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Tax Reporting Requirements Changed in 2022 Under American Rescue Plan Act

The American Rescue Plan Act of 2021, designed as a relief package aimed at helping businesses hardest hit during the COVID-19 pandemic, also contained provision that changed tax reporting requirements.
An owner works through calculations on a laptop at his restaurant.

When the American Rescue Plan Act of 2021 was signed March 11, 2021, the law impacted many provisions from previously enacted COVID-19 stimulus legislation. The $1.9 trillion aid package was designed to provide financial aid to some of the hardest-hit industries.

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It impacted tax credits on paid leave and the employee retention tax credit (ERTC), not to mention temporary changes to the premium tax credit. The law also made changes to Paycheck Protection Program (PPP) loans, unemployment benefits, subsidies for employer-sponsored health insurance continuation (COBRA), as well as the establishment of grant programs for restaurants and entertainment venues.

One notable exclusion from the law is the original proposal from the House of Representatives’ bill to increase the federal minimum wage to $15 per hour, amended in the Senate version and then left out in a second vote by the House.

The law also had a provision that changed tax reporting requirements — effective Jan. 1, 2022. The reporting threshold for financial transactions handled through third-party payment services is now $600 annually, a change that would impact small businesses such as freelancers and independent contractors whose customers pay for goods and services through services such as Venmo, PayPal, Zelle and others. These payment services must now notify the IRS when the $600 threshold is met and issue a 1099-K to your business to report the payments as income.

Funding Programs Under the Act

Restaurant Revitalization Fund

The Restaurant Revitalization Fund — a grant program similar to the Shuttered Venue Operator Grant (SVOG) program — provided eligible businesses and affiliated entities with aid in an amount not to exceed $10 million and limited to $5 million per location. Generally, grant amounts equaled revenue losses related to the pandemic, although these funds were impacted and adjusted based on whether business received funds from a first or second-draw PPP loan in 2020 and 2021.

Smaller businesses benefitted because employers were ineligible if they owned or operated more than 20 locations, as well as those who owned a publicly traded company. Any business that received funding under the SVOG program also could not apply.

Eligible businesses included food stands, food trucks or food carts, as well as caterers, bars, lounges, saloons, taverns, inns, brew pubs, tasting rooms and, generally, any place where people gathered for the primary purpose of being served food or drink.

As with many programs implemented during the pandemic to help businesses, funds were intended to be used to cover:

  • Payroll costs, mortgage/rent, utilities
  • Maintenance expenses (construction to accommodate outdoor seating such as a deck)
  • Supplies such as cleaning materials and personal protective equipment (PPE)
  • Operational expenses (e.g., payments made for business software or cloud-computing services used to process payroll and HR including a portion of your Paychex solution)
  • Paid sick leave

Targeted Economic Injury Disaster Loan (EIDL) Advance

The program provided up to $10,000 to eligible businesses with 300 or fewer employees in low-income communities that provided proof of a decrease in revenue during a specified period. Originally, only business that previously applied for an EIDL were invited by the SBA could be considered for a Targeted EIDL Advance, but an expansion to the program allowed all eligible businesses that met the criteria to apply. This opened such funding opportunities to independent contractors, sole proprietors and private nonprofit organizations.

Supplemental Targeted Advance payments also were made available to businesses with 10 or fewer employees in low-income communities that suffered specific financial loss in revenue.

Tax Credit Extensions

The employee retention tax credit was expanded and extended so businesses had more time and the ability to use more qualified wages toward ERTC. Although the American Rescue Plan Act extended the ERTC program to Dec. 31, 2021, the more recent Infrastructure Investment and Jobs Act changed the end date retroactively to Sept. 30, 2021. Although the program ended, ERTC can still be claimed up to three years after the sunset of the program.  

One minor change under the American Rescue Plan Act was the refundable and non-refundable portions of the credit were claimed against Medicare taxes instead of against Social Security taxes, but this change only applied to wages paid after June 30, 2021. It did not change the amount of the credit.

To claim the credit, businesses will need to amend their IRS Form 941-x.

This article was previously updated June 21, 2021.

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* This content is for educational purposes only, is not intended to provide specific legal advice, and should not be used as a substitute for the legal advice of a qualified attorney or other professional. The information may not reflect the most current legal developments, may be changed without notice and is not guaranteed to be complete, correct, or up-to-date.

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