There are very safe investments that can be made, and everyone would benefit,” he went on. “But there are game-changing investments that can be made, and I hope that they are.”

What falls in that category? Nesbitt, who is also hiring manager for the bank and understands the workforce issues facing area businesses and the lack of qualified talent across the board, cited a community in Minnesota that is earmarking some of its federal money to ensure that all high-school graduates can attend community college.

Joy Martin

Joy Martin

“You do have a unique opportunity that you didn’t before because you have money to offer people to come in and develop in your area.”

“They recognized that need to prepare our young people for the jobs of the future,” he said. “The investment in free, two-year community college is what they’ve decided to do, and I’d love to see something that like here.”

Meanwhile, Joy Martin, director of Asset Management with Davenport Companies, which has worked on MGM Springfield, recently converted the former Willys-Overland property on Chestnut Street into market-rate apartments and is redeveloping the former Registry of Motor Vehicles building on Liberty Street, said Springfield and other communities need to think about investing the federal money in ways that would make it easier to undertake such projects.

“You do have a unique opportunity that you didn’t before because you have money to offer people to come in and develop in your area,” she said, adding that many projects need help from state and local government to make the numbers work for developers.

Rick Sullivan, president and CEO of the Western Massachusetts Economic Development Council, who can speak to this subject from various perspectives (he’s the former mayor of Springfield and a current city councilor), concurred, and also stressed the need to invest the money and not just spend it.

“I do think it’s a chance to look at the bigger picture and look down the road,” he told BusinessWest. “And not just fill a gap that might exist today, or not just make some repair that might be necessary, but really further your economy or the quality of life in your community you’re living in.”

 

Money Talks

While certainly advocating for longer-term thinking when it comes to how the ARPA money should be apportioned, Sullivan and others noted there are some immediate concerns that may also have some ramifications down the road.

That’s especially true when it comes to existing businesses and especially the smaller ventures across many sectors that are still struggling from the effects of not only COVID but some of the side effects from treating it as well.

“With the pandemic, the small, mom-and-pop, downtown, core-district businesses are still hurting,” he told BusinessWest. “They have supply-chain issues, they have employment issues … so I think some of these monies should go to the small, the really small businesses that make up the fabric, the fiber of your downtowns and your communities.

“And it can’t be loans because loans come with interest,” he went on. “It has to be either grants or no-interest loans that have a forgiveness provision — it goes away after a short period of time, be it two years or three years or five years; if you stay open and you’re moving forward, the obligation to pay goes away. Some of this money needs to go to your smallest businesses.”

Rick Sullivan

Rick Sullivan

“With the pandemic, the small, mom-and-pop, downtown, core-district businesses are still hurting. They have supply-chain issues, they have employment issues … so I think some of these monies should go to the small, the really small businesses that make up the fabric, the fiber of your downtowns and your communities.”

That said, Sullivan and others stressed repeatedly the need to think big when it comes to ARPA, meaning a focus on investments that will pay off the long term, with benefits for generations of residents of a given city or town. That could mean investments in everything from education and training initiatives to faster and more reliable internet, to initiatives that will unlock the development potential of unused and underutilized properties.

Seth Stratton, a business lawyer and managing partner of East Longmeadow-based Fitzgerald Attorneys at Law, said the focus should be on economic-development-related investments, a broad term to be sure.

“The programs and initiatives that should be funded with these resources should be intentional, impactful, and innovative — all with an eye toward a continuing spark; it has to be transformative,” he said, putting support for new housing projects high on his list of priorities. “We want to see economic development and a rising tide that lifts all boats. If we just do one-off projects here and there, that can be helpful, but it won’t have this comprehensive effect of economic development in what many of us see as somewhat of a new economy.

“What do restaurant, food and beverage, and entertainment venues look like going forward?” he continued. “We ought to be thinking about what they look like moving forward and how to embrace that and use funds in a smart way that would have exponential impact, rather than talking about one-off items.”

Daley agreed, and mentioned, as one example, Ludlow Mills, the sprawling former jute-making complex along the Chicopee River that Westmass now owns. He said investments made there by the state and perhaps the town of Ludlow could bring property in line for development and create jobs for several generations of area residents.

