COVID-19 Relief under the Consolidated Appropriations Act, 2021
The U.S. Senate and House of Representatives finally reached agreement on a new round of COVID-19 relief on Monday, December 21st which was then attached to “must pass” budget legislation. The final bill, which was passed by large margins in both the House and Senate is nearly 5,600 pages. Late on the 22nd, the President raised objections to various aspects of the bill, demanding larger stimulus payments and more support for businesses. This development came as a surprise since administration representatives, including the Treasury Secretary, had been heavily involved in negotiating the bill.
The bill was passed with bipartisan “veto-proof” majorities in both the House and Senate. At present, it is not clear if Congress will modify the bill, which requires additional votes (and likely significant negotiations) in both chambers or plans for an override vote in the event of an actual veto.
Among other things, the current version of the bill includes stimulus payments to many Americans, enhanced and extended unemployment benefits, new PPP funding, and tax deductions for business expenses paid with forgiven PPP loans.
Paycheck Protection Program (PPP)
The bill includes funding to restart the PPP program. The updated program will have revised eligibility rules, but many businesses should qualify for additional funding. Some of the key highlights include:
- Maximum employer size has been reduced from 500 employees to 300 employees.
- Maximum loan size has been reduced from $10 million to $2 million.
- Applicants must be able to demonstrate a 25% decline in revenue for a 2020 quarter as compared to the same quarter in 2019.
- Employers may choose a covered period of either 8 or 24 weeks.
- 60% of proceeds must go to payroll expenses.
The bill also makes other tweaks to the program, including the addition of other qualifying expenses, such as PPE and payments to essential suppliers. Furthermore, borrowers in specific industries hard hit by COVID-19, such as restaurants and hotels, may be eligible for larger loans of 3.5 times their average monthly payroll.
Regardless of whether a business receives a second PPP loan, the new legislation includes provisions which clarify the tax treatment of expenses paid with PPP funds. Under recent IRS guidance, business expenses covered with forgiven PPP proceeds would not be deductible, resulting in increased tax liability for the business. Many members of Congress felt that this guidance did not conform with the legislative intent of the CARES act. The issue has now been put to rest as the new bill makes it very clear that businesses may deduct those expenses on the same basis as other business expenses.
Finally, new and existing PPP loans of less than $150,000 will be eligible for a streamlined one-page forgiveness application.
Economic Injury Disaster Loans (EIDL)
The EIDL program received additional funding for targeted loans to hard-hit small businesses. To qualify, a business must have 25 or fewer employees and be able to demonstrate an economic loss of at least 30 percent. Loan amounts are capped at $50,000 and the SBA is directed to prioritize businesses in low-income communities, owners who are economically or socially disadvantaged or who are veterans.
The bill also makes an important change to EIDL loan advances. The CARES Act provided for emergency advances to businesses of up to $10,000 under the EIDL program. Unlike loans, these amounts did not have to be repaid. However, in its rulemaking, the SBA decided to reduce PPP forgiveness by the amount of an EIDL grant. Under the new bill Congress has made clear its intent for these amounts to be treated as grants, eliminating deductions from PPP forgiveness.
Prior relief programs (FFCRA and CARES) made substantial changes to unemployment insurance nationwide, both expanding who may qualify, how long they may receive benefits and notably the amount they would receive.
The $600 enhanced unemployment benefit which was part of the CARES act expired in July and is now being replaced with a $300 benefit. This enhanced benefit is in addition to the amount normally paid under state unemployment programs. The new benefits could begin as early as December 27th and last until March 14th.
The new law also makes adjustments for workers who have both “regular jobs” and supplement those earnings with self-employment income.
Many Americans will receive a second round of stimulus payments under the new law. These payments come directly from the US Treasury and employers may not offset or otherwise take stimulus payments into account when determining wages.
- Both adults and dependent children may qualify for a $600 payment. As an example, a qualifying married couple, who file jointly and have two children under age 17 would qualify for a $2,400 payment.
- Payments are phased out at $75,000 of annual income for single filers and $150,000 of annual income for joint filers.
- Payments will be based on Adjusted Gross Income (AGI) and filing status for the 2019 tax year.
- The Treasury department expects to begin processing direct deposits shortly after the bill is signed into law.
Non-COVID Related Provisions
The funding bill is massive and touches on almost every part of the economy. The following are some non-COVID related provisions which may be of interest to employers.
Surprise Medical Billing
A last-minute addition to the final bill is a provision that will reign in so called “surprise medical bills.” This term refers to situations where someone receives medical services at a facility that is in their health insurance plan’s network but is then “surprised” by billing they receive from various medical providers who do not accept their insurance. Typically, the patient had no real choice in selecting the medical provider either because it was an emergency situation (ER doctors often don’t accept the same insurance as the hospital where they work) or it is a specialist such as an anesthesiologist or radiologist who was assigned to their case by the hospital.
Beginning in 2022, the legislation will require insurers and medical providers to negotiate payment for these services and will prohibit the medical providers from billing a patient for the difference between the payment from the insurer and the billed amount, so called “balance billing.” In addition to physicians, the legislation will apply similar rules to air ambulances and laboratory services.
Patients can enter into agreements with out-of-network providers to be “balance billed,” but mandatory disclosures and consent rules will place limits on the practice.
Business Meal Deductions
Another potential benefit to some businesses is an increase in deductibility for certain meal expenses. The business meal deduction has been limited to 50% for many years and under the new spending bill will increase to 100%.
We will hold a webinar to discuss the employment related provisions of the new bill (once finalized).
The information provided in this update is not, is not intended to be, and shall not be construed to be, the provision of tax or legal advice, nor does it necessarily reflect the opinions of HR Pros, LLC or our clients. The content is intended as a general overview of the subject matter covered. HR Pros, LLC is not obligated to provide updates on the information presented herein. Those reading this alert are encouraged to seek direct counsel on tax or legal questions.
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