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The American Rescue Plan at markup: the corporate-tax provisions

An expanded employee-retention credit, a longer §461(l) loss lid, a wider §162(m) net, and a $15 billion grant for venues, all still inside committee

The Editors
Staff, Incorporator.org
10 min read Updated
Contents 7 sections
  1. Where the bill actually is
  2. The employee-retention credit, expanded again
  3. §461(l): the excess-business-loss lid extends
  4. §162(m) expansion: from five names to ten
  5. The Shuttered Venue Operators Grant, topped up
  6. What to do while the bill moves
  7. Sources

he American Rescue Plan is still a bill. House committees began marking up their reconciliation titles yesterday, the Senate cleared the budget resolution on February 5, and the text that lawyers and CFOs will eventually have to read has not yet arrived on the floor in final form. What exists today is a $1.9 trillion framework, a set of committee prints, and a Joint Committee on Taxation score of the tax title (JCX-6-21) dated February 8.

For a closely held business, four pieces of that tax title are load bearing. The employee-retention credit is being expanded and extended. The excess-business-loss limitation under §461(l) is being pulled forward by one more year. The §162(m) compensation cap is being widened to cover more officers. And outside the tax code, the Shuttered Venue Operators Grant program enacted in December is being supplemented and recalibrated. None of this is law yet. All of it is close enough that year-end 2020 returns and 2021 payroll decisions are being drafted around it.

Where the bill actually is

President Biden announced the American Rescue Plan on January 14 as a $1.9 trillion outline. Because the arithmetic of a 50-50 Senate rules out sixty votes on anything structurally large, the vehicle is reconciliation. On February 5 the Senate adopted S. Con. Res. 5, the fiscal year 2021 budget resolution containing the reconciliation instructions; the House had cleared the same resolution on February 3. Twelve House committees received instructions and began marking up their pieces this week. Ways and Means is handling the tax title and the unemployment provisions; Education and Labor is handling the minimum-wage language; Small Business is handling venue and restaurant grants; Energy and Commerce is handling the public-health and Medicaid pieces.

The working vehicle that emerged from the Biden outline is not a single introduced bill yet. Individual committee titles are being voted out this week and next, and the House Budget Committee will consolidate them into a reconciliation package under its jurisdiction. The Congressional Budget Office and the Joint Committee on Taxation are scoring pieces as they clear committee. JCT's preliminary estimate of the Ways and Means tax title, JCX-6-21, was circulated Monday. Floor action in the House is expected in the week of February 22. Senate action follows, and because the reconciliation rules force a Byrd-bath, some of what passes the House will not survive the Senate parliamentarian. The $15 minimum wage is the provision most often named as Byrd-vulnerable; the tax pieces here are less exposed.

None of what follows is final text. Committee prints can and will change on the floor. Readers deciding whether to amend a 2020 return or defer a 2020 tax payment should treat this as the shape of the bill, not the bill itself.

The employee-retention credit, expanded again

The Coronavirus Aid, Relief, and Economic Security Act created the employee-retention credit in March 2020 as a refundable payroll-tax credit for employers whose operations were suspended by a government order or whose gross receipts dropped sharply. The credit as originally enacted was 50% of up to $10,000 in qualified wages per employee for the year, capped at $5,000 per employee for 2020. The Consolidated Appropriations Act, 2021, signed December 27, extended the credit through the first two quarters of 2021, raised the rate to 70% of qualified wages, raised the wage cap to $10,000 per quarter (not per year), and removed the prohibition on claiming both the ERTC and a Paycheck Protection Program loan, retroactively to March 2020. That change alone opened the credit to roughly every PPP borrower who had previously been told to pick one.

The Ways and Means markup extends the ERTC through the third and fourth quarters of 2021 and keeps the 70%-of-$10,000-per-quarter architecture for those two additional quarters. For a firm retaining a single employee at the cap for all four 2021 quarters, that is $28,000 of potential credit per employee in 2021, on top of whatever 2020 credit is being claimed on an amended Form 941 or the 2020 income-tax return by way of the Notice 2021-20 guidance issued late last month.

The committee print also lifts the gross-receipts test somewhat. The existing rule, as modified by the December act, treats an employer as eligible for a given 2021 quarter if gross receipts in that quarter are less than 80% of the same quarter in 2019. The print preserves the 80% test and clarifies the election to substitute the immediately preceding quarter. JCT's preliminary revenue estimate for the ERTC extension alone is in the tens of billions over ten years, the largest single employer-side line in the tax title.

Operationally, the ERTC has two mechanics worth knowing before final text lands. First, the credit runs through Form 941 and its Schedule R for aggregated filers, which means payroll providers have to be told which wages are ERTC-eligible before the Form 941 is filed; retroactive claims go on Form 941-X. Second, wages used to claim ERTC cannot also be used as payroll costs on a PPP forgiveness application. The interaction is the single largest planning question on the provision and will be re-scored when final text arrives.

§461(l): the excess-business-loss lid extends

The Tax Cuts and Jobs Act in 2017 added §461(l) to the Code, which disallows business losses above $250,000 (single) or $500,000 (joint) against non-business income in a given year, converting the disallowed amount into a net operating loss carried forward. The CARES Act suspended §461(l) for tax years 2018, 2019, and 2020, a three-year hole that produced meaningful refunds for owners of pass-throughs who had carried forward what they thought were hard losses.