“We have several under-underutilized and undevelopable properties, and I think this one-time type of money coming in could help put us over the top to redevelop Ludlow Mills and other projects,” he said, adding that he hopes the ARPA money and funds in other federal programs, such as the infrastructure bill that was recently signed into law, trickle down to Western Mass. and help it attract the attention of the development community, which has often found it difficult to take on projects here for a number of reasons, including the market lease rates and the costs of renovating old mills and other properties.

“With a small investment — small relative to the numbers they’re talking about Congress and feds giving the state — we could recapitalize those dollars and give a return on investment that would be a million times what they would give us,” Daley said. “We have very, very large properties in Ludlow, specifically, that, without an infusion of cash, it’s going to hard to redevelop. With a small infusion of cash, several million dollars, we can generate a return on investment of $300 million or $400 million, realistically, within five to 10 years — and create a lot of jobs and tax dollars; there are three or four projects we could do that would change the face of Ludlow.”

Jeff Daley

Jeff Daley

“We have several under-underutilized and undevelopable properties, and I think this one-time type of money coming in could help put us over the top to redevelop Ludlow Mills and other projects.”

Martin concurred, noting that this infusion of federal money comes at an intriguing time, as many forces are coming together to make Western Mass. a more attractive option for individuals and businesses alike. These include the much higher cost of living in other areas such as Boston and New York and the opportunity to now work in those areas but live in a lower-cost region like the 413.

“Western Mass. is getting more attractive to investors and to people in general. Overland Lofts is 97% leased, and it has been 97% leased for some time,” she told BusinessWest. “We thought we were going to have a problem leasing these apartments, and we have not, and what surprised us is that we’ve attracted a lot of residents from the Worcester and Boston areas, because this location is near things that are about to happen — it’s not far from the casino, it’s near the train station … it checks a lot of boxes for urban living at a much lower cost than living in Boston or Worcester.”

Elaborating, she said one of the units is being leased by an executive with a Boston-based firm who is now able to work remotely, and chose to do so in downtown Springfield.

With these trends, or developments, in mind, those we spoke with said area cities and towns need to be thinking about ways to utilize the ARPA funds to take full advantage of the opportunities currently presenting themselves.

 

Impact Statement

Returning to that town in Minnesota using ARPA money to send young people to community college, Nesbitt said this is the kind of long-term, high-impact investing that state and area leaders should be thinking about as they consider options for allocating funds in the broad realm of economic development.

“These kinds of human-capital investments need to be prioritized,” he said, adding that the workforce crisis now impacting every sector of the economy must be considered a long-term problem and not one that will correct itself in a quarter or two or with the end of additional unemployment benefits.

Seth Stratton

Seth Stratton

“We have to have more market-rate housing in the region and be creative about it, and that’s where we talk about downtown developments. We can leverage Western Mass. and our lower cost of living by investing in market-rate housing, and such investments will help our businesses, because they are struggling to find and keep employees, and if we have robust market-rate housing, that will certainly help.”

Stratton agreed, noting that expanding vocational-education programs to assist the trades and the region’s large manufacturing sector should also be a priority. Meanwhile, he noted that other forces are converging that might bring more people into the local workforce, such as the ability to work remotely. He said there are more individuals like that executive now living in Overland Lofts, and, moving forward, they will need places to live.

“We have to have more market-rate housing in the region and be creative about it, and that’s where we talk about downtown developments,” he said. “We can leverage Western Mass. and our lower cost of living by investing in market-rate housing, and such investments will help our businesses, because they are struggling to find and keep employees, and if we have robust market-rate housing, that will certainly help.”

Meanwhile, with these changes in how and where people work, communities like Springfield have to think about the large amounts of office space currently unleased and the potential for those numbers to climb, he went on, adding that some thought should go into repurposing some of this space into flexible workplaces.

Getting projects like these off the ground is often difficult because it’s not easy to make redevelopment projects like the Overland initiative “pencil out,” as developers say, meaning make the numbers work. Often, historical tax credits or other forms of funding are needed to bridge gaps, said Martin, adding that the state and individual communities should look at using the federal funds flowing to them to make such projects more feasible and doable.

