Consolidated Appropriations Act, 2021
On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law. This new legislation includes the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (Act), which provides a breadth of benefits to businesses designed to address the economic fallout from the pandemic. The Act extends the Paycheck Protection Program, enhances other relief previously granted under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and available under other existing programs and includes new forms of relief for businesses. This update summarizes the portions of this massive piece of legislation that most directly affect businesses and their employees.
Unemployment Benefits
The Act temporarily extends existing pandemic unemployment insurance programs created by the CARES Act set to expire at the end of 2020. The Pandemic Unemployment Assistance program, which provides aid to self-employed, temporary workers, independent contractors and gig workers, has been extended and will continue to provide additional weeks of unemployment insurance and an extra benefit of $100 per week for some workers who are both self-employed and have salaried jobs. The Act also extends the Pandemic Emergency Unemployment Compensation program and provides an additional 13 weeks of benefits to those who exhaust their regular state benefits in addition to a supplemental federal unemployment benefit of $300 per week for up to 10 weeks from December 26, 2020 to March 14, 2021. The benefits are not retroactive.
The Act also adds program integrity provisions to require documentation of earnings and employment – versus just self-certification – and compels states to have processes for verifying an applicant’s identity to combat fraud and abuse in the unemployment programs. In addition, the Act includes return-to-work reporting requirements for states to provide a reporting mechanism for employers to identify employees who turn down a job and to notify claimants of the requirement to accept suitable work, unless there is good cause for refusal.
Paid Sick Leave
The Act provides a tax credit to support employers who offer paid sick leave to employees. Under the Families First Coronavirus Response Act (FFCRA), enacted in March of last year, many employers were required to provide their employees with two weeks of fully paid leave related to COVID-19, and up to 12 weeks of partially paid family and medical leave. FFCRA leave is no longer required as of December 31, 2020, but if covered employers voluntarily provide these leave benefits through March 31, 2021, they are eligible to take the tax credit for the leave.
The new Act did not extend the requirement for certain employers to provide FFCRA leave, but it did extend refundable payroll tax credits and employee eligibility for such paid sick and family leave, enacted in the FFCRA, from December 31, 2020 to the end of March 2021. It also modifies the tax credits so that they apply as if the corresponding employer mandates were extended through the end of March 2021. This provision is effective as if included in FFCRA.
Student Loan Repayments
The CARES Act allows employers to make non-taxable student loan repayments on an employee’s behalf under a qualified educational assistance plan – but only until December 31, 2020. The Act extends this provision for five years, allowing such non-taxable payments to be made until December 31, 2025.
Paycheck Protection Program
The Act includes an extension of the Paycheck Protection Program (PPP), which has provided small businesses with forgivable loans to help pay operating expenses and keep employees on the payroll throughout the pandemic. The expansion includes more than $284 billion for forgivable PPP loans for a total of $806 billion and extends the program to March 31, 2021. Within that total, reserves are set aside for smaller lenders and borrowers and those in low-income areas to provide these disadvantaged groups better access to the PPP loan program.
Additionally, particularly hard-hit businesses that already received PPP loans will be eligible for a second round of funds. The Act defines eligibility for the PPP second draw as small businesses that: have no more than 300 employees; used or will use all proceeds of the first PPP loan for permitted purposes; and demonstrate at least a 25% reduction in gross revenues between comparable quarters in 2019 and 2020. The amount of any additional PPP loan that may be obtained is 2 1/2 times average monthly payroll, except that businesses in NAICS Code 72 (Accommodation and Food Services) may obtain an additional PPP loan up to 3 1/2 times average monthly payroll. However, all second-draw PPP loans are capped at $2 million per borrower.
Enhancements to the PPP loan program also include:
Expansion of the category of forgivable expenses to include certain COVID-related outlays, including costs incurred for personal protective equipment (PPE); costs incurred to comply with federal or state health and safety guidelines; costs incurred for software, cloud computing and other human resources and accounting needs; and costs related to property damage due to public disturbances that took place in 2020 that were not covered by insurance.
As noted below, expenses paid with the proceeds of PPP loans may still be deducted for income tax purposes even if the loan is forgiven.
Borrowers can self-select a covered period of between eight and 24 weeks from when the loan was received, rather than having to pick either eight or 24 weeks, and the covered period can extend through March 31, 2021.
Borrowers who returned all or part of the PPP loan may reapply for the maximum amount applicable if they have not yet received forgiveness.
Borrowers that would be eligible for a higher loan amount as a result of interim final rule changes may work with lenders to modify their loan amounts, even after forgiveness.
Simplified processes for both applications for and forgiveness of PPP loans under $150,000.
Repeal of the requirement that borrowers must deduct the $10,000 Economic Injury Disaster Loan (EIDL) advance amount from the forgivable amount of the PPP loan.
Clarification on certain applications and interpretations of the CARES Act that were disputed, including that publicly traded companies are not eligible for PPP loans.
As we learned from the CARES Act, many details regarding application of the PPP loan rules come in the form of regulations and guidance issued by the Small Business Administration (SBA), and the Act requires the SBA to adopt regulations implementing these new provisions within 10 days of the Act’s enactment as well as providing other deadlines for guidance on specific provisions. As a whole, these provisions relating to the PPP loan program are designed to give PPP loan borrowers maximum flexibility to obtain the full intended benefit of a forgivable PPP loan. We will continue to provide information as it becomes available.
Source: Thompson Hine