United States of America
Welcome to the high-level summary of Covid-19 related actions by the US Federal Government. The details and links below have been split between “Tax Filings Affected”, “Government Employee Wages Benefits Programs” and “Government Loan Programs”; and are extracts from the more detailed information available on the websites of the US Federal Praxity Participant firms’ websites, links to which are available at the bottom of this page. Praxity Participant Firms in USA are Aronson LLC, BKD, LLP, Dixon Hughes Goodman LLP, Kaufman Rossin, MazarsUSA, Moss Adams LLP, and Plante & Moran
Tax Filing Affected
- Since the enactment of the tax reform law in 2017, commonly referred to as the Tax Cuts and Job Act (TCJA), NOLs carried forward are limited to 80% of taxable income for the tax year. The CARES Act suspends this rule until the taxpayer’s first taxable year beginning after 2020 and clarifies that the 80% limitation applies to taxable income computed without regard to deductions for Sections 199A and 250 after taking into account pre-2018 NOL carryovers.
- If deferred, the employer would instead pay 50% of this amount by December 31, 2021, and the remaining 50% by December 31, 2022. The eligible payroll taxes are the employer’s portion of Social Security taxes—6.2% of an employee’s wages. Self-employed taxpayers can also defer the employer’s portion of Social Security taxes in the self-employment tax.
- Eligible employers may claim a credit against Social Security taxes for each qualifying calendar quarter, equal to 50% of qualified wages, and up to $10,000 for all quarters per employee. The maximum credit may be worth up to $5,000 per eligible employee. - Eligible employers operating a business during 2020 must have experienced either:
- A partial or full suspension of the operation of their trade or business during the calendar quarter due to governmental orders that limited commerce, travel, or group meetings due to COVID-19
- A significant decline in gross receipts from 2019 - A significant decline begins with the quarter in which the gross receipts for the quarter were less than 50% of those in the same quarter in the prior calendar year. The decline ends with the quarter in which gross receipts are greater than 80% of the gross receipts for the same quarter in the prior calendar year. - Qualified wages for employers with 100 or fewer employees qualify for the entire credit. For employers with more than 100 employees, the wages eligible for the credit are the wages paid to employees who aren’t providing services due to circumstances described above. - Employers who take advantage of the payroll protection loan—Section 1102 of the act—aren’t eligible. Also, qualified wages don’t include amounts paid for the sick leave credit or The Family and Medical Leave Act (FMLA) credit enacted by HR 6201.
- Section 163(j) interest deduction limitations increased from 30% to 50% of adjusted taxable income for tax years beginning 2019 or 2020. Partnerships, however, remain subject to the 30% limitation for tax years beginning in 2019.
- Federal income tax payments, including payments on self- employment income, have been extended from April 15, 2020 to July 15, 2020. There is no extension request required for the deferral. There is no other extension of payment or deposit for other types of federal tax.
- Recover rebates for qualifying individuals, will receive a tax credit, paid in advance, of up to a $1,200 or $2,400 in the case of married filing-joint taxpayers, plus $500 for each qualifying child, for the 2020 tax year. To receive the full credit, individuals must have an adjusted gross income (AGI) that doesn’t exceed: - $75,000 for single filers - $150,000 for married filing-joint filers - $112,500 for head-of-household filers
- The 10% penalty on early withdrawal of retirement funds won’t apply for any coronavirus-related distributions, up to $100,000, through December 31, 2020, from tax-favored employer-sponsored plans and individual retirement accounts (IRAs)
- Minimum distribution rules are suspended for 2020 for defined contribution plans under Section 403(a) or 403(b), Eligible governmental deferred compensation plans, and IRAS.
- There is an above the line deduction of $300 for charitable contributions in 2020 to qualifying organizations. Also the limit increased from the usual rate of 60% of AGI to 100% of AGI.
- Employers can now make payments toward employee’s qualified educational loans (in addition to the education expenses that were generally allowed), including principal and interest up to $5,250 limit.