“We thought we were going to have a problem leasing these apartments, and we have not, and what surprised us is that we’ve attracted a lot of residents from the Worcester and Boston areas, because this location is near things that are about to happen — it’s not far from the casino, it’s near the train station … it checks a lot of boxes for urban living at a much lower cost than living in Boston or Worcester.”

“We run into a gap between the cost to build something and the actual asking price for something,” she said, citing the Overland project as an example. “We got 60 apartments out of it and rents that fit the area, but none of that would have happened without historical funds and state housing funds. So if the city had something that could bridge some of the financial gap between new-build and the current economic conditions in Springfield, that will help to bring developers here.

“It’s hard to justify an $18 million project with $2-per-square-foot rent,” she went on. “But if there’s some way to help bridge that gap, I think you’d see more developers willing to come in and give you a good product.”

Daley agreed, noting that the developers of the so-called Clocktower Building at Ludlow Mills, another housing project, have had to wait the better part of six years for the historical tax credits needed to move that initiative off the drawing board.

“We have another mill that’s 600,000 square feet; if we were to start today and try to get those kinds of tax credits, it would be 12 to 15 years before they were all distributed,” he said. “If the state wanted to have an impact on development of those kinds of projects, it should make more money available for good projects that are shovel-ready.”

Martin said the gap in funding facing those looking to develop existing but older and challenged buildings is one of the key factors impeding redevelopment of the buildings across Main Street from MGM Springfield.

“It’s not that people don’t want to be there,” she said. “It costs a lot to redevelop these buildings, and then to charge a rent that fits the community … it doesn’t pencil out without some kind of help,” she said. “Using these funds in a smart way like that would help bring back the Main Streets in Western Mass.”

Sullivan agreed, and said such investments are part of that process of looking beyond today and to tomorrow, and what communities want and need to look like in a rapidly changing landscape.

“I do think this is an opportunity for communities to look at the bigger picture regarding where they want their communities to be 10 years down the road, what they want their downtowns to look like, and what sectors — be it a restaurant district or an entertainment sector, travel and tourism, for example — they want to attract,” he said. “It’s about determining what you want your future to look like, and investing in it.”

 

Paying It Forward

Summing things up, Sullivan said these are what he hopes are once-in-a-lifetime windfalls that have come to area cities and towns.

“Hopefully, we won’t ever have to go through this again,” he noted, adding quickly that this unique moment in time represents an opportunity to pause, think about the future, and make some investments in it.

Fixing a bridge or putting a new roof on the fire station might be a suitable use for some of the money, he went on, but overall, cities and towns have to think bigger. Much bigger.

 

George O’Brien can be reached at [email protected]

Estate Planning

Crunching the Numbers

The $1.9 trillion American Rescue Plan Act of 2021 was passed by the U.S. Congress by the narrowest of partisan margins, but its impact promises to be broad, for individuals and businesses alike. Following is a breakdown of how the act, signed into law by President Biden last month, affects everything from unemployment benefits to tax credits to employee retention.

By Jim Moran, CPA, MST

 

On March 11, President Biden signed the American Rescue Plan Act of 2021 (ARP). Biden’s $1.9 trillion COVID-19 relief package is aimed at stabilizing the economy, providing needed relief to individuals, small businesses, and improving and accelerating the administration of coronavirus vaccines and testing.

The relief package, which is Biden’s first major legislative initiative, is one of the largest in U.S. history and follows on the heels of the Trump administration’s $900 billion COVID relief package enacted in December 2020 (Consolidated Appropriations Act of 2021).

The most significant measures included in the ARP are the following:

• A third round of stimulus payments to individuals and their dependents;

• Extension of enhanced supplemental federal unemployment benefits through September 2021;

• Expansion of the child tax credit and child and dependent care credit;

• Extension of the Employee Retention Credit (ERC);

• $7.25 billion in aid to small businesses, including Paycheck Protection Program (PPP) loans;

• Increased federal subsidies for COBRA coverage;

• More than $360 billion in aid directed to states, cities, U.S. territories, and tribal governments (the Senate added $10 billion for critical infrastructure, including broadband internet, and $8.5 billion for rural hospitals);

• $160 billion earmarked for vaccine and testing programs to improve capacity and help curb the spread of COVID; this includes funds to create a national vaccine-distribution program that would offer free shots to all U.S. residents regardless of immigration status; and

• Other measures that address nutritional assistance, housing aid, and funds for schools.

