After months of gridlock, Congress reached agreement on a new spending package to combat the COVID-19 pandemic and its economic effects. The result is the $900 billion Consolidated Appropriations Act, 2021, which was signed Sunday, Dec. 27, though we still await final guidance on certain provisions from the Internal Revenue Service (IRS) and the Small Business Administration (SBA).
The law follows — and, in some cases, expands upon — the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act, both of which were signed into law in March.
Of particular interest to many business owners will be the $284.45 billon replenishment of the CARES Act’s Paycheck Protection Program (PPP). The law extends the program through March 31, 2021, and allows certain businesses that qualify to draw a second loan for a maximum amount of $2 million. Administered by the Small Business Administration (SBA), PPP loans help businesses meet compelling needs, particularly payroll for their employees, in a time of crisis.
The law allows for use of loan proceeds and possible forgiveness for additional categories of expenses, including property damage costs, supplier costs and worker protection and operations expenditures.
Additional provisions include:
- Allowing the borrower to elect a covered period beginning on the date the loan funds are received and lasting between eight and 24 weeks.
- Providing a simplified loan forgiveness application process for recipients of loans of $150,000 or less, effective for PPP loans made before, on or after the date of enactment of the law, including loan forgiveness application.
- Clarifying a business that was not in operation on Feb. 15, 2020, shall not be eligible for an initial or a second-draw PPP loan.
- Repealing section 1110(e)(6) of the CARES Act, which required PPP borrowers to deduct the amount of their Economic Injury Disaster Loan advance from their PPP forgiveness amount.
- Revising previously issued IRS guidance to allow organizations to deduct certain business expenses even if forgiveness has been received for those expenses.
The law extends FFCRA’s refundable payroll tax credits for paid sick and family leave through March 31, 2021. Originally, the payroll tax credits were available only with respect to qualified wages paid for leave through Dec. 31, 2020.
It also extends the CARES Act’s employee retention tax credit to July 1, 2021. Beginning Jan. 1, the refundable portion of qualified wages per employee increases from 50% to 70%, while the total amount of credit available per employee increases from $10,000 total to $10,000 per calendar quarter.
Meanwhile, qualifying for the credit becomes easier as the applicable amount of gross receipts is adjusted to less than 80% of an employer’s gross receipts for the same calendar quarter in 2019. (This was originally set at 50%.)
Most notably, the law improves coordination with the PPP by eliminating the rule that previously disqualified an employer from the employee retention tax credit if any member of the employer’s aggregated group received a PPP loan. Now, only wages forgiven under the PPP are disqualified.
Additionally, employers with 500 or fewer employees are allowed to obtain enhanced credits that were previously only available to employers with 100 or less employees.
The law also creates a payroll tax credit, known as the qualified disaster relief credit, for certain tax-exempt organizations whose operations were affected by a federally declared disaster. However, the disaster declaration cannot have been solely due to COVID-19. A list of federally declared disasters can be found here. Further guidance from the IRS likely is needed to determine how employers may claim this credit.
Social Security tax deferral repayment extension
The law extends the repayment period for employees who elected to defer Social Security taxes from Sept. 1, 2020, through Dec. 31, 2020. The taxes were previously due to be withheld from and paid ratably by employees between Jan. 1, 2021, and April 30, 2021. However, the repayment deadline has been extended through Dec. 31, 2021. Penalties and interest on deferred, unpaid tax liability will not begin to accrue until Jan. 1, 2022.
Organizations with employees who fail to repay the deferred amounts must still pay these taxes to the IRS by Dec. 31, 2021