In the latest Congressional action, the House and Senate have come to an agreement on a $1.4 trillion government funding bill, and included an additional $900 billion coronavirus relief bill. This bill (the Consolidated Appropriations Act, 2021), over 5,500 pages long, contains multiple modifications to existing laws including the much-discussed CARES Act, expiring tax provisions, and inclusion of several new programs. Below is meant to highlight many of the key business provisions that CSH believes might impact your business. We will also continue to analyze the bill and will share additional information as details emerge.
Provides extension of the following tax credits through 12/31/2025:
- Work Opportunity Tax Credit
- Empowerment Zone Tax Credit
- New Markets Tax Credit
- Employer Credit for Paid Family and Medical Leave
Extensions of Credits (various dates):
- Solar Current 26% Credit through 12/31/2023
- Indian Employment Credit through 12/31/2021
- Section 45L Tax Credit through 12/31/2021
- Makes Permanent: Section 179D Energy Efficient Commercial Building Deduction
Employee Retention Tax Credit (ERTC) Changes
Beginning on January 1, 2021 and through June 30, 2021, the provision:
- Increases the credit rate from 50 percent to 70 percent of qualified wages;
- Expands eligibility for the credit by reducing the required year-over-year gross receipts decline from 50 percent to 20 percent and provides a safe harbor allowing employers to use prior quarter gross receipts to determine eligibility;
- Additional eligibility based on full or partial suspension as a result of government orders appears to remain intact;
- Increases the limit on per-employee creditable wages from $10,000 for the year to $10,000 for each quarter;
- Increases the 100-employee delineation for determining the relevant qualified wage base to employers with 500 or fewer employees;
- Allows businesses with 500 or fewer employees to advance the credit at any point during the quarter based on wages paid in the same quarter in a previous year;
- Provides rules to allow new employers who were not in existence for all or part of 2019 to be able to claim the credit;
- Retroactive to the effective date included in section 2301 of the CARES Act, the provision:
- Clarifies the determination of gross receipts for certain-tax exempt organizations;
- Clarifies that group health plan expenses can be considered qualified wages even when no other wages are paid to the employee, consistent with IRS guidance; and
- Provides that employers who receive Paycheck Protection Program (PPP) loans may still qualify for the ERTC with respect to wages that are not paid for with forgiven PPP proceeds – thus allows for businesses to claim BOTH the ERTC and PPP, just not on the same wages.
Extension of Credits for Paid Sick and Family Leave (under FFCRA)
- Extends the refundable payroll tax credits for paid sick and family leave, enacted in the Families First Coronavirus Response Act, through the end of March 2021.
- Modifies the tax credits so that they apply as if the corresponding employer mandates were extended through the end of March 2021. This provision is effective as if included in FFCRA.
Temporary Allowance of Full Deduction for Business Meals
- Provides a 100-percent deduction for business meal food and beverage expenses, including any carry-out or delivery meals, provided by a restaurant that are paid or incurred in 2021 and 2022. Currently, the deduction is available for only 50 percent of such expenses.
PPP Loan Updates
Paycheck Protection Program Second Draw Loans
- Creates a second round of PPP loans for eligible businesses.
- Defines eligibility for the PPP second draw as small businesses that have no more than 300 employees AND demonstrate at least a 25 percent reduction in gross revenues between comparable quarters in 2019 and 2020.
- Establishes a maximum loan size of 2.5X average monthly payroll costs for non-food service businesses, up to $2 million.
- Allows small businesses assigned to the industry NAICS code 72 (Accommodation and Food Services) to receive PPP second draw loans equal to 3.5X average monthly payroll costs in order to helps these businesses combat onerous state and local restrictions.
- Maintains existing expansions in eligibility for businesses assigned to the industry NAICS code 72 (Accommodation and Food Services).
- Borrowers receive full loan forgiveness if they spend at least 60 percent of their PPP second draw loan on payroll costs over a time period of their choosing between 8 weeks and 24 weeks.
- Affirms the eligibility of churches and religious organizations and prohibits a future administration from making them ineligible.
- Preserves the application of affiliation rules to nonprofits, which makes Planned Parenthood ineligible.
Paycheck Protection Program Improvements
- Expands PPP allowable and forgivable expenses to include supplier costs on existing contracts and purchase orders, including the cost for perishable goods at any time, costs relating to worker protective equipment and adaptive costs, and technology operations expenditures.
