October 12, 2021

2021 Tax Planning - Start Early by Reviewing Key ARPA Provisions

It may seem a little early but, with all that’s changed over the past year or so, now’s a good time for construction company owners to start thinking about their 2021 tax returns. One recent major piece of legislation that could affect your situation is the American Rescue Plan Act (ARPA).

As you may recall, the law was passed in March, in large part to provide relief for individuals and businesses still dealing with the COVID-19 pandemic. Let’s review some of the ARPA’s key provisions of particular interest to contractors.

Sick time and family leave

Many construction companies have had employees markedly affected by COVID-19 — either becoming infected themselves or having family members fall ill. As a result, you may well have had many workers out sick.

Under the Families First Coronavirus Response Act, enacted in 2020, employees can take paid sick time and/or paid family leave to care for themselves or loved ones because of COVID-19. In turn, eligible employers can claim tax credits to offset costs of the time or leave. The ARPA introduced changes to the applicable rules.

For instance, the credits have been extended from March 31, 2021, through September 30, 2021. And the amount of wages for which an employer may claim the paid family leave credit in a year has increased from $10,000 to $12,000 per employee.

Important this year, the paid sick time and family leave credits can be claimed by employers who provide paid time off for employees to obtain a COVID-19 vaccination or recover from an illness related to the immunization.

COBRA provisions

If your construction company has 20 or more employees, you’re likely required to provide COBRA health insurance coverage to workers whose employment comes to an end. Every business owner should be aware of the major enhancement that the ARPA made to COBRA coverage.

That is, assistance-eligible individuals (AEIs) may receive a 100% subsidy for COBRA premiums during the period beginning April 1, 2021, and ending on September 30, 2021. An AEI is generally any eligible beneficiary who elects COBRA coverage because of a qualifying event (typically involuntary termination or reduction of hours) between those dates.

Individuals without a COBRA election in effect on April 1, 2021, but who would be an AEI if they had an election in effect, are eligible for the subsidy. Those who elected but discontinued COBRA coverage before April 1, 2021, are also eligible if they’d otherwise be an AEI and are still within their maximum period of coverage.

The ARPA addresses other COBRA-related matters as well. For example, it stipulates that group health plan sponsors may voluntarily allow AEIs to elect to enroll in different coverage under certain circumstances. In addition, group health plans must issue notices to AEIs regarding the availability of the subsidy and option to enroll in different coverage (if offered). Notices regarding the extended election period and the subsidy’s expiration must be issued as well.

SBA’s EIDL program

The Small Business Administration (SBA) offers a variety of loan programs that are always worth a look for small construction companies. One of them is the Economic Injury Disaster Loan (EIDL) program, which focuses on businesses located in a declared disaster area and that have suffered substantial economic injury.

The COVID-19 pandemic qualifies as a disaster for loan purposes, and it’s obviously affected every area of the country. Under the ARPA, eligible small businesses may receive targeted EIDL advances and the amounts received will be excluded from the recipient’s gross income.

In the case of a partnership or S corporation that receives a targeted EIDL advance, any amount of the advance excluded from income under the ARPA will be treated as tax-exempt income for federal tax purposes. Because targeted EIDL advances are treated as such, they’ll be allocated to the partners or shareholders — increasing their bases in their partnership interests.

Check your radar

These are just a few of the ARPA provisions that may have flown under your radar during the busy year. Don’t forget about the law’s impact on the employee retention tax credit or the Paycheck Protection Program either. Your CPA can tell you more.

The ARPA kicks off federal infrastructure efforts

As of this writing, there’s plenty of news about the Biden Administration’s efforts to develop and pass a federal infrastructure bill. However, what’s arguably gone underreported is that the American Rescue Plan Act (ARPA) contains provisions aimed at funding infrastructure projects.

For instance, the ARPA allocates $10 billion to the Coronavirus Capital Projects Fund. This fund seeks to spur projects that “carry out critical capital projects directly enabling work, education and health monitoring, including remote options,” according to the language of the law.

In its analysis of the ARPA, the American Road & Transportation Builders Association noted that provisions of the law also earmark $30.5 billion for public transportation agency operations to offset the foregone revenue from ridership declines and other COVID-19-related factors. The law also apportions $8 billion for airports to help with operating and other costs associated with revenue declines over the last year. In addition, the ARPA directs $350 billion for state and local governments to use for local economic relief purposes and to offset pandemic-related tax revenue declines.

What it all adds up to is that federal, state and local governments will be receiving substantial cash infusions that could lead to construction projects related to roads, railways, bridges, dams and public transportation systems. There could be an uptick in airport maintenance and improvement jobs, too. Keep an eye out for these opportunities as the year rolls along.

The content featured in this article originates from our bi-monthly Contractor Newsletter. Subscribe below and stay in the know.