New coronavirus relief bill: key provisions for employers

On December 27, 2020, President Trump signed into law a new Coronavirus relief bill – the Consolidated Appropriations Act 2021 – which provides $900 billion in Coronavirus economic relief in addition to funding the federal government through September 2021.

The legislation extends and expands several provisions of the FFCRA and CARES Act which were scheduled to sunset on December 31, 2020. It also provides additional relief and clarification for key programs and tax credits available to employers to combat increasing financial strain precipitated by COVID-19.

Just as with the initial passage of the CARES Act and FFCRA this spring, implementing regulations and additional guidance from the federal government will be necessary to properly inform employers of the benefits available to them under this new legislation, as well as the protocol and procedures which employers must observe to effectively access them.

Checkwriters is closely monitoring the situation and will relay any additional guidance as soon as it becomes available. In the interim, please find below key provisions of the legislation especially relevant for employers and their workforces.

Enhanced Employee Retention Credit (ERC)

• Extends the Employee Retention Credit through June 30, 2021.
• Increases the credit rate of qualifiable wages from 50% to 70% (resulting in a maximum credit per employee of $14,000.00 up from $5,000.00).
• Increases the employee creditable wage cap from $10,000.00 per year to $10,000.00 per quarter.
• Reduces the decline in gross year-over-year receipts from 50% to 20% for qualification purposes.
• Includes a safe harbor permitting employers to utilize gross receipts from the prior quarter in order to determine eligibility.
• Increases the number of employees used to determine the relevant qualified wage base from 100 to 500. This enables employers with less than 500 employees to claim the ERC for all wages paid to employees irrespective of whether the employees were actively working or not. Previously, employers with more than 100 employees were permitted to claim the credit only as to compensation paid for services not performed by employees.
• Permits new employers which were not in existence for all or some of 2019 to participate in the program and to claim the credit.
• Expands the ERC to tax-exempt public colleges, universities and hospitals that are described in IRC § 501(c)(1).
• Provides for retroactive application to the date of enactment of the CARES Act (March 12, 2020) for some provisions:For employers who received a Payroll Protection Program (PPP) loan, such employers may utilize the ERC relative to wages which were not paid with forgiven PPP Funds.Consistent with IRS guidance found in its COVID-19 Related ERC FAQs, health plan expenses constitute qualified wages for purposes of claiming the ERC even if no other cash wages were paid for the relevant period.Codification of previously-issued IRS guidance relative to the definition of gross income for certain tax-exempt organizations.Caution: Significant guidance from the Department of the Treasury will be required in order for employers to properly claim the ERC for wages paid for the retroactive period of March 12, 2020 through December 31, 2020. This is especially the case for those employers who have already filed for PPP loan forgiveness, and whose applications may include “qualifiable wages” for purposes of claiming the ERC.
• For employers who received a Payroll Protection Program (PPP) loan, such employers may utilize the ERC relative to wages which were not paid with forgiven PPP Funds.
• Consistent with IRS guidance found in its COVID-19 Related ERC FAQs, health plan expenses constitute qualified wages for purposes of claiming the ERC even if no other cash wages were paid for the relevant period.
• Codification of previously-issued IRS guidance relative to the definition of gross income for certain tax-exempt organizations.
• Caution: Significant guidance from the Department of the Treasury will be required in order for employers to properly claim the ERC for wages paid for the retroactive period of March 12, 2020 through December 31, 2020. This is especially the case for those employers who have already filed for PPP loan forgiveness, and whose applications may include “qualifiable wages” for purposes of claiming the ERC.

Families First Coronavirus Response Act

• Employers are not required to provide paid sick and extended family leave under the Act after the original sunset date of December 31, 2020.
• For employers who choose to provide paid leave consistent with the parameters of the FFCRA after December 31, 2020, employers may continue to claim the relevant payroll tax credits reimbursing themselves for such leave through March 31, 2021.
• In order to qualify for the payroll tax credits, the leave paid by the employer has to be that “which would be so required to be paid if such Act were applied”, meaning the leave must conform to the requirements of the FFCRA including benefit amount, qualifying circumstances for leave, duration, and documentation requirements.
• Employees may only exercise leave which would otherwise be available to them under the Act (during 2020), and which they have not already exhausted.For example, if an employee is entitled to 80 hours of emergency paid sick leave under the Act, and has already exhausted fifty (50) hours of such leave as of December 31, 2020, the employee would be eligible to use thirty (30) hours of emergency paid sick leave from January 1, 2021 through March 31, 2021, so long as the employer was willing to provide such leave, and the leave was exercised in accordance with the parameters of the FFCRA.
• For example, if an employee is entitled to 80 hours of emergency paid sick leave under the Act, and has already exhausted fifty (50) hours of such leave as of December 31, 2020, the employee would be eligible to use thirty (30) hours of emergency paid sick leave from January 1, 2021 through March 31, 2021, so long as the employer was willing to provide such leave, and the leave was exercised in accordance with the parameters of the FFCRA.

