**NEW** On March 10, Congress passed President Biden's American Rescue Plan, a $1.9 trillion COVID-19 stimulus bill. The full text of the bill can be found here, and a Joint Committee on Taxation summary can be found here.
On December 21, Congress passed the Consolidated Appropriations Act of 2021. This bill contains $900 billion of aid to combat the COVID-19 crisis. You can view the entire text of the bill here. President Trump signed the bill into law on December 28.
We recently held a webinar to review the bill and how it impacts your business. You can view the recording here. Below you will find summaries of the provisions which impact PEOs and small businesses.
Tax Provisions
The omnibus spending bill contained many tax provisions that impact PEOs. Randy Hardock and Courtney Zinter of Davis & Harman (NAPEO’s outside tax counsel) have prepared this document which contains the details of these provisions and how they apply to PEOs.
Specific tax provisions of interest to PEOs include:
- Paid Sick and Family Leave Credits
- Extends the paid sick and family leave credits against employment taxes from the Families First Coronavirus Response Act (FFCRA) for three additional months to March 31, 2021.
- The bill does not extend the FFCRA’s mandate to provide paid sick leave or paid family and medical leave beyond December 31, 2020.
- Changes to the Employee Retention Tax Credit (ERTC)
- Repeals the provision denying the ERTC to employers receiving a PPP loan. Instead, mechanisms would be created to prevent the same wages from being used for both PPP loan forgiveness and the ERTC.
- Extends the ERTC to apply to wages paid before July 1, 2021 (instead of January 1, 2021).
- Increases the credit percentage from 50 percent to 70 percent of applicable wages.
- Increases the per-employee limitation on applicable wages from $10,000 total to $10,000 per calendar quarter. In combination with the increased credit percentage, this would increase the maximum credit per employee from $5,000 to $7,000 per quarter (up to $14,000 for the first two quarters in 2021).
- The following language was added to the ERTC provisions that specifically addresses PEOs:
Any forms, instructions, regulations, or guidance described in paragraph (2) shall require the customer to be responsible for the accounting of the credit and for any liability for improperly claimed credits and shall require the certified professional employer organization or other third-party payor to accurately report such tax credits based on the information provided by the customer. [Emphasis added.]
It is not clear whether this provision applies retroactively or just to new credits taken in 2021. - Makes the ERTC available if the business experienced a decline of at least 20 percent in gross receipts (instead of a 50 percent decline) as compared to the same calendar quarter in the prior year.
- Modifies the small employer definition of qualified wages to apply to employers that have 500 or fewer employees (instead of 100 of fewer employees).
- IRS Guidance on claiming Employee Retention Credit for 2020.
- Creates a temporary employee retention credit of 40 percent of qualified wages up to $6,000 (maximum credit of $2,400 per eligible employee) for eligible employers affected by certain qualified disasters. This credit is retroactive and does not apply to COVID-related disasters.
- The bill also extends the Work Opportunity Tax Credit for five years.
Paycheck Protection Program and other Small Business Assistance
In addition to the tax provisions, the COVID-19 relief portion of this legislation contains additional assistance for small businesses, which NAPEO has been lobbying Congress in support of. Specifically, it contains the following provisions designed to assist small businesses:
- Creates a second loan from the Paycheck Protection Program, called a “PPP second draw” loan for smaller and harder-hit businesses, with a maximum amount of $2 million.
- Creates a simplified application process for loans under $150,000.
- Expands the expenses that can be covered by a PPP loan.
- Makes 501(c)6 organizations that do not lobby eligible for PPP loans.
- Makes the expenses covered by PPP loans tax deductible.
Details on these provisions can be found on this document provided by the Community Banker’s Association.
Unemployment Insurance
The COVID-19 relief provisions also makes the following changes to unemployment insurance:
- Unemployed individuals get an additional $300 per week from December 26, 2020 to March 14, 2021.
- Extends and phases out Pandemic Unemployment Assistance (PUA) – a temporary federal program covering self-employed and gig workers - to March 14, 2021 and extends benefits from 39 to 50 weeks— with all benefits ending April 5, 2021.
- Extends and phases out Pandemic Emergency Unemployment Compensation (PEUC) which provides additional weeks when state unemployment runs out, to March 14, 2021 (after which no new applications) through April 5, 2021.
- Extends provisions to March 14, 2021, including interest-free loans to the states.
No federal money was provided to shore up the short falls in state unemployment funds.
Healthcare and Dependent Care Flexible Spending Accounts
The bill contained several relief provisions regarding healthcare and dependent care FSAs; they are permissive, not mandatory.
- Allows health and dependent care FSA participants to carry over unused balances from plan year in 2020 to plan year ending in 2021 and from plan year ending in 2021 to plan year ending in 2022. There does not appear to be any maximum carryover amount.
- You may extend a health FSA and dependent care FSA grace period for a plan year ending in 2020 or 2021 to 12 months after the end of such plan year.
- A health FSA can allow an employee who ceases participation in the plan during 2020 or 2021 to continue to receive reimbursements from unused balances through the end of the plan year in which such participation ceased (including any grace period). (Note many practitioners/employers interpreted the current rules to already allow this.)
- Dependent care FSA participants whose qualifying child turned age 13 during the pandemic to continue to receive reimbursements for such child’s dependent care expenses for (1) the remainder of the plan year and, to the extent a balance remains at the end of the plan year, (2) the following plan year until the child turns age 14 (but only with respect to the unused amount). (1) only applies for plan years for which the regular enrollment period for such plan year was on or before January 31, 2020 (e.g., a plan year that began on January 1, 2020).
- Allows health and dependent care FSA election changes for plan years ending in 2021, regardless of whether the employee had an permitted election change event.
- An employer can amend a cafeteria plan retroactively to provide for the above, as long as (1) the amendment is adopted not later than the last day of first calendar year beginning after the end of the plan year in which the amendment is effective, and (2) the plan is operated consistent with the terms of such amendment during the period beginning on the date of the amendment and ending on the date the amendment is adopted.
Miscellaneous Provisions
The omnibus spending bill contained so-called “tax extenders, temporary provisions in the tax code that are designed to support specific economic activities. There are two provisions of interest to PEOs that have been extended for five years. They are:
- The employer credit under section 45S for paid family and medical leave, originally enacted as part of tax reform in 2017.
- The expanded exclusion for employer-provided educational assistance, including student loan repayment benefits as enacted as part of the CARES Act. NAPEO has lobbied in support of this provision.