Consolidated Appropriations Act Provisions Business Meal Deductions For 2021 and 2022, businesses can deduct the full cost of business meals. Currently, taxpayers generally may deduct only 50 percent of client-related business meals if certain requirements are met. However, at the urging of the White House, the Consolidated Appropriations Act includes a provision for full deductibility of business meals. Note, this provision isn’t retroactive to the 2020 tax year and only applies to food or beverages provided by a restaurant. Other Tax Provisions In addition to the COVID-19 stimulus legislation and omnibus spending provisions, the legislative package also includes the extension of several tax provisions that either previously expired or were set to expire on December 31, 2020. These provisions include:
- Permanent extension of the energy-efficient commercial building deduction and the reduced excise tax rate on beer, wine, and spirit makers
- New Markets Tax Credit, employer credit for paid family and medical leave, exclusion for certain employer payments of student loans, and the carbon dioxide sequestration credit are all extended through 2025
- Ability for individual taxpayers who don’t itemize to take a charitable deduction of up to $300 is extended to the 2021 tax year, and joint filers may deduct up to $600 in 2021
- Suspension of limitations on qualifying charitable contributions extended through 2021
- Extension of various energy-related tax credits (generally through December 31, 2021)
- Enhancements to the low-income housing tax credit
- Depreciation of certain residential rental property over a 30-year period for taxpayers who made the real property trade or business election for purposes of the interest expense limitation under Internal Revenue Code §163(j) In addition, for the 2020 tax year, lower-income individuals may use their earned income from 2019 to calculate the Earned Income Tax Credit and the refundable portion of the Child Tax Credit. This will help those who had lower earned income in 2020 due to the COVID-19 pandemic to potentially receive a larger refund for 2020.
IRS Extends Due Dates for Opportunity Zone Investments & Funds The IRS extended some key dates for Opportunity Zone investments and key tests related to Qualified Opportunity Funds (QOF). In Notice 2021-10, the IRS provides additional relief to QOFs and their investors in response to the COVID-19 pandemic. Notice 2021-10 extends the relief previously granted in Notice 2020-39. Here are key dates that were extended for QOFs and investors:
- If the 180-day reinvestment window falls on or after April 1, 2020, and before March 31, 2021, the reinvestment date is postponed until March 31, 2021—a welcome three-month extension of time for investors to reinvest.
- For existing assets purchased by a QOF or a qualified Opportunity Zone business (QOZB), the period starting on April 1, 2020, and ending on March 31, 2021, is disregarded when determining the 30-month substantial improvement period. Again, this is a three-month extension that helps a QOF or QOZB meet the substantial improvement test.
- QOFs are provided an automatic reasonable cause exception to meet the 90 percent investment standard if the last day of the first six-month period of the tax year, or the last day of the tax year, falls within the period starting on April 1, 2020, and ending on June 30, 2021.
- A QOZB relying on the working capital safe harbor receives an additional 24 months, for a total of 55 months, to meet the safe harbor. Startup businesses receive an additional 24 months, for a total of 86 months, to meet the safe harbor.
- If a QOF’s reinvestment period includes June 30, 2020, the QOF receives an additional 12 months to reinvest a return of capital or a sale of QOF qualified property. Because this also includes relief provided under Notice 2020-39, the maximum reinvestment period adds up to a total of 24 months under both IRS notices.
The IRS extensions provided in Notice 2021-10 grant welcome relief to many QOFs and QOZBs facing delays and challenges related to the pandemic.
Government Employee Wages Benefits Programs
Paycheck Protection Program (PPP)
- Authorizes up to $349 billion designed to help small businesses to fund up to 8 weeks of payroll costs including benefits. Funds are provided in the form of loans that will be fully forgiven when used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). - headcount decreases forgiveness could be reduced. - Qualified employers have 500 or fewer employees and loans are up to $10 million - Application information can be found on the following site: http://www.sba.gov/
- The U.S. Small Business Administration (SBA) has released a loan forgiveness application that borrowers must complete to have their Paycheck Protection Program (PPP) loan forgiven.
