In mid-November, the Internal Revenue Service (IRS) issued updated guidance regarding ARPA-funded payments to individual taxpayers.
The updated guidance includes 14 frequently asked questions (FAQs). There are several important bits of information included in the FAQs for cities looking to provide ARPA funds to community members:
- Premium pay amounts paid to employees are considered wages. Employers generally must withhold federal income tax as well as social security tax and Medicare tax from employees' wages. Employers also may have to pay federal unemployment tax on wages.
- Any payment made using ARPA funds that is compensation for services, even a one-time payment (such as a hiring "bonus"), is considered wages.
- Payments to individuals using ARPA funds for utilities (or arrearages of utilities) are NOT considered income and therefore a Form 1099-MISC is not required.
- Other cash transfers to individuals are not income, and therefore no Form 1099-MISC or other information return is required to be filed with the IRS or furnished to the recipient.
The full set of FAQs can be viewed here. NLC recently
published an overview of the guidance here.