With the Families First Coronavirus Response Act (FFCRA) expiration on Dec. 31, 2020, and other federal coronavirus relief packages and incentives nearing termination, people and businesses alike have been eagerly awaiting Congress to extend these expiration dates or offer additional guidance with respect to COVID-19-related issues. In typical last-minute fashion, Congress passed another stimulus bill providing for a second round of direct payments to individuals, but also addressing several other soon-to-expire programs, incentives, and tax issues employers should be following. President Trump raised several objections to the bill related to spending and individual stimulus payment amounts, but ultimately signed the bill – H.R. 133, the Consolidated Appropriations Act, 2021 (CAA) – into law on Dec. 27, 2020. Here is what employers need to know about the new CAA.
Under the original Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), Congress provided forgivable loans administered by the Small Business Administration (SBA) under the Paycheck Protection Program (PPP). The recent legislation passed by Congress extends this program, but makes a few changes. Under the CAA, businesses may be eligible for a second draw PPP loan if the business has (1) 300 or fewer employees, (2) used or will use the full amount provided by its first PPP loan, and (3) shown a 25% gross revenue reduction in any 2020 quarter as compared to the same quarter in 2019. If an application is submitted on or after Jan. 1, 2021, the business may use the fourth quarter of 2020 to meet the gross revenue reduction element.
Under the CARES Act, the Internal Revenue Service (IRS) ruled that employers were not able to deduct certain expenses if paid with PPP loans. But the CAA clarifies that employers are permitted to deduct certain employment expenses even when they are paid with the PPP loan. It also expands qualifying expenses to include the following:
- Costs to operate software, cloud computing, human resources, and accounting needs.
- Costs paid to suppliers for expenditures essential to business operations.
- Expenditures for covered worker protection, including expenditures made in order to comply with relevant federal, state, and local law regarding health and safety.
- Property damage costs caused by disturbances which occurred during 2020 and are not otherwise covered by insurance.
Eligible businesses may also receive up to 2.5 times their average monthly payroll costs using either a 12-month lookback period or the year 2019. However, businesses in the restaurant and hospitality industries are eligible to 3.5 times their average payroll costs. Loans given in this second round will not exceed $2 million.
The Families First Coronavirus Response Act
The FFCRA expired on Dec. 31, 2020. The CAA does not extend the FFCRA’s expiration date, but gives employers the option to continue to provide Emergency Paid Sick Leave (E-PSL) and Emergency Family and Medical Leave Expansion (E-FMLA) in accordance with the FFCRA framework. Employers who elect to continue providing this paid leave between Dec. 31, 2020 and March 31, 2021 can claim the tax credit if the employees still had eligibility for leave as of Dec. 31, 2020. Employers should be mindful that even if they do not exercise the option to continue to provide E-PSL or E-FMLA, employers continue to have job restoration, documentation, and lengthy recordkeeping obligations related to leave requests made prior to the FFCRA’s expiration. Employers may also have paid leave requirements under state laws that will not be affected by the expiration of the FFCRA.
To recap, an employee may qualify for paid leave under the FFCRA – at the employer’s option – if the employee is unable to work (or telework) due to a need for leave because the employee:
- Is subject to a federal, state, or local quarantine or isolation order related to COVID-19.
- Has been advised by a health care provider to self-quarantine due to COVID-19.
- Is experiencing COVID-19 symptoms and is seeking a medical diagnosis.
- Is caring for an individual subject to an order described in (1) or self-quarantine as described in (2).
- Is caring for a child whose school or place of care is closed (or child care provider is unavailable) for reasons related to COVID-19.
- Is experiencing any other substantially-similar condition specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.
Individual Provisions and Other Tax Incentives
The highly-anticipated CAA provides for a second round of direct payments to individuals, which is modeled closely after the first round of stimulus funds distributed under the CARES Act. The CAA provides for direct payments up to $600 per individual and per qualified child, with no cap on household size. The direct payments may be reduced or eliminated for certain individuals based on higher income levels.
The CAA also expanded the deduction businesses can take for business meals to 100% for 2021 and 2022. The Employee Retention Tax Credit has also been extended through July 1, 2021 and increased the refundable payroll tax credit from a maximum of $5,000 to $14,000 by altering the calculation method to 70% of wages paid up to $10,000 for any quarter. The CAA also clarified that businesses will be able to take the Employee Retention Tax Credit and participate in the PPP. The CAA addressed flexible savings accounts, too, by permitting balances to roll from the 2020 tax year into the 2021 tax year and 2021 balances to roll into 2022. The CAA also extended the repayment deadline from April 2021 to Dec. 21, 2021, for those participating in the employee-side payroll tax deferral program. Finally, the CAA also extended through 2025 a provision that was set to expire in the CARES Act that authorizes employers to contribute up to $5,250 annually on a tax-free basis to an employee’s qualifying education loans.
Unemployment and SharedWork Programs
The 5,593-page CAA also addresses various other relief packages and programs, including SharedWork and unemployment programs. Recall that the CARES Act provided for federal funding of SharedWork programs until Dec. 31, 2020, which are layoff aversion programs that allow for employees to work a reduced schedule and receive unemployment benefits proportionate to their reduced hours as an alternative to implementing layoffs. Under the CAA, the federal funding for SharedWork programs is extended until March 14, 2021.
The CAA also extends the Pandemic Unemployment Assistance, the Pandemic Emergency Unemployment Compensation and the Federal Pandemic Unemployment Compensation programs until March 14, 2021. However, this federally-funded additional unemployment amount has been reduced from an additional $600 per week to $300 per week. The CAA also includes provisions designed to prevent waste and abuse of these programs. Specifically, the CAA requires (1) new applicants for Pandemic Employment Assistance to provide documentation to substantiate their qualifying employment or self employment (as opposed to self-certification); (2) states to implement procedures to verify the identities of applicants; (3) states to implement a method for employers to report instances in which unemployment compensation claimants refuse to return to work or to accept an offer of suitable work without good cause; and (4) states to notify unemployment compensation claimants of the state’s return to work laws and of their right to refuse work that poses a risk to the claimant’s health or safety.
For more specific information about the effect of the CAA on employers, contact a member of Taft’s Employment and Labor Relations Group.
Please visit our COVID-19 Toolkit for all of Taft’s updates on the coronavirus.