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COVID-19 relief bill highlights


January 8, 2021

The Consolidated Appropriations Act, 2021 (H.R. 133) recently passed and was signed into law.
The Act provides a wide range of COVID-19 relief, including extensions and expansions of payroll relief, modifications to employee benefit program and another set of $600 checks payable to most taxpayers. The law also extends expiring tax provisions and contains nearly 5,600 pages of federal legislation. 
While details are still emerging, here are some key areas for employers to be aware of:

Paid sick and family leave

Paid sick and family leave, and tax credits for providing leave, are extended through March 31, 2021. Leaves after Jan. 1, 2021, are optional for employers.  They were set to expire on Dec. 31. The leave and the tax credits are extended, not reset, for 2021. Note that if employees have maxed out on their leave in 2020, they are not eligible for more paid leave after Dec. 31.  Also note that any FMLA or Emergency FMLA counts toward the 12 weeks of coverage in the prior 12 months.  Also, if an employee changes employers, any prior use of Emergency Sick or Emergency FMLA must be calculated so as not to exceed the total allowable amount under the FFCRA.

Employee retention credit

As originally constructed, the employee retention credit allows employers to take a tax credit against the employer share of Social Security taxes if you could not continue to operate by having employees telecommute, but you continued to pay employees and provide health benefits.

The tax credit also applied if you suffered a significant decline in gross receipts, defined as a 50% drop in quarterly gross receipts when compared to the same quarter during 2019.

Maximum credit: $5,000 per employee (50% of wages, up to $10,000, annually).

Who got paid creditable wages differed, depending on size: Employers with 100 or more employees (i.e., large employers) could credit payments made to furloughed employees only; employees with fewer than 100 employees could credit payments made to all employees, regardless of whether they were furloughed.

If you needed an advance on your tax credit, you could file Form 7200 with the IRS.
The credit was set to expire Dec. 31, 2020.

Beginning Jan. 1, 2021, through June 30, 2021, the following changes extend and expand the credit:
  • It increases to 70% of qualified wages and benefits, up to $10,000 per employee, per quarter.
  • The significant decline in year-over-year gross receipts decreases to 20%; a new safe harbor allows you to use prior quarterly gross receipts to determine eligibility.
  • For purposes of determining whether you’re a large employer, the 100-employee threshold increases to employers with 500 employees.
  • Advances are limited to 70% of average quarterly wages paid during 2019.

PPP loans

Congress has put to rest the controversy regarding whether expenses associated with loans forgiven under the Paycheck Protection Program are deductible on your corporate return. The IRS said no because it was a double dip. Congress now says yes, regardless of the double dip.  Note that the State of Minnesota has not followed these federal changes.

PPP loans originally covered payroll, rent, utilities and similar costs. The list of eligible expenses is expanded to include operating expenses (e.g., cloud computing services), property damage not covered by insurance, expenses related to providing protective gear to employees (e.g., renovations to add a drive-through window) and covered supplier costs.

PPP recipients with loans totaling less than $150,000 will be able to take advantage of a simplified loan forgiveness application.

PPP loan recipients can now take the employee retention credit, provided the expenses covered by the credit aren’t also covered under the PPP loan. In addition, employers with up to 300 employees who experienced a significant drop in quarterly gross receipts when compared to the same quarter in 2019 are eligible for a second draw.

These changes are effective retroactive to March 27, 2020.  The tax implications regarding PPP 1 and PPP 2 have many tax implications.  Seek proper tax guidance from a qualified individual.

Tax extenders

The following provisions of the tax code, which were slated to expire at the end of this year, are extended through Dec. 31, 2025:
  • The Work Opportunity Tax Credit
  • The corporate tax credit for providing paid FMLA leave (for leave provided in 2021, employees can’t have earned more than $78,000 last year)
  • The exclusion from employees’ incomes if you pick up their student loan expenses, up to $5,250 a year.

Deferrals of employees’ Social Security taxes

Very few private employers opted to defer employees’ Social Security taxes. This was an optional program and I encouraged employers not to take advantage of this program as it could result in employee relation issues and a hardship for employees surprised by the deferral.  The deferrals were originally supposed to be paid back by April 30, 2021. The law extends the payback time to the end of 2021.
Warning: The IRS originally required you to withhold the make-up amounts ratably and report them on Form W-2c once the withholding was complete. Until the IRS says otherwise, these two rules still apply.

Other Employee Benefit Changes:

  • 2020 FSA balances may be rolled over into 2021 and 2021 balances rolled over into 2022.
  • Employees may modify on a prospective basis, the amount of their 2021 health or dependent care FSA contributions without a change in status event.
  • IRS allows employers permission to let employees make changes to their health insurance plans because of uncertainties caused by the COVID-19 pandemic. The new guidance allows employees to drop out of their health insurance if they have another option or sign up for insurance if they have not done so; add family members to their plan or switch to a different health insurance plan.
  • However, the policy change does not require employers to offer these options; they must opt in if they want to give their employees added flexibility.
  • “No Surprises Act” which attempts to prevent surprise medical billing (part of stimulus package).
  • Telemedicine included.
  • Vaccine covered under most insurance plans.
  • Most health care providers are allowing employees who are furloughed or temporarily laid off to continue with employer coverage as long as full premium is paid. Employers should confirm this with carriers and receive approval in writing.
  • COBRA issues with health care continuation (non-COBRA) under the Affordable Care Act if the employee is temporarily laid off or has reduced hours they continue on health care until next administrative period.

Key Considerations for employers to address immediately:

  • Do you intend to extend FFCRA benefits into 2021, or end these benefits effective Dec. 31, 2020?
  • If you are extending the FFCRA benefits through March 2021, will you provide both the Emergency Paid Sick Leave and the Emergency Family Medical Leave Act benefits?
  • Are you able to effectively track time already used under these benefits including the regular FMLA amount used over the previously 12 months?
  • If no extension will be allowed, are you considering additional benefits such as additional carryover of unused PTO or other benefits related to COVID-19?
  • How will you communicate your decisions to employees?
For additional guidance, contact Larry Morgan via the MNCPA HR Hotline.