On December 27, 2020, the Consolidated Appropriations Act, 2021, HR 133, the most recent COVID-19 relief and stimulus bill, was signed into law. The law extends some of the previously enacted relief provisions and ends others. The key provisions are summarized below.
COVID-19 paid sick and family leave – voluntary but eligible for an employer tax credit
- The obligation (for employers with less than 500 employees) to pay employees for sick and family leave related to coronavirus ended on 12/31/20. The latest COVID-19 relief bill extends the tax credit for 3 additional months, until 3/31/21. Employers may voluntarily provide sick and family leave, as they did in 2020 under the Families First Coronavirus Relief Act (FFCRA), and receive a 100% payroll tax credit against their payroll taxes for the amounts paid.
- These credits can only be claimed for employees who did not use their available 80 hours of sick and family leave and 10 weeks of additional family leave in 2020. The 2021 leave must qualify as sick and/or family leave under the FFCRA-defined criteria.
Unemployment benefits – extended eligibility and new $300 federal supplement
- Employees on layoff or terminated received a federal supplemental unemployment payment of $600 until July 31, 2020. A new federal supplement will provide $300 per week until March 14, 2021.
- Unemployed workers will be eligible for a federal extension of benefits of 24 weeks beyond state unemployment eligibility (an additional 11 weeks beyond that provided by the Coronavirus, Aid, Relief, and Economic Security Act (CARES Act)).
- Gig economy workers, self-employed individuals, and independent contractors will be eligible for Pandemic Unemployment Assistance through March 14, 2021. Their CARES Act unemployment benefits previously expired on December 31, 2020.
Employee Retention Credit – extended through June 2021 and expanded to PPP recipients
- Employee retention tax credits were extended, in an effort to prevent layoffs, through June 30, 2021.
- Employers may deduct 70% of qualified wages (formerly 50% under the CARES Act), up to $10,000 per quarter (formerly $10,000 per year under the CARES Act).
- This will result in a credit of up to $14,000 of qualified wages per employee in 2021.
- Employers must have a 20% decline in gross receipts, comparing each quarter of 2021 to 2019. Thus, if Q1 and/or Q2 of 2021 have gross receipts of 80% or less, when compared to that same quarter of 2019, the employer is eligible. Employers also can qualify by being partially or fully shut down due to government orders; however, odds are that these employers will also have a 20% decline in gross receipts.
- Employers receiving PPP loan funds may deduct payroll costs that were not paid with forgiven PPP loan funds. (This change is retroactive to March 2020).
- Group healthcare expenses not included in an employee’s gross wages may be treated as qualifying wages for this tax credit.
Dependent care and healthcare FSAs – rollover can be permitted and mid-year elections allowed
- Employers are permitted–but not required–to allow FSA dependent care participants to carryover unused funds from 2020 and 2021 and use them for an additional 12 months after the plan year ends.
- Employers are permitted–but not required–to allow healthcare FSA participants who terminate participation (due to termination of employment or any other reason) to use the funds until the end of the plan year.
- Employers that want to take advantage of these optional FSA extensions must amend their FSA plan documents.
- Employees also may make mid-year contribution changes in 2021.
Paycheck Protection Program (PPP) Loans – second round of funds, tax deductibility, and expanded uses
- Businesses are eligible for a second round of PPP loan funds to be used for payroll and other specified business expenses.
- The eligibility criteria is targeted at providing money to smaller small businesses:
- The threshold number of employees for eligibility was reduced from 500 to 300 employees.
- The maximum loan amount was reduced from $10 million to $2 million. The maximum loan amount for any business is 2.5 times the average monthly payroll costs in the year prior to the loan, up to $2 million.
- Business must have at least a 25% reduction in gross revenues from any quarter of 2019 to the same quarter of 2020.
- Business must have been in existence prior to February 15, 2020 and apply for second draw funds by March 31, 2021.
- Loan forgiveness is available if the business spends at least 60% of the funds on payroll costs over a time period of its choosing of between 8 and 24 weeks.
- The amounts forgiven under the PPP loan program are also tax deductible as business expenses, if they would otherwise qualify under the tax code.
- The definition of eligible “other” (non-payroll) business expenses was expanded to include:
- Worker protective equipment,
- Supplier costs,
- Costs of perishable goods,
- Property damage due to public disturbances in 2020 that were not covered by insurance (e.g., damage caused by vandalism and looting ),
- Technology operations expenses.
- The prior list of other (non-payroll) eligible expenses included rent or lease payments, mortgage payments, and utilities. Those remain eligible business expenses for PPP loan forgiveness.
Student loan and educational expense tax exclusion – extended
- The CARES Act allowed employers to pay employees up to $5,250 per year to assist employees with education expenses in 2020. The recent COVID-19 relief bill allows employers to pay up to $5,250 to each employee for the next five years (through 2025) for education expenses and student loan principal and interest repayment.