Here are details on many (but not all) of the provisions of the ARP.

 

MEASURES AFFECTING INDIVIDUALS

The ARP includes several measures to help individuals who have been adversely affected by the impact of the pandemic on the economy. The additional round of stimulus checks, in conjunction with supplemental federal unemployment benefits, should provide some measure of relief to individuals. A temporarily enhanced child tax credit offers another area of assistance.

 

Cash Payments

An additional $1,400 payment is being sent for each dependent of the taxpayer, including adult dependents (such as college students and parents). The previous two stimulus payments limited the additional payments to dependent children age 16 or younger.

jim Moran

jim Moran

“The relief package, which is Biden’s first major legislative initiative, is one of the largest in U.S. history and follows on the heels of the Trump administration’s $900 billion.”

The amount of the stimulus payment is based on information in the taxpayer’s 2020 tax return if it had been filed and processed; otherwise, the 2019 return is used. The amount of the payment will not be taxable income for the recipient.

The stimulus payments are subject to certain limitations with respect to a household’s adjusted gross income. Households with adjusted gross income of more than $80,000 for single filers, $120,000 for head-of-household filers, and $160,000 for married filing jointly will not receive any payment. For taxpayers with adjusted gross incomes below those respective limitations, the stimulus is subject to a phaseout beginning at $75,000 for single filers, $112,500 for heads of household, and $150,000 for married filing jointly.

 

Extended Unemployment Benefits

The current weekly federal unemployment benefit of $300 (which applies in addition to any state unemployment benefits) is extended through Sept. 6, 2021; the Senate cut back the $400 that would have applied through Aug. 29 under the House version. The extension also covers the self-employed and individual contractors (such as gig workers) who typically are not entitled to unemployment benefits.

Additionally, the first $10,200 (per person if married filed jointly) of unemployment insurance received in 2020 would be non-taxable income for workers in households with income up to $150,000. If you have already filed your 2020 federal taxes (Form 1040 or 1040-SR), there is no need to file an amended return to figure the amount of unemployment compensation to exclude. The IRS will refigure your taxes using the excluded unemployment compensation amount and adjust your account accordingly. The IRS will send any refund amount directly to you.

 

Child Tax Credit

The child tax credit will be expanded considerably for 2021 to help low- and middle-income taxpayers (many of the same individuals who will be eligible for stimulus payments), and the credit will be refundable.

The amount of the credit will increase from the current $2,000 (for children under 17) to $3,000 per eligible child ($3,600 for a child under age six), and the $3,000 will also be available for children who are 17 years old. The increase in the maximum amount will phase out for heads of households earning $112,500 ($150,000 for couples).

Because the enhanced child tax credit will be fully refundable, eligible taxpayers will receive a refund for any credit amount not used to offset the individual’s federal income-tax liability. Part of the credit will be paid in advance by the IRS during the period July through December 2021 so that taxpayers do not have to wait until they file their tax returns for 2021. The IRS will publish future guidance as to how the payments will be refunded.

 

Child and Dependent Care Tax Credit

The child and dependent care tax credit will be expanded for 2021 to cover up to 50% of qualifying childcare expenses up to $4,000 for one child and $8,000 for two or more children for 2021 (currently, the credit is up to 35% of $3,000 for one child or 35% of $6,000 for two or more children). The credit will be refundable so that families with a low tax liability will be able to benefit; the refund will be fully available to families earning less than $125,000 and partially available for those earning between $125,000 and $400,000.

 

Earned Income Tax Credit (EITC)

The EITC will be expanded for 2021 to ensure it is available to low-paid workers who do not have any children in the home. The maximum credit will increase from about $530 to about $1,500, and the income cap to qualify for the EITC will go from about $16,000 to about $21,000. Further, the EITC will be available to individuals age 19-24 who are not full-time students, as well as those over 65.

