January 4, 2021 | Covid-19 | Posted by Ascentis
The Consolidated Appropriations Act of 2021: What Employers Need to Know
by Bob Greene, Senior HR Industry Analyst, Ascentis
Late in the evening of December 27, 2020, the President signed H.R. 133, the “Consolidated Appropriations Act of 2021” (the “CAA’21”). This omnibus law includes the latest COVID relief bill with an overall price tag for that purpose of $908 billion – second only to the CARES Act earlier this year in total spending authorized by one law. The bill weighs in at a hefty 5,593 pages, and the mainstream media has largely been focused on the individual taxpayer-impacting provisions such as an additional $600 direct payment per individual (“recovery rebates”), and extensions of the federal pandemic unemployment supplements and the housing eviction moratorium programs. On the other hand, HR professionals around the nation were focused on the question of which of the many employment law and payroll provisions of the Coronavirus Aid, Relief and Economic Security Act (CARES Act) and the Families First Coronavirus Response Act (FFCRA), from earlier this year, would be renewed or extended. The answer is “most of them,” and below we will highlight these details.
Back By “Popular Demand” (?) – the Paycheck Protection ProgramOn August 8 of this year, the first and second “traunches” of PPP loan funding ended, with $138 billion remaining unspent, out of $669 billion total loans available. In mid-November, on the recommendation of Treasury Secretary Mnuchin, Fed Chairman Powell agreed to return that unspent money to the Treasury by year-end, meaning that Congressional action would be required to re-authorize PPP funding. The CAA’21 includes that authorization, for up to $284.45 billion in new PPP loan funding, and $20 billion in new EIDL (Economic Injury Disaster Loans and Advances) funding.
A key provision of the new PPP authorization is the ability for employers who received a PPP loan in the first round, to receive “second draw” PPP loans. However, those borrowers must be able to prove, for any quarter in 2020, a same-period comparison of at least a 25% decline in gross receipts over the same quarter in 2019. (Example: gross receipts in 2Q2019 of $100 million, with gross receipts in 2Q2020 of $80 million – employer does NOT qualify (but check all 4 quarters for possible qualification. Gross receipts in 2Q2019 of $100 million, with gross receipts in 2Q2020 of $73 million – employer DOES qualify).
At the time of this writing, it is expected that employers will be able to apply for new PPP loans as early as the second week of January 2021. Other important differences between first and second draw PPP loans:
* Some of the above second round details (e.g., maximum loan amount) apply only to companies seeking second round funding – NOT to companies which never had any PPP funding in the first round. Check your favorite payroll statutory reporting service for further details.One of the most contentious provisions of PPP loan forgiveness rules, from the beginning, has been the lack of business expense deductibility for amounts later forgiven. This has spawned multiple IRS Revenue Rulings since PPP’s inception. (IR Notice 2020-32; IRS Rev Rul 2020-27.) Example: XYZ Corp receives $5 million in PPP loan proceeds, successfully documents and receives forgiveness for $4 million in eligible expenses. Under the original PPP rules, this results in only $1 million in tax deductible business expenses for the corporation’s annual tax return. Under the new rules (which ARE retroactive to the PPP’s original effective date), the full $5 million in eligible expenses are also tax deductible. Sometimes referred to as “double-dipping” because of the duplicate tax/savings impact, this is very rare in federal tax law. These changes, welcome as they may be, will no doubt throw some new tax computation complexities at first round PPP recipients who have already had their forgiveness applications processed and done their tax planning on the basis of those results.
Employee Retention Tax Credit is Renewed Through June 30, 2021The Employee Retention Tax Credit gets a new “lease on life” under CAA’21. Several of the less popular restrictions embedded in the original program are also loosened. Here is a summary of those changes:
FFCRA Paid Sick/FML Provisions ExtendedThe Emergency Paid Sick Leave and Paid FMLA Extension Leave tax credit provisions of the FFCRA were also extended, with original rules intact and apparently unmodified. The original expiration date for these provisions was December 31, 2020, but they have been extended through March 31, 2021. Notably, while the tax credit provisions of these new leaves have been extended, the mandate for covered employers to provide them to employees with qualifying events has not, and expires December 31, 2020.
Other Notable Provisions of the CAA’21 for Employers
- Restoration of the 100% tax deductibility (from 50% as imposed by TCJA’17) of the cost of food and beverage, if the food and beverages are supplied by a restaurant. This provision is valid from January 1, 2021 through December 31, 2022.
- New prohibitions on surprise medical billings of various kinds – with an emphasis on balance billing by non-network providers. The HCM implications of this area of the CAA’21 include possible reissuance of modified health insurance ID cards, as well as the possible need for revised employee benefit communications, and upgrades of online communications, e.g., employee self-service pages (provider directory updates, etc.).
- CARES Act provisions for healthcare flexible spending account grace periods, rollover periods, and election changes are extended, and in some cases, expanded. As with the original provisions in the CARES Act, all FSA changes are “permissive” – employers are permitted, but not mandated, to adopt them, and the law provides a year-long grace period for amending the plans retroactively.
- The ability for an employer with a §127 tuition reimbursement plan in place to make up to $5,250 per year of an employee’s qualified student loan payments directly to the lender, has been extended. It was to expire December 31, 2020 and now expires December 31, 2025.
- CAA’21 also modifies the terms of the President’s Employee FICA Tax Deferral program from August of 2020. Originally fleshed out in Notice 2020-65 and requiring repayment of all deferred employee taxes by April 30, 2021, the deadline for repayment is now December 31, 2021.
- Unrelated to COVID relief, but no doubt to the relief of tens of thousands of employers nationwide, the §51 Work Opportunity Tax Credit has been extended, once again at the eleventh hour, but this time not for one year, but rather for FIVE years, through December 31, 2025.