Payroll Protection Program (PPP)

Significant changes have been made to the PPP including the ability for some businesses to apply for a “second draw” loan, and a reversal of the IRS’s position as to the non-deductibility of business expenses incurred or paid with PPP loan proceeds. The key changes under the new legislation are as follows:

• The original Program has reopened for businesses who have not previously participated and will remain open until March 31, 2021.
• Categories of eligible expenses under the Program have been expanded to include:Covered operations expenditures such as software, human resource, and accounting expenses;Covered property damage costs not otherwise covered by insurance and which resulted from public disturbances in 2020;Covered supplier costs for contracts for the sale of goods which were executed prior to the loan covered period; andCovered worker protection costs such as PPE required by federal health and safety guidelines for so long as COVID-19 remains a federal emergency.Group insurance payment costs (excluding health care costs) constitute forgivable payroll costs, such as group life, disability, vision, and dental insurance.Businesses are still required to meet the minimum spend requirements in order to achieve full forgiveness of their PPP loans, with a minimum of 60% of loan funds being expended solely for payroll costs.
• Covered operations expenditures such as software, human resource, and accounting expenses;
• Covered property damage costs not otherwise covered by insurance and which resulted from public disturbances in 2020;
• Covered supplier costs for contracts for the sale of goods which were executed prior to the loan covered period; and
• Covered worker protection costs such as PPE required by federal health and safety guidelines for so long as COVID-19 remains a federal emergency.
• Group insurance payment costs (excluding health care costs) constitute forgivable payroll costs, such as group life, disability, vision, and dental insurance.
• Businesses are still required to meet the minimum spend requirements in order to achieve full forgiveness of their PPP loans, with a minimum of 60% of loan funds being expended solely for payroll costs.
• Non-food service businesses may apply for a “second-draw” loan up to 2.5 times their average monthly payroll costs; food service and accommodation businesses may apply for a loan amount up to 3.5 times their average monthly payroll costs.To qualify, these businesses must have less than 300 employees and must have experienced at least a twenty-five percent (25%) reduction in gross revenues in any quarter of 2020 as compared to the same quarter for 2019.For businesses that did not exist for all or part of 2019, and do not have a 2019 quarter for reference, special rules relative to their eligibility exist.
• To qualify, these businesses must have less than 300 employees and must have experienced at least a twenty-five percent (25%) reduction in gross revenues in any quarter of 2020 as compared to the same quarter for 2019.
• For businesses that did not exist for all or part of 2019, and do not have a 2019 quarter for reference, special rules relative to their eligibility exist.
• All loans issued in connection with this new legislation are capped at $2 million including “second-draw” loans.
• The EIDL (Economic Injury Disaster Loan) advance payments of $10,000.00 provided by the Small Business Administration will no longer reduce the total amount of loan forgiveness under the Program.
• Employers may select any covered loan period between eight (8) and twenty-four (24) weeks following loan origination.
• For employers borrowing $150,000.00 or less, the loan forgiveness process has been simplified requiring a one-page certification with minimal information. For loans in excess of $150,000.00, employers would be required to adhere to the current forgiveness application process, and would remain subject to audit by the Small Business Administration.
• Borrowers who returned all or part of their PPP loan may reapply for the maximum amount for which they are eligible so long as the borrower has not yet received loan forgiveness. The Small Business Administration is required to issue guidance to lenders on this issue.
• The new legislation overrules previous IRS rulings, which provided that eligible business expenses incurred with PPP loan funds were non-deductible for federal tax purposes. Under the new legislation, PPP borrowers are now permitted to deduct eligible business expenses funded with forgiven PPP loan proceeds.

Employer-paid Student Loan Obligations

• Extends an employer’s ability to provide tax-free student loan repayment benefits to its employees up to $5,250.00 per year through December 31, 2025. These benefits are not includable as taxable income to the employee.

Unemployment Insurance

• Provides for federal supplemental unemployment benefits in the amount of $300.00 per week until March 14, 2021, in addition to any state unemployment benefit unemployed workers may still be entitled to under those programs.
• Extends the Pandemic Unemployment Assistance Program through March 14, 2021, providing for unemployment insurance for out-of-work Americans typically ineligible for unemployment assistance (e.g. self-employed individuals and gig workers).
• Extends the Pandemic Emergency Unemployment Compensation program through March 14, 2021, providing for an additional eleven weeks of federal unemployment benefits to unemployed workers who have already exhausted their state unemployment benefits.

Healthcare and Dependent Care FSAs

• Permits employers to carry over unused funds from 2020 to 2021 and from 2021 to 2022. There is no maximum dollar limitation associated with these provisions.
• Alternatively, employers can utilize a 12-month grace period for 2020 and/or 2021. An employer cannot elect a carry over and grace period for the same FSA.
• Employers may also make mid-year plan changes and elections for the 2021 benefit year.

Disclaimer: The material provided herein is for informational purposes only. It is not intended to be construed as legal advice, nor should it be relied on as such. It is always advisable to consult counsel relative to your specific situation.