- The SBA also released a PPP status update as of June 20, 2020. Lenders have issued approximately 4.7 million PPP loans totaling $515 billion. Due to loan repayments, the remaining funding available is $128 billion until the application deadline of June 30.
- On July 4, President Donald Trump signed into law legislation extending the Paycheck Protection Program (PPP) application deadline from June 30, 2020 to August 8, 2020.
- On July 13, 2020, the U.S. Small Business Association (SBA) released a procedural notice that further details the process for reporting fully disbursed Paycheck Protection Program (PPP) loans and collecting the related processing fee.
- On August 4, 2020, the U.S. Small Business Administration (SBA) issued a set of frequently asked questions addressing loan forgiveness on its Paycheck Protection Program (PPP).
- On August 28, 2020, the American Institute of CPAs (AICPA) released a Technical Questions and Answers covering a lender’s accounting for forgiveness or repayments of a U.S. Small Business Administration’s (SBA) Paycheck Protection Program (PPP) loan. The SBA also issued an interim final rule addressing owner-employee compensation, tenants, subtenants, and home-based businesses, as well as related party rent
- On October 2, 2020, the SBA issued a Procedural Notice, which provides long-awaited guidance for buyers and sellers in transactions where one or more of the companies have a PPP loan.
- On October 8, 2020, the U.S. Small Business Administration (SBA) issued an interim final rule that revises previous guidance to provide relief on the forgiveness process for small borrowers with Paycheck Protection Program (PPP) loans of $50,000 or less and, for PPP loans of all sizes, lender responsibilities for the review of borrower documentation of eligible costs for forgiveness in excess of a borrower’s PPP loan amount.
- On October 28, 2020, the SBA announced it had developed two loan necessity questionnaires it will be using to facilitate the collection of supplemental information its reviewers will use to evaluate borrowers’ good-faith certifications made on their original loan application. Form 3509 is the questionnaire for a for-profit borrower and Form 3510 is for not-for-profit borrowers. Each borrower that—together with its affiliates—received PPP loans with an original principal sum of $2 million or more will be required to complete the questionnaire. After a borrower’s lender has submitted its forgiveness decision to the SBA, the SBA will then send a notification letter to the lender requesting that the borrower complete the questionnaire and provide the requested documentation. The lender must notify the borrower of the SBA’s review and its request to complete the questionnaire. The borrower then has 10 days to complete and submit—with the required support—to the lender
Paycheck Protection Program Flexibility Act
- Extends loan maturity to five years for any portion of the PPP loan that is not forgiven (up from two years). This change would apply only to PPP loans received after the bill’s enactment date; however, existing PPP loans could be modified to reflect the new maturity terms by agreement with the lender and borrower
- Extends application deadline to December 31, 2020, from June 30, 2020
- Extends covered period to the earlier of 24 weeks after loan issuance or December 31, 2020. Borrowers with existing loans could elect to retain the existing eight weeks
- Extends safe harbor restoration deadline date provisions (full-time equivalent (FTE) and salary/wage reduction) to December 31, 2020, from June 30, 2020
- Reduces the minimum required spend for payroll costs for loan forgiveness purposes to 60 percent from 75 percent
- Creates a new safe harbor provision to remove the FTE reduction in forgiveness. Borrowers must be able to document either of the following: Inability to rehire individuals who were employees on February 15, 2020, and inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020, or Inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the secretary of the U.S. Department of Health and Human Services, director of the Centers for Disease Control and Prevention or the Occupational Safety and Health Administration during the period beginning March 1, 2020, and ending December 31, 2020, relating to the maintenance of standards for sanitation, social distancing or any other worker or customer safety requirement related to COVID-19
- Defers principal and interest payments until the U.S. Small Business Administration (SBA) remits the loan forgiveness amount to the lender (currently only a six-month deferral period)
