The $1.9 trillion American Rescue Plan Act (ARPA) of 2021 (P.L. 117-2) was signed into law on March 11, 2021. Known as ARPA, the wide-ranging law contains many tax-relief measures for businesses, with varying effective dates.

Tax Treatment of Financial Assistance Programs

ARPA provides funding for a variety of already-enacted programs offering loans, grants, and other assistance to businesses impacted by COVID-19. The new law effectively extends the Consolidated Appropriations Act of 2021 (CAA), enacted in December 2020, which made it clear that certain types of loan forgiveness will be nontaxable. This favorable tax treatment extends to:

• The Paycheck Protection Program (PPP)
• The SBA's Economic Injury Disaster Loan (EIDL) advances up to $10,000
• Funding under the Shuttered Venue Operator Grant (SVOG) program for operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operators, and talent representatives are nontaxable while expenses are tax deductible to the extent otherwise allowed. The new law applies similar treatment to:

For all of these programs, debt relief will avoid tax and expenses will be tax-deductible to the extent otherwise allowed. ARPA also applies similar tax treatment to:

• Targeted Economic Injury Disaster grants to small businesses located in low-income communities.
• Restaurant Revitalization Fund grants to small and independent restaurants.

State income tax treatment may agree with federal assistance under ARPA. On Jan. 13, 2021, New York adopted conformity with federal rules—PPP loan forgiveness will be tax-free and expenses covered by loan forgiveness will be deductible under the usual rules. New Jersey's governor announced similar tax treatment in February. Connecticut has "rolling conformity" with federal rules, which means federal tax treatment applies unless its legislature says otherwise. No ARPA-related decoupling has occurred, so the federal tax treatment applies in that state as well.