On December 27, 2020, President Trump signed the Consolidated Appropriations Act, 2021. This is an Act that is signed each year, thus the 2021 suffix, and basically includes the federal government’s budget for 2021. It also includes a large section of COVID-19 related benefits for businesses. The following is a summary of what has passed. It is a bit lengthy of a “summary,” but all good stuff.
FFCRA Sick and Family Paid Leave
The FFCRA tax credit has been extended through March 31, 2021, although the employer mandate has not been extended. This means that an employer can decide whether or not they will continue to offer the FFCRA paid leave to their employees, and if they do offer it, they will continue to receive a tax credit. No new time off is available to employees, so if they have already exhausted their two weeks of Sick or Family leave in 2020, then they will not have any additional time in 2021. It will be important for employers to notify their employees in advance of their paid leave policy.
Second Draw PPP
The PPP reopened to new loans on January 12th, enabling borrowers to obtain a second loan of 2.5 months of average monthly payroll costs, up to $2 million, regardless of the status of the first loan, or even a first loan for those who missed out the first time around. First loans are available to businesses with 500 or fewer employees, but second draw loans are available to businesses with 300 or fewer employees. Second draw loans will also need to document a 25% or more decline of revenue in any quarter of 2020 compared to the same quarter of 2019. Second draw borrowers will need to have used the full amount of their first loan before the funds are disbursed for the second, but do not have to file for forgiveness on the first loan.
Businesses in the accommodation or food service industries (NAICS code 72) may qualify for a larger loan amount of 3.5 times the average monthly payroll costs.
Businesses can also use the proceeds from the PPP for more expenditures, such as repairs for property damaged by riots and looting, certain supplier costs, certain operations expenditures, and worker protection expenditures. Details can be found on the new round of forgiveness applications recently published by the SBA.
Simplified PPP Forgiveness Application
For loans under $150,000, borrowers will not be required to submit any documentation with their forgiveness application. All that will be required is a short form where the borrower will report the number of employees retained, and attest to a good faith effort to comply with the PPP loan requirements including that the loan proceeds were spent on forgivable payroll and non payroll costs.
In either case, payroll records should be retained for four years as there will remain an audit period by either the bank and/or the SBA.
Grants for Shuttered Venue Operators
Live venue operators/promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operators, and talent representatives who meet certain requirements, including a 25% reduction in revenue in a calendar quarter in 2020 compared to the same quarter in 2019 may be eligible for a grant of 45% of their 2019 gross receipts (revenue). The grant can be used towards payment of payroll, certain independent contractor payments, rent, utilities, interest, certain worker protection expenses, insurance and more. More flexibility in spending than the PPP, in addition to it being a grant right from the start, so no payback or forgiveness application is necessary. To apply, go to the SBA Shuttered Venue Operators Grant webpage.
There may be an opportunity for a second round of grants that will be for 50% of the first grant.
Employee Retention Credit Extension (ERC) and Modification
The Act extends the ERC until June 30, 2021, and modifies the credit to 70%, up from 50% of qualified wages. The wage limitation is also increased from $10,000 per year per employee, to $10,000 per quarter per employee. Therefore, the maximum credit per employee in 2021 will be $14,000 ($70% of $10,000 for each of the two quarters of 2021). Employers can demonstrate eligibility with a decline of 20% in revenue, down from 50%, and employers may use prior quarter gross receipts to determine eligibility. Companies that had 100 or less employees in 2019 can count all wages paid to their employees for this credit, while larger employers can only include wages that were paid to the employees who did not perform any services for the company.
The Act also allows employers who received a PPP loan to qualify for the ERC for wages that are not paid with forgiven PPP loan proceeds. Prior to this Act, an employer could not utilize both the PPP and ERC. This application is retroactive, meaning that first round PPP borrowers could now go back and claim the ERC for 2020. For 2020, the maximum wage limitation remains at $10,000 for the year, with the credit at 50%, for employers that were affected by either a government shutdown order or a revenue decline of 50% or more. Similar to taking the credit in 2020, for 2021, companies that had 500 or less employees in 2019 can count all wages paid to their employees. Larger companies can only include wages that were paid to the employees who did not perform any services for the company.
Deductibility of Expenses Paid with Forgiven Loans
Prior to the passage of this Act, expenses paid for with forgiven loan funds were not deductible for federal income tax purposes, per the IRS. Now they are!
While I make every attempt to ensure the accuracy and reliability of the information provided in this article, the information is provided “as-is” without warranty of any kind. As with every other COVID-19 related Act, situations and rules get defined over time and things can and do change. PayMaster, Inc and Romeo Chicco do not accept any responsibility or liability for the accuracy, content, completeness, legality, or reliability of the information contained. Consult with your CPA, Attorney, and/or HR Professional.