- Loan forgiveness must be requested by the borrowers within 10 months of the last day of their covered period or payments would begin at that time
- Removes restriction on a borrower’s access to payroll tax deferment (previously, borrowers could only take advantage of the payroll tax deferral provision until a borrower receives PPP loan forgiveness)
- On June 22, 2020, the U.S. Small Business Administration (SBA) released an interim final rule (IFR) that includes revisions to two previous IFRs by updating loan forgiveness and SBA loan review procedures guidance in light of the amendments under the recently passed Paycheck Protection Program Flexibility Act of 2020. The IFR conforms previous rules to reflect PPPFA provisions, including the covered period (CP) for forgiveness, nonpayroll costs eligible for forgiveness, reductions in the forgiven amount, and the timing of when borrowers must apply for forgiveness to avoid making payments. It confirms that borrowers may submit forgiveness applications any time on or before the loan matures, including before the end of the CP, provided they have used all of the loan funds for which they wish to apply for forgiveness. The rule also incorporates PPPFA exemptions that preserve loan forgiveness for borrowers that made good-faith attempts to rehire employees or fill vacant positions (and retained a previous exemption for borrowers that have reduced employee hours and offered in good faith to restore them) or whose business could not return to previous levels of business activity because of public health directives. The SBA interpreted the latter exemption to include both direct and indirect compliance with state and local directives that are patterned after directives from the Centers for Disease Control and Prevention (CDC), the U.S. Department of Health and Human Services (HHS), or the Occupational Safety and Health Administration (OSHA).
The Consolidation Appropriations Act The Consolidated Appropriations Act contains several provisions related to the Paycheck Protection Program (PPP), including a second round of PPP loans for certain eligible borrowers: Deductibility of Expenses Paid with PPP Loan Proceeds – The deductibility of expenses paid with PPP proceeds has been a contentious matter between the U.S. Department of the Treasury (Treasury) and Congress. While the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) specifically excluded the forgiveness of PPP loans from taxable income, Treasury and the IRS took a position that expenses paid with forgiven PPP loan proceeds should not be deductible by the borrower. The stimulus bill fixes this. To align with congressional intent, in a very succinct one-sentence provision, the Consolidated Appropriations Act makes expenses paid with PPP loan proceeds 100 percent deductible. This applies to all PPP loans, even if the loans were already forgiven at the date this legislation is enacted. A subtle item in the provision will benefit owners of pass-through entities by not denying a basis step-up in their stock/partnership interest for any tax-exempt income from a forgiven PPP loan. Additional Eligible Nonpayroll Uses of PPP Loan Proceeds – Four additional categories were added for nonpayroll costs eligible for use of the PPP loan proceeds (subject to overall limitation that 60 percent of loan must be used for payroll costs):
- Covered Operations Expenditures
- Covered Property Damage
- Covered Supplier Costs
- Covered Worker Protection Equipment
Selection of Covered Period – This is a welcome clarification for those needing more than eight weeks but not the full 24 weeks to use the PPP loan proceeds. The stimulus bill allows borrowers to select the end date of their covered period. However, it must be greater than eight weeks from the date of disbursement of the PPP loan and not more than 24 weeks. This aligns certain full-time equivalent (FTE) and pay rate reduction provisions with the payroll periods that a borrower includes. Simplified Forgiveness Application $150,000 and Less – For any loan up to $150,000, the covered loan amount will be forgiven if the borrower submits a one-page online or paper form listing the loan amount, the number of employees retained, and the amount of the loan spent on payroll. This will substantially reduce the burden on both borrowers and lenders. The U.S. Small Business Administration (SBA) is directed to release this form within 24 days after enactment of the Consolidated Appropriations Act. Lender Streamline Approval – Under the Consolidated Appropriations Act, lender review is limited to whether the lender received a complete application