Though many of the tax breaks in the recently enacted American Rescue Plan Act phase out with higher incomes, this stimulus also includes tax measures that both benefit and hurt wealthy clients.

“Unlike the Trump tax cuts, where the overwhelming majority [of benefits were] targeted towards corporations and the wealthy, these changes are targeted for the middle-class and below,” said Rob Seltzer, a CPA at Seltzer Business Management in Los Angeles. “The wealthy who will benefit will be targeted businesses such as bar, restaurant and theater owners.”

For example, a new incentive, the Restaurant Revitalization Grant (RRG), provides a “funding opportunity in the form of a government grant even if the business already received a [Paycheck Protection Plan] loan,” said Jim Brandenburg, a tax partner at the professional services firm Sikich in Milwaukee. “The RRG is also treated like a PPP loan for tax purposes.”

“Wealthy taxpayers will get some help from ... the extension of the limitation on excess business losses for non-corporate taxpayers for another year and from the funding and relief for businesses, health care, transportation and so on where many are owners or investors,” said Robbin E. Caruso, CPA, a partner and the co-leader of the National Tax Controversy Department at Prager Metis in Cranbury, N.J.

The plan also provides tax relief for those who have received a targeted economic injury disaster loan advance. “Those loans are not included in gross income and not taxed. Those loans received by partnerships or S-corporations will be treated as tax-exempt income,” said Brent Lipschultz, partner in the National Tax Group and personal wealth advisor for international taxes at EisnerAmper in New York.

Another item can apply to taxpayers who own and rent out vacation properties. In the past, Brandenburg said, if an owner of these properties worked with a third-party settlement organization to handle the rental payments, there was no IRS reporting requirement by the third-party organization unless the total annual payments were $20,000 or more, or there were more than 200 transactions in the year.

The rescue plan lowered the dollar threshold to $600 regardless of the number of transactions. “This does not change the underlying tax treatment of renting out a vacation property, but it does change the reporting of these properties,” Brandenburg said, adding that the new reporting rules begin in 2022. 
Lawrence Pon, a CPA in Redwood City, Calif., expects he will need to educate small-business clients on the paid sick and family leave credits of the law and added that the biggest opportunity for many employer clients is the Employee Retention Credit (ERC), now extended to the end of this year.

“This could mean a credit of $7,000 per employee for 2021,” Pon said, adding that coordination is needed with clients who took PPP loans.

“This credit can be a real game changer for those company that need additional fuel,” Lipschultz added.

Some aspects of the rescue plan may not be friendly to wealthy taxpayers. For instance, the new law amends the tax code for years after 2026 to add a corporation’s five highest-paid employees (besides employees already covered by regulation) to the list of individuals subject to limited deductible compensation.

“The additional top five employees covered appear to include any employee of a company, not necessarily just officers,” said Adam Cohen, Washington-based partner and member of Eversheds Sutherland tax practice group. “This would mean that for companies with highly paid non-officers, the compensation paid to those individuals would be subject to the $1 million deduction disallowance.” Examples could include companies with highly paid entertainment talent, employees with substantial commissions or employees with high income in a particular year, he added.
The overall tone of taxation does seem to have tilted against wealthy clients, advisors said.

“Given that tax rates are likely to be increasing on the highest incomers, we recommend maximizing everything they can pre-tax basis,” said Bruce Primeau, CPA and president at Summit Wealth Advocates in Prior Lake, Minn.