Consolidated Appropriations Act offers organizations money-saving options
The $2.3 trillion stimulus and omnibus spending bill signed into law on December 27, 2020, includes a number of financial resources and helpful legislation that individuals and businesses can use to plan for the fiscal year ahead.
Part of the Consolidated Appropriations Act (CAA) of 2021, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (aka Economic Aid Act) is a $325 billion provision designed to aid the struggling U.S. economy and help people more quickly recover from the challenges brought on by COVID-19.
While we await further guidance on the new legislation, here are some important updates for business owners:
- The Paycheck Protection Program (PPP), a new PPP second-draw loan (PPP2) program, and Emergency Injury Disaster Loans received a fresh infusion of $284 billion.
- The list of forgivable payroll costs has expanded retroactively for the PPP. The IRS and U.S. Treasury are allowing businesses to deduct these same expenses from their taxes, even though grant money was used to pay for them.
- The Employee Retention Tax Credit (ERTC) and the paid sick and paid family leave tax credit have been extended and expanded, along with other aid to certain industries.
- A “Surprise Billing Fix” and other health transparency provisions are included in the CAA and could have multiple implications for your business.
- The deadline for individuals to pay deferred payroll taxes will be allowable through December 31, 2021, instead of April 30, 2021.
- Three expiring tax-code provisions will be extended through 2025:
- Work Opportunity Tax Credit
- Employer Credit for Paid Family and Medical Leave
- Exclusion for Employer Payment of Student Loans
The Paycheck Protection Program is back, along with a second-draw loan option
According to Malcolm Slee, a principal at Groom Law Group, Congress has included in the CAA more relief options to help ease financial burdens incurred throughout 2020.
In a January 8 webinar for the National Association of Professional Employer Organizations (NAPEO), Slee shared details on the latest iteration of the PPP and the new PPP second-draw loan (PPP2).
“The Paycheck Protection Program has returned and now we have second-draw loans, which was something talked about a lot all throughout 2020 [because] the original PPP loans were perhaps not sufficient due to the cap,” he said. “There really needed to be an ability for severely distressed businesses to get a second loan, and Congress heard those calls.”
The Economic Aid Act reopens the PPP for the first quarter of 2021, with an expiration date of March 31, 2021. PPP2 loans will be available during the same period, having become available for application on January 13, just two days following the reopening of the PPP.
To receive a PPP2 loan, your organization must:
- Have 300 employees or fewer (a maximum of 500 employees is required for the PPP)
- Have used or plan to use the full amount of the PPP loan on eligible expenses first
- Demonstrate at least a 25% reduction in gross receipts in a calendar quarter (special rules apply for organizations that were not in operation in 2019)
Publicly traded companies are generally ineligible to receive a PPP2 loan. For those organizations that are eligible for either the PPP or PPP2 loans, there is more flexibility built in: borrowers may choose the duration of their covered periods for the loans—any period between eight and 24 weeks after the origination date of the loan.
“That’s the period that’s looked at when lenders review how you spent your loan proceeds in order to figure out what portion of the loan proceeds would be forgivable,” Slee said.
This round of PPP loans also presents certain news organizations with the ability to waive affiliation rules in their loan applications, as restaurants and hotels have been able to do since the PPP loan’s inception.
The popularity of the PPP and PPP2 will likely grow, Slee said, now that the Economic Aid Act has added new categories of allowable and forgivable expenses on which PPP borrowers may spend their loan proceeds:
- Covered operations expenditures – “A payment for any business software or cloud-computing service that facilitates business operations, product or service delivery; the processing, payment, or tracking of payroll expenses; human resources, sales, and billing functions; or accounting or tracking of supplies, inventory, records, and expenses.”
- Covered property damage costs – “Costs related to property damage due to public disturbances that occurred during 2020, if not covered by insurance.”
- Covered supplier costs – “Payments to a supplier pursuant to a contract/purchase order in effect prior to taking out the loan, if expenditures were essential to the recipient’s operations at the time the expenditure was made.”
- Covered worker protection expenditures – "Costs to pay for personal protective equipment (such as face masks and plexiglass barriers) or other investments that would help the borrower comply with governmental guidelines related to COVID-19 between March 1, 2020, and the end of the national emergency declaration.”
The good news is that these new forgivable expense categories are retroactive. So, anyone who took out a PPP loan in 2020 and who used their loan proceeds on any of these four expense categories and those accepted for the original PPP loan—which includes payroll costs, utilities, and rent or mortgage for business space(s)—have a higher likelihood to getting more of their loan amount forgiven. However, if a borrower has already applied for loan forgiveness, they may not retroactively apply these new expense categories.
Another exciting development, Slee said, is that the definition of payroll costs has been expanded to include payments for group life, disability, vision, and dental insurance.
“That’s terrific news because, remember, spending as much of your loan proceeds on payroll costs helps your ability to get loan amounts forgiven,” he said. “To get full forgiveness you want to be allocating at least 60% of your loan proceeds to payroll costs. So, the more things we can throw into that payroll-costs bucket the better.”
As a business owner, you may recoup even more of your 2020 expenses at tax time due to a new provision in the law that excludes forgiven PPP loans—and advances under other Treasury and Small Business Association (SBA) programs—from taxable income. That means employers can conceivably receive a PPP loan, and then receive a PPP2 loan, have both loans forgiven, and then claim the business expenses paid using forgiven loans as a tax deduction.