- Enhances borrower flexibility by allowing borrowers to select their loan forgiveness covered period between 8 weeks and 24 weeks.
- Simplifies the forgiveness application process for smaller loans up to $150,000 while increasing SBA’s ability to audit and review forgiven loans.
- Allows PPP borrowers to include additional group insurance payments when calculating their PPP payroll costs. This would cover insurance plans such as vision, dental, disability and life insurance.
- Allows borrowers who returned all or part of their PPP loan to reapply for the maximum amount applicable. It also allows lenders to recalculate borrower’s loan amounts due to changes in regulations regardless of whether SBA Form 1502 has been submitted.
- Expands PPP eligibility for certain 501(c)(6) nonprofits and Destination Marketing Organizations with 300 or fewer employees that do not receive more than 15 percent of their revenue from lobbying.
- Expands PPP eligibility to local newspapers and TV, and radio stations previously made ineligible by their affiliation with other stations.
- Eliminates the requirement that EIDL advances be subtracted from PPP forgiveness.
Increased PPP Transparency and Accountability
- Codifies the list of ineligible businesses for PPP, which includes publicly traded businesses, certain foreign entities, and entities that are receiving a grant under the live venues grant program.
PPP Additional Eligible Expenses
Makes the following expenses allowable and forgivable uses for Paycheck Protection Program funds:
- Covered operations expenditures. Payment for any software, cloud computing, and other human resources and accounting needs.
- Covered property damage costs. Costs related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance.
- Covered supplier costs. Expenditures to a supplier pursuant to a contract, purchase order, or order for goods in effect prior to taking out the loan that are essential to the recipient’s operations at the time at which the expenditure was made. Supplier costs of perishable goods can be made before or during the life of the loan.
- Covered worker protection expenditure. Personal protective equipment and adaptive investments to help a loan recipient comply with federal health and safety guidelines or any equivalent State and local guidance related to Covid-19 during the period between March 1, 2020, and the end of the national emergency declaration.
Allows loans made under PPP before, on, or after the enactment of this act to be eligible to utilize the expanded forgivable expenses except for borrowers who have already had their loans forgiven.
Clarification of Tax Treatment of Paycheck Protection Program Loans (PPP Expense Deductions)
- Clarifies that gross income does not include any amount that would otherwise arise from the forgiveness of certain loans, Emergency Economic Insurance Disaster Loan (EIDL) grants, and certain loan repayment assistance, as provided by the CARES Act.
- Also clarifies that deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven, and that the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness.
- Special rules are provided for partnerships and S corporations related to basis.
- The provision is effective as of the date of enactment of the CARES Act.
- The provision provides similar treatment for Second Draw PPP loans, effective for tax years ending after the date of enactment of the provision.
Increased Ability for PPP Borrowers to Request an Increase in Loan Amount Due to Updated Regulations
Requires the Administrator to release guidance to lenders within 17 days of enactment that allows borrowers who returned all or part of their PPP loan to reapply for the maximum amount applicable so long that they have not received forgiveness. Additionally, this section allows borrowers whose loan calculations have increased due to changes in interim final rules to work with lenders to modify their loan value regardless of whether the loan has been fully disbursed, or if Form 1502 has already been submitted.
Definition of a Seasonal Employer
- Defines a seasonal employer to be an eligible recipient which: (1) operates for no more than seven months in a year, or (2) earned no more than 1/3 of its receipts in any six months in the prior calendar year.
- Applies to any loan made before, on or after enactment including the forgiveness of the loan.
Grants for Shuttered Venue Operators
- Authorizes $15 billion for the SBA to make grants to eligible live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operators, or talent representatives who demonstrate a 25 percent reduction in revenues.
- The SBA may make an initial grant of up to $10 million dollars to an eligible person or entity and a supplemental grant that is equal to 50 percent of the initial grant.
- In the initial 14-day period of implementation of the program, grants shall only be awarded to eligible entities that have faced 90 percent or greater revenue loss. In the 14-day period following the initial 14-day period, grants shall only be awarded to eligible entities that have faced 70 percent or greater revenue loss. After these two periods, grants shall be awarded to all other eligible entities.
- Such grants shall be used for specified expenses such as payroll costs, rent, utilities, and personal protective equipment.
If you have additional questions, please contact us, or reach out to Phil Hurak or Kevin Dehner with questions.
December 23: Rapid Response Discussion - Coronavirus Relief Act
CSH is hosting a brief webinar to review this legislation and its impact to your business. We will also take questions from the audience.