with all fields completed, initialed, or signed as applicable. If the submission is complete, the lender is required to accept it and forward to the SBA. EIDL Advance Reduction to Forgiveness Amount Repealed – Under current law, a borrower was required to reduce the amount of the PPP loan otherwise forgiven by any Economic Injury Disaster Loan (EIDL) advance received. The Consolidated Appropriations Act repeals this provision. Supplemental Funding Request Related to Initial PPP Loan – SBA issued an interim final rule in May that allowed a borrower to request a supplemental loan if, subsequent to the time of application, regulations were issued that would have increased the loan amount it could have received. This was especially applicable to partnerships. However, this only applied if the lender had not yet submitted what’s known as Form 1502 for the original loan. The stimulus bill removes this restriction and allows supplemental requests in all cases where the loan amount would have changed due to the new rules. Partnerships will want to review this provision for supplemental loan opportunities. Expanded Eligibility for PPP Loans – Most Section 501(c)(6) organizations, i.e., trade groups, chamber of commerce groups, and certain destination marketing companies, would be eligible to apply for PPP loans, provided the organization doesn’t receive more than 15 percent of receipts from lobbying activities, the lobbying activities of the organization do not comprise more than 15 percent of its total activities, and the organization has 300 employees or fewer. In addition, housing cooperatives, newspapers, broadcasters, and radio stations would now potentially qualify. Change in Calculation of Loan Amount for Certain Farmers and Ranchers – The loan amount for certain farmers and ranchers is now based on gross income, not net profit shown on the 2019 Schedule F, but is still limited to two and a half months with a $100,000 annual gross income cap. In other words, a farmer or rancher with no employees could receive a $20,833 loan if the gross receipts on Schedule F for 2019 were $100,000 or greater, regardless of amount of expenses. If the farmer had employees, the loan amount would be increased by the same two and a half months of the average monthly payroll for 2019. The Consolidated Appropriations Act specifically allows a supplemental application for these borrowers. PPP Second Draw Loans – These “second draw” loans are targeted at hard-hit businesses that employ 300 or fewer employees and that have used or will use the full amount of their first PPP loan. The maximum loan under this program is $2 million, based on two and a half months of average annual payroll (three and a half months for NAICS Code 72 entities—generally hotels and restaurants). The measurement period for the payroll can either be calendar-year 2019 or the one-year period before the date the second draw loan is made. Borrowers must show a 25 percent decline in revenue in the first, second, or third quarter in 2020 as compared to the same quarter in 2019 (if the loan application is after December 31, 2020, then a fourth quarter comparison may be used as well). There are special comparison rules for entities not in existence for all of 2019. The same waiver of affiliation rules that applied to the initial PPP loans will apply to the second draw PPP loans. Similarly, the rule covering more than one physical location that applied for the first PPP loans applies to the second draw loans, except the employee limit per location is 300 employees. The forgiveness of the second draw loans follows the rules in the first round of loans, including the various reduction provisions. The revised covered period definition as noted above also applies to the second draw loans. The covered period would, therefore, be any time period selected by the borrower that is more than eight weeks from the date of deposit but not greater than 24 weeks from such time. There are set-asides for the following:
- First-time PPP borrowers with 10 or fewer employees
- Second-time PPP borrowers with 10 or fewer employees
- First-time PPP borrowers that have been made newly eligible by the Consolidated Appropriations Act
- Second-time returning PPP borrowers
Update Late in the evening on January 19, the U.S. Small Business Administration (SBA) posted the simplified Paycheck Protection Program (PPP) loan forgiveness form that was mandated by the 2021 Consolidated Appropriations Act (CAA). The form was released as a revision to the existing Form 3508S and is titled “PPP Loan Forgiveness Application Form 3508S Revised January 19, 2021.”
