The Consolidated Appropriations Act passed on Dec. 27, 2020 provided some much needed COVID-19 relief measures along with its government funding provisions. After much back and forth among Congress about the size and scope of the stimulus package, several opportunities emerged in the final legislation, the first major stimulus package released since the spring’s Coronavirus, Aid, Relief, and Economic Security (CARES) Act. Below are eight actions your organization may want to take as part of its recovery from COVID-19 disruption.
Apply for an Enhanced Paycheck Protection Program
Perhaps most significant of the stimulus measures in the 2020 Consolidated Appropriations Act (the Act) was the new iteration of the Small Business Administration’s Paycheck Protection Program (PPP) that expands the type of potentially forgivable loans available to organizations. The “PPP2” provides new guidelines for potential borrowers, reduces the maximum loan amount from $10 million to $2 million, and offers multiples from 2.5 to 3.5x of average monthly payroll costs. It clarifies some additional eligible expenses that can be covered by PPP2 loans as well. The PPP2 may help organizations that have previously not qualified or been on the fence about applying for loans from the federal program while also prohibiting publicly traded companies and lobbying firms from accessing the program.
Additionally, some long-sought guidance for existing PPP loan borrowers came to light, including the fact that there will be a one-page Simplified Loan Forgiveness Application for PPP loans of $150,000 and less, and the recent Loan Necessity Questionnaire for PPP loans of $2 million and greater. These changes and clarifications may help the lending institutions facilitating the loans with the final submission of the loan forgiveness applications to the SBA. The eligibility of typically deductible employee-related expenses that were covered by PPP loans in 2020 was also clarified, which may make 2020 tax filing easier for PPP loan recipients.
Communicate Changes to Flexible Spending Accounts
Several temporary relief measures in the Act affect medical flexible spending accounts (FSAs), dependent care FSAs, and cafeteria plans. The Act extends the relief granted to status changes for cafeteria plans, which once the enrollment periods ends are usually permitted only if certain events occur. Changes in the law will also allow employees to carryover any unused expenses from FSAs, including dependent care FSAs, from the 2020 plan year to the 2021 plan year and from the 2021 plan year to the 2022 plan year. The no-limits carryover allowance for the dependent care FSA may be particularly significant because typically carryovers are not permitted for these accounts.
Grace periods for medical FSAs are expanded from 2.5 to 12 months. If an employer wants to implement any of these changes, it must ensure the plan is operated in accordance with the changes, and it must amend the plan to reflect the change no later than the end of the calendar year following the close of the plan year to which the change applies.
Help Employees Access Relief from Surprise Medical Bills
Changes in the Act will limit the surprise medical bills employees may receive for emergency room services or certain out-of-network services for which the individual cannot accept or deny the service (i.e., air ambulance services). Ground ambulance services are not covered by the surprise medical bill provision.
Extend Section 127 Student Loan Repayments
The CARES Act allows employees to use Educational Assistance Plans that meet the qualifications of Internal Revenue Code Section 127 to reimburse student loans. The provision had been set to expire at 2020 year end but now has been extended through 2025. If you choose to implement this student loan reimbursement provision, be sure to communicate it to your employees.
Take Advantage of Emergency Paid Sick & Family Leave Tax Credits
Private employers with less than 500 employees that had significant numbers of employees take advantage of the COVID-19-related paid sick and family leave provisions passed in the Families First Coronavirus Relief Act (FFCRA) will be eligible to use the tax credit for employees using that sick time through March 31, 2021 as long as the employer offers that leave through March 31, 2021.
Enjoy a Longer Payroll Tax Deferral Window
President Trump permitted employers to defer employees’ share of payroll taxes from Sept. 1 through Dec. 31, 2020. Employees opting in were originally required to repay the deferred payroll taxes between Jan. 1 and April 30, 2021 without penalties and interest accruing. The Act extends the penalty- and interest-free repayment window until Jan. 1, 2022.
Use the Extended Employee Retention Tax Credit (ERTC)
Beginning on Jan. 1, 2021 and through June 30, 2021, the Act:
- Increases the credit rate from 50% to 70% of qualified wages;
- Expands eligibility for the credit by reducing the required year-over-year gross receipts decline from 50% to 20% and provides a safe harbor allowing employers to use prior quarter gross receipts to determine eligibility;
- Increases the limit on per-employee creditable wages from $10,000 for the year to $10,000 for each quarter;
- Increases the 100-employee delineation for determining the relevant qualified wage base to employers with 500 or fewer employees;
- Allows certain public instrumentalities to claim the credit;
- Removes the 30-day wage limitation, allowing employers to, for example, claim the credit for bonus pay to essential workers;
- Allows businesses with 500 or fewer employees to advance the credit at any point during the quarter based on wages paid in the same quarter in a previous year; and
- Provides rules to allow new employers who were not in existence for all or part of 2019 to be able to claim the credit
The Act also extends the credit to employers who claimed PPP loans. However, to the extent that wages were used in the calculation of forgiveness of any PPP loan, they may not be used again in the calculation of the ERTC. This stipulation limits the potential benefit for recipients of PPP loans.
Become More Charitable
The Act eliminates the limitation on cash contributions to public charities for corporations and individual taxpayers who itemize their tax returns for one more year. Individuals and corporations can fully deduct their cash contributions to qualifying charities through 2021.
Take a Closer Look at the Tax Extenders
Several tax provisions that had expired or were set to expire in 2020 received an extension under the Act. These include:
- 10% tax credit for qualifying energy-efficient non-business improvements
- 100% deduction of business meal and food and beverage expenses incurred or paid in 2021 and 2022
- A permanent Section 179D deduction for energy-efficiency improvements to commercial property
- Extension of the New Markets Tax Credit and Work Opportunity Tax Credit
Working with an experienced team who understands the legislation and its impact on your business helps ensure you take full advantage of the available stimulus measures. For more information about these or any recent developments, please contact us.
Published on January 05, 2021