“A lot of people were concerned last year that business expenses that were paid for with a PPP loan that was subsequently forgiven would not qualify for a tax deduction,” Slee said, adding that the IRS indicated at the time that it would not accept the deductions. “The good news is that the new law fixes that, to everyone’s eternal happiness.”
Additional small-business aid and relief provisions
The Economic Aid Act didn’t just allocate a fresh infusion of funds for the PPP. It also included $41 billion for additional relief through Emergency Injury Disaster Loans and the extension and expansion of the employee retention tax credit (ERTC), which had been set to expire on December 31, 2020, as part of the CARES Act.
The ERTC will now expire on July 1, 2021, and its credit percentage has been raised from 50% to 70% for wages paid January 1, 2020, through June 30, 2021. The maximum credit on qualifying wages has also been increased to $10,000 per employee, per quarter, which means a maximum credit of $7,000 for the first two quarters of 2021 will equal a total maximum credit of $14,000 per employee in 2021.
It’s important to note, too, that the section of the law that previously denied ERTC to employers receiving a PPP loan has been repealed retroactively with the Economic Aid Act. Mechanisms are in place to prevent the same wages from being used for both PPP loan forgiveness and the ERTC. Additionally, group health plan expenses are considered qualified wages for the ERTC, retroactively, even if no other wages are paid to the employee.
Certain hard-hit industries, such as the food and beverage industry and the airline industry, will find additional tax relief in the Economic Aid Act. If you own a restaurant, your deduction for the cost of food and beverage expenses has increased from 50% to 100% for expenses incurred between December 31, 2020, and January 1, 2023. An additional $15 billion was allocated for the airline industry’s payroll support program. Contractor, airport, and other related transportation entities are also eligible for relief aid.
Simplified health provisions
The CAA includes a number of health provisions. Seth Perretta, a Groom Law principal, discussed this topic during the January 8 NAPEO webinar. He said that while the majority of the COVID-related plans in the CAA revolved around testing and vaccines and funding for same, “There is something in this bill that is hugely consequential called the ‘Surprise Billing Fix,’” which includes a provider-friendly end to surprise balance bills.
“When people go to an ER for emergency services, or perhaps go to an in-network facility and receive treatment by an out-of-network provider, they can receive what is called colloquially a surprise balance bill,” Perretta explained. “This legislation compels a mandatory dispute resolution between the plan and the provider, so it takes the individual enrollee out from the middle of the dispute. They can’t be balance-billed. But it will likely result in a very different claims process and also potentially increased cost for plans.”
In addition to this surprise billing fix, the CAA includes a series of health transparency provisions. Perretta said it:
- Prohibits gag clauses
- Mandates a broker compensation disclosure
- Includes a mental health parity attestation regarding nonqualitative treatment limitation (NQTL) compliance
- Requires annual reporting on pharmacy benefits and drug costs
“This series of health transparency provisions are designed to make it easier for folks to understand what plans are spending and what the service providers are making,” Perretta said. “It’s also designed to give employer-plan sponsors more flexibility in pursuing value-based insurance designs.”
Deadlines for payroll tax deferrals
The CARES Act provided employers with an option to defer the deposit and payment of the employer’s share of social security tax through December 31, 2021, when the first half of the deferred amount is due to the IRS. The second half of the deferred amount remains due on December 31, 2022—these rules and deadlines have not changed with the CAA.
However, a presidential memorandum has directed the Treasury to provide an extension to affected individuals who chose to defer payment of their 2020 payroll taxes to April 2021. Those who did so now have the entire year to repay their debt to the IRS, with the new deadline set for December 31, 2021.
Extensions you should know about
The CAA provided extensions for several measures set to expire at the close of 2020.
The Families First Coronavirus Response Act (FFCRA) required certain employers to provide paid sick leave (PSL) and paid family and medical leave (PFMLA) for certain reasons related to COVID-19, and that mandate was not extended beyond 2020. However, the provided employer tax credits that offset the wage amounts paid to an employee during the mandated PSL and PFMLA period in 2020 have been extended to March 31, 2021. If you would have been eligible had the mandate continued, then you are likely eligible to receive a tax credit for 2021 through the end of March, with the same general rules and conditions in play.
Unemployment insurance programs put in place following the advent of the pandemic have been extended, too. An additional $300 per week for workers receiving unemployment benefits will be available through March 14, 2021. The CARES Act had allowed unemployed workers, including self-employed and gig workers, to receive $600 a week in addition to their benefits through December 31, 2020.
The following three tax-code provisions have been extended through 2025:
- Work opportunity tax credit
- Employer credit for paid family and medical leave
- Exclusion for employer payment of student loans
Expect more updates and legislative changes on the horizon
The pandemic has created the need for creative governance and bipartisan compromising to write legislation like the FFCRA and Cares Act of 2020, and now the Consolidated Appropriations Act of 2021 and its Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act. With a new president and Congress taking control of the U.S., more legislation is likely on the horizon for 2021.
G&A Partners hosted a Groom Law Group webinar discussing the CAA in depth on January 27, 2021. Watch the webinar to learn about new updates made to the CAA in its first month and to gain further insight on the ERTC and PPP.
With change comes a burden of responsibility to keep up with evolving legislation and new compliance mandates. Consider outsourcing some or all of your HR, payroll, benefits, accounting, and bookkeeping tasks to a professional employer organization (PEO) such as G&A Partners. G&A offers world-class support that includes a team of dedicated professionals who are well versed in all industries and who are able to keep up with fast-paced changing local, state, and federal laws. Schedule a consultation with one of G&A’s trusted business advisors to see if it’s right for you.