Update On February 22, 2021, the Biden administration announced several reforms to the U.S. Small Business Administration’s (SBA) Paycheck Protection Program (PPP): – Institute a 14-day period, starting on February 24, 2021, during which only businesses with fewer than 20 employees can apply. – Make a change in the loan calculation for Schedule C borrowers to use gross profit. This would include many sole proprietors, self-employed individuals, and contractors that do not normally have employees. In addition, $1 billion has been set aside for businesses without employees located in low- and moderate- income areas. – Eliminate a restriction that prevents small business owners with prior nonfraud felony convictions from obtaining PPP relief. Currently, a business is ineligible for PPP if it is at least 20 percent owned by an individual who has either: (1) an arrest or conviction for a felony related to financial assistance fraud within the previous five years; or (2) any other felony within the previous year. The recent update would eliminate the second restriction (the one-year look-back) unless the applicant or owner is incarcerated at the time of the application. – Eliminate a restriction that prevents small business owners who are delinquent on their federal student loans from obtaining PPP relief. Currently, the PPP is not available to any business with at least 20 percent ownership by an individual who is currently delinquent or has defaulted within the last seven years on a federal debt, including a student loan. – Clarify that noncitizens may apply using Individual Taxpayer Identification Numbers (ITIN). All lawful U.S. residents may access the program, including ITIN holders, e.g., green card holders or those here on a visa.
Coronavirus Relief Fund The Coronavirus Relief Fund Guidance for State, Territorial, Local, and Tribal Governments was updated on September 2, 2020, to provide additional guidance related to “substantially dedicated” payroll. The update states that public health and public safety employees meet the substantially dedicated test, unless the chief executive (or equivalent) of the relevant government determines that specific circumstances indicate otherwise. This clarification allows that all costs of such employees may be covered using payments from the fund for services provided during the period from March 1, 2020, to December 30, 2020. Payroll Tax Deferral President Donald J. Trump signed an executive memorandum directing the U.S. Department of the Treasury (Treasury) to defer certain payroll tax obligations amid the ongoing COVID-19 pandemic. The Treasury and IRS has also issued Notice 2020-65 with further guidance to employers on how to implement this payroll tax deferral. Any employer required to withhold and pay the employee share of Social Security tax (or railroad retirement tax equivalent) is deemed to be affected by the COVID-19 pandemic and may take advantage of this payroll tax deferral executive order. While it doesn’t specifically state the deferral is optional, the notice’s wording that the due date for withholding and payment of tax is postponed indicates employers have flexibility. The applicable wages are taxable wages to an employee that are less than $4,000 during a biweekly pay period, with each pay period considered separately. No deferral is available to an employee with taxable wages of $4,000 or more for a biweekly pay period. Note: this means it’s possible employees could be above the $4,000 threshold for one pay period and, therefore, not eligible for this payroll tax deferral while remaining eligible in other pay periods when their taxable wages are less than $4,000. Employers will need to carefully monitor the applicable wages each pay period for participating employees.
New Draft Form 7202 for Self-Employed Individuals Taking FFCRA Paid Leave Self-employed individuals also are eligible to receive qualified sick leave wages or qualified family leave wages under the FFCRA. The qualified family leave equivalent amount with respect to an eligible self-employed individual is an amount equal to the number of days (up to 50) during the taxable year that the self-employed individual can’t perform services for which that individual would be entitled to paid family leave, multiplied by the lesser of two amounts: 1) $200 or 2) 67 percent of the average daily self-employment income of the individual for the taxable year. The Consolidated Appropriations Act – COVID-19 Payroll Tax Credits The Consolidated Appropriations Act also extends and expands the Employee Retention Credit (ERC) under the CARES Act and the paid leave credits under the Families First Coronavirus Response Act (FFCRA). ERC – Eligible businesses may now take advantage of the ERC through July 1, 2021. However, the ERC has been expanded and modified for calendar quarters beginning after December 31, 2020, as follows:
- The ERC is expanded from a 50 percent refundable tax credit to 70 percent, and the $10,000 eligible wage limit per employee will be a quarterly limit (previously, this was an annual limit). So instead of a $5,000 credit per employee credit per year, it will be a credit of up to $7,000 per employee per quarter.
