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2021 Coronavirus Stimulus Package and Relief Bill

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A new $900 billion COVID-19 stimulus package and relief bill was signed into law by President Trump in the late evening hours of December 27, 2020. Along with the stimulus package comes the annual federal government funding bill, priced at $1.4 trillion.
 
Like other pieces of 2020 COVID-19 coronavirus legislation, many of the provisions are to be enacted quickly – as large parts of former relief, like the Families First Coronavirus Response Act (FFCRA), come to an end on 12/31/2020. The new legislation requires regulations from the Internal Revenue Service (IRS), Small Business Administration (SBA), etc., which will tell us how the law will be implemented, administered, and enforced. More details of these changes will continue to follow over the next several weeks.
 
Following is a brief overview describing the bulk of what the new law provides for employers, with other considerations. Note that other provisions and details are included in the law, and this report is not an exhaustive overview of the latest coronavirus law.
 
  • Additional $284 billion allocated to Paycheck Protection Program (PPP). The PPP offered a critical lifeline to thousands of struggling businesses across the nation earlier in 2020. The program provides loans up to 2.5 times an employer’s monthly payroll cost (which includes health care premiums), that can be completely forgiven (and does not need to be repaid), so long as borrowers use the loans to maintain payroll, jobs, and business expenses such as rent, utilities, etc. The PPP initially offered $349 billion of funding in its first round in March 2020, which was completely utilized 13 days after it became available. Congress followed up with the Paycheck Protection Program and Health Care Enhancement Act in April 2020, which added another $310 billion into the PPP. The program closed on August 8, 2020, but has been revised and revitalized by the recent bill. Unlike in the second April wave, borrowers who had obtained an initial PPP loan are eligible for a second loan, as long as they have already used their first PPP loan and meet additional new criteria. Borrowers must have no more than 300 employees (down from fewer than 500 employees earlier in 2020), and must be able to show a drop of at least 25% in revenue during the first, second, or third quarter of 2020 relative to that same quarter in 2019. Additionally, PPP loans are capped at a maximum of $2 million, down from the previous cap of $10 million. The act sets aside $12 billion of special funds for minority-owned businesses and businesses in underserved communities, and expands eligibility to include all nonprofit businesses. Loans are forgivable as long as 60% of the funds are used on payroll costs (which includes health insurance premiums). The SBA, which oversees PPP, will soon release regulations that describe how to utilize the re-established program. Employers should consult their financial or tax advisors for additional information on how this program applies.
  • Health FSA and Dependent Care FSA administration changes are permissible, if adopted by the plan-sponsor (employer). Under the act, plan sponsors (employers) can give their employees additional time (“grace period”) to use their 2020 or 2021 FSA balances – and make changes to existing FSA elections. These changes are optional for employers. If enacted, amendments to an employer’s plan documents are usually required. At the employer’s discretion, employees can rollover unused amounts in their Health FSAs and Dependent Care FSAs from 2020 to 2021, and from 2021 to 2022, for a total of 12 months. Under normal circumstances, employers can allow an optional 2.5 month grace period to spend unused health FSA balances at the conclusion of the plan year. This extends that grace period option to 12 months, and also makes it available for Dependent Care FSAs. In addition to this change, employers can also allow employees to make 2021 mid-year prospective changes in health FSA and dependent care FSA contribution amounts. Normally, this is permitted only when an employee or dependent experiences a change in life status.
  • FFCRA’s former employer credit for Paid Sick Leave and Family Leave continues – sort of. Although the FFCRA sunsets on December 31, 2020, employers can still tap into the tax credits available to them under the FFCRA through March 31, 2021. Under the new bill, employers may continue to voluntarily offer paid sick and family leave to employees, consistent with FFCRA’s existing framework. If they do so, employers may claim a dollar-for-dollar tax credit for wages paid to employees for such leave between January 1 and March 31, 2021. However, employees will not get new hours to use under the new law. Any unused portion of their original allotment (if applicable) is the amount that would be available for use through March 31, 2021 – if established by the employer.
  • Employer credit for paid Family and Medical Leave extended through 12/31/2025. The Tax Cuts and Jobs Act of 2017 provided a federal tax credit for employers that provide paid family and medical leave to employees. The new bill extends this employer credit through 12/31/2025, and applies to wages paid in taxable years beginning after 12/31/2020.
  • Unemployment Insurance Expansion extended. The new bill extends two unemployment programs from the CARES Act. Firstly, the bill provides an additional $300 a week (from federal funds) for all workers receiving unemployment benefits through March 14, 2021. The bill also extends the Pandemic Unemployment Assistance (PUA) program, which extended unemployment benefits to self-employed, gig economy workers, etc. The bill extends the Pandemic Emergency Unemployment Compensation (PEUC) program, which provides federally unemployment benefits once state-provided benefits have been exhausted. Lastly, the bill extends the timeframe an individual can claim benefits through state unemployment plus the PEUC or PUA program to a maximum of 50 weeks.
  • Employee Retention Tax Credit (ERTC) extended through June 30, 2021. The ERTC, established by CARES Act, increases its credit rate from 50% to 70% of qualified wages. Eligibility for the credit is expanded, reducing the required year-over-year receipts decline from 50% to 20%. And, employers utilizing ERTC will no longer be disqualified for PPP loan eligibility – assuming all other PPP eligibility criteria are met.
 
More details on these new changes will follow when the IRS, SBA, and other offices release regulations on how these programs work. Stay tuned to this column for more information as it is released.

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