 

MEASURES AFFECTING BUSINESSES

The ARP also contains provisions designed to assist businesses — small businesses in particular.

 

Small Businesses and Paycheck Protection Program

An additional $7.25 billion is allocated to assist small businesses and the PPP forgiven loans. The current eligibility rules remain unchanged for small businesses wishing to participate in the PPP, although there is a provision that will make more nonprofit organizations eligible for a PPP loan if certain requirements are met.

The PPP — which was originally created as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted on March 27, 2020 — is designed to help small businesses that have suffered from disruptions and shutdowns related to the coronavirus pandemic and keep them operational by granting federally guaranteed loans to be used to retain staff at pre-COVID levels. A PPP loan may be forgiven in whole or in part if certain requirements are met.

The Economic Aid Act, which is part of the CAA, earmarked an additional $284 billion for PPP loans, with specific set-asides for eligible borrowers with no more than 10 employees or for loans of $250,000 or less to eligible borrowers in low- or moderate-income neighborhoods. The program has recently been extended from March 31, 2021 to May 31, 2021.

 

Employee Retention Credit (ERC)

The ERC, originally introduced under the CARES Act and enhanced under the CAA, aims to encourage employers (including tax-exempt entities) to keep employees on their payroll and continue providing health benefits during the COVID pandemic. The ERC is a refundable payroll-tax credit for wages paid and health coverage provided by an employer whose operations were either fully or partially suspended due to a COVID-related governmental order or that experienced a significant reduction in gross receipts.

The CAA extended the eligibility period of the ERC to June 30, 2021, increased the ERC rate from 50% to 70% of qualified wages, and increased the limit on per-employee wages from $10,000 for the year to $10,000 per quarter ($50,000 per quarter for startup businesses). The ARP also extends the ERC until Dec. 31, 2021 under the same terms as provided in the CAA.

 

 

Other Measures

• Employers offering COVID-related paid medical leave to their employees will be eligible for an expanded tax credit through Sept. 30, 2021.

• The ARP increases the proposed subsidies of insurance premiums for individual workers eligible for COBRA, after they were laid off or had their hours reduced, to 100% through Sept. 30, 2021.

• Funds are allocated for targeted Economic Injury Disaster Loan advance payments, as well as for particularly hard-hit industries such as restaurants, bars, and other eligible food and drink providers, shuttered venue operators, and the airline industry.

• Effective for taxable years beginning after Dec. 20, 2020, the ARP repeals IRC section 864(f), which allows U.S.-affiliated groups to elect to allocate interest on a worldwide basis. This provision was enacted as part of the American Jobs Creation Act of 2004 and has been deferred several times. The provision is relevant in computing the foreign tax-credit limitation under IRC section 904.

• The ARP does not cancel student-loan debt, but there is a provision that would make student loan forgiveness passed between Dec. 31, 2020 and Jan. 1, 2026 tax-free (normally, the cancellation of debt is considered taxable income).

• A deduction will be disallowed for compensation that exceeds $1 million for the highest-paid employees (such as the CEO, CFO, etc.) for taxable years beginning after Dec. 31, 2026.

• The limitation on excess business losses of non-corporate taxpayers enacted as part of the Tax Cuts and Jobs Act will be extended by one year through 2026.

• The threshold for third-party payment processors to report information to the IRS is lowered substantially. Specifically, IRC section 6050W(e) is revised so that the current threshold of $200,000 for at least 200 transactions is reduced to $600. As a result, such payment processors will have to provide a Form 1099K to sellers for whom they have processed more than $600 (regardless of the number of transactions). This change, which applies to tax returns for calendar years beginning after Dec. 31, 2021, will bring many more sellers, including ‘casual’ sellers, within the 1099K reporting net.

If you have questions about any of the items above, reach out to your tax professional, who will be able to navigate you through any portion of the American Rescue Plan Act and how it may affect you.

 

Jim Moran, CPA, MST is a tax manager at Melanson, advising clients on individual and corporate tax matters; [email protected]

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