The Ways and Means print extends §461(l) by one year, pushing its scheduled sunset from 2025 to 2026. That sounds like a sleeper line. It is not. For a high-earning pass-through owner modeling a 2026 partnership wind-down or a 2026 real-estate disposition with a large §1231 loss, the extra year of §461(l) is the difference between taking the loss against W-2 or portfolio income in the year of the event and pushing it forward as an NOL with the TCJA's 80%-of-taxable limitation. On a $1 million excess business loss against $1.5 million of wage income, the mechanics matter in current dollars.

The JCT score treats the §461(l) extension as a revenue raiser, which it is; it pulls roughly $30 billion of otherwise-deductible loss out of the pay-for column. The committee print does not narrow the definition of "business" loss or tighten the §469 passive-activity coordination. It is a date change only.

§162(m) expansion: from five names to ten

§162(m) limits a public company's deduction for compensation paid to certain covered employees to $1 million a year. As in effect since the 2017 TCJA overhaul, the covered-employee group is the principal executive officer, the principal financial officer, and the three other highest-paid officers whose compensation is required to be disclosed under SEC rules, with a "once covered, always covered" overlay that keeps a covered employee covered in later years even if no longer among the top earners.

The Ways and Means print expands the covered-employee group to the top eight officers beyond the PEO and PFO, bringing the total to ten names rather than five. Mechanically, for calendar-year public companies, the expansion is effective for tax years beginning after December 31, 2026. The five-year delay is not a kindness to issuers; it is the budget window's shape. The expansion starts raising revenue late in the ten-year JCT score, which is why it fits a reconciliation title that must comply with Byrd Rule scoring windows.

The practical read for public-company tax and HR functions: the expansion does not affect 2021 compensation decisions, but it strongly affects long-dated equity grants vesting in 2027 and beyond for officers ranked sixth through tenth by pay. A 2021 grant of performance stock units with a 2027 vest into a covered officer's hands would have been deductible on vest under current §162(m); it would not be deductible after the expansion if the officer's compensation exceeds $1 million in the vest year. Compensation committees modeling long-dated awards this cycle need the revised rule in the spreadsheet now, not in 2026.

The Senate is unlikely to narrow this provision. It raises revenue, it has historical Democratic support going back to the 1993 original, and the optics of preserving a full deduction for public-company executive pay in a pandemic bill are politically unattractive. It is a high-probability survivor.

The Shuttered Venue Operators Grant, topped up

Outside the Code, the Shuttered Venue Operators Grant was enacted as part of the Consolidated Appropriations Act, 2021 on December 27. The program, administered by the Small Business Administration's Office of Disaster Assistance, provides grants of up to $10 million per eligible venue, covering live venues, theatrical producers, performing-arts organizations, movie theater operators, museums, and talent representatives. The December statute authorized $15 billion. Eligibility requires a 25% drop in gross earned revenue in a 2020 quarter versus the same 2019 quarter and a venue that ceased operations or saw a significant reduction during 2020.

The SBA has not yet opened applications. On January 29 the agency said the portal would open in early February; as of this writing it has not. The draft small-business title in the reconciliation markup appropriates an additional $1.25 billion for the program, addresses the current statute's prohibition on combining an SVOG with a PPP loan taken on or after December 27, 2020, and harmonizes the program's eligibility timing with a separate new Restaurant Revitalization Fund the bill would create with a $25 billion appropriation administered by SBA.

For venues that have already organized as eligible entities, the headline issue is the PPP coordination. Under the December statute, an applicant that took a second-draw PPP loan after December 27 was ineligible for an SVOG; the reconciliation text would remove that bar and instead reduce the SVOG by the amount of the PPP loan. For a mid-size theater that took a $1.5 million second-draw loan in January and was holding an SVOG application, the switch turns an either-or into a stacked claim net of the PPP. That change is the most financially material piece of the venue provisions for readers who formed an entity for a festival, a touring company, or a multi-room venue in 2019.

What to do while the bill moves

A reconciliation title in committee is a moving target. Two planning postures make sense while the text is live.

First, for any business weighing a 2020 amended Form 941 or a 2020 income-tax return that touches the ERTC, the December-law version of the credit is already the operative rule. Notice 2021-20, issued March 1 and circulated in draft since late January, walks through the PPP-ERTC interaction under the December statute. The pending 2021 extension does not change 2020 eligibility. A firm that has the documentation should file under existing law; it does not need congressional action to claim what is already due.

Second, for public companies modeling long-dated equity grants and for pass-throughs staring at 2026 as a disposition year, the §162(m) expansion and the §461(l) extension are high-probability provisions. They raise revenue, they sit inside the budget window in ways reconciliation scoring prefers, and neither is politically defended by a bloc with 41 Senate votes. Building 2021 grants and 2026 transaction models around the pending text is defensible. The opposite posture, assuming current law survives intact, is not.

The tax title of the American Rescue Plan is not a Tax Cuts and Jobs Act rewrite. It is a set of targeted extensions, a deferred-cost expansion of §162(m), and a payroll-credit enlargement designed to keep workers on books through the summer. The smaller shape of the bill is exactly why the individual provisions are more likely to pass intact than the provisions of a larger tax package would be. Bills that do one thing each survive markup better than bills that do ten.

The week to watch is the week of February 22, when the House is expected to take up the consolidated package. The Senate timetable assumes floor action in the first half of March. A signing in the second week of March is the working assumption inside Ways and Means staff; whether the minimum-wage provision clears the parliamentarian is the open question that will determine whether a second vote is needed in the House.

Sources

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