- To be eligible for the expanded ERC in 2021, an employer must show that gross receipts for such calendar quarter are less than 80 percent of the gross receipts for the same calendar quarter in 2019 or it experienced a full or partial suspension of operations during the quarter due to a governmental order. There’s also a safe harbor allowing employers to use prior quarter gross receipts to determine eligibility.
- The definition of a large employer for purposes of the ERC is modified to mean more than 500 employees (currently, this threshold is 100 employees). As such, for eligible small to midsize employers (those who averaged 500 full-time employees or fewer in 2019), qualified wages for purposes of the ERC will be wages paid to any employee during the quarter where the employer meets the gross receipts test or experienced a full or partial suspension of operations due to a governmental order. These employers also will be able to receive advances on the ERC at any point during the quarter based on wages paid in the same quarter in a previous year.
In addition, employers who receive PPP loans may still qualify for the ERC with respect to wages that are not paid for with forgiven PPP proceeds. This provision is effective retroactively to the enactment date of the CARES Act.
As of March 2, 2021 the U he U.S. Department of the Treasury (Treasury) and IRS released Notice 2021-20 (Notice), providing guidance on the Employee Retention Credit (ERC) under the Coronavirus Aid, Relief, and Economic Security Act. See guidance here. FFCRA Paid Leave Credits – The FFCRA paid sick leave and expanded FMLA leave payroll tax credits are extended through March 31, 2021, but the FFCRA paid leave mandates were not extended and will expire on December 31, 2020. In other words, FFCRA leave is no longer required in 2021, but if employers want to voluntarily provide these leave benefits through March 31, 2021, they are eligible to take the tax credit for the leave. Note, for employers who want to continue to provide this leave in 2021 and take advantage of these credits, the same daily limits and employee eligibility requirements would continue to apply as if the entire FFCRA was extended through March 31, 2021. These provisions also continue to apply only for employers with fewer than 500 employees.
American Rescue Plan Act of 2021 (ARPA) Individuals
- Direct Payments – This round of recovery rebate checks is expected to be $1,400 for an individual, $2,800 for joint filers, and $1,400 for each qualifying dependent. The payments are subject to an extremely quick phaseout for individuals with adjusted gross income (AGI) between $75,000 and $80,000 ($150,000 and $160,000 for married couples). Unlike prior rounds, eligible qualifying dependents include full-time students under the age of 24 and adult dependents.
- Although the payment amounts are higher than previous rounds of recovery rebates, the phaseout thresholds are narrower, limiting the number of potential recipients. For those who have filed their 2020 tax returns, the recovery rebate checks will be based on 2020 AGI. If a taxpayer hasn’t filed their 2020 tax return, the IRS will use 2019 data. As such, taxpayers at or near the phaseout thresholds should consider the timing of their 2020 tax return filing. The payment will be reconciled on an individual’s 2021 income tax return, so if an individual is eligible for a payment based on 2020 AGI but didn’t receive a check due to 2019 AGI exceeding the threshold, they can claim it as a credit on the 2021 return. In addition, if a taxpayer did receive a check based on 2019 AGI but wouldn’t have qualified based on 2020 AGI, the excess amount received wouldn’t need to be paid back.
- Unemployment Benefits – The Senate version of the ARPA extends the $300 weekly federal unemployment funding set to expire on March 14 through September 6, 2021. In addition, a Senate amendment proposes to make the first $10,200 of 2020 unemployment benefits not subject to federal income tax. As a result, taxpayers who received unemployment income and already filed their 2020 taxes may need to amend their 2020 tax returns accordingly. The bill proposes to limit this benefit to households with AGI of less than $150,000 (for both single and married taxpayers).
- Changes to Tax Credits – The bill proposes to make several changes for 2021 to the earned income tax credit, the child tax credit, and the dependent care credit by increasing the credit percentages and phaseout thresholds. For example, the child tax credit maximum would be raised to $3,600 for each child younger than 6 and $3,000 for other qualifying children, and the credit would be made fully refundable for 2021. The ARPA also instructs the IRS to establish a program to make advances to taxpayers eligible for the child tax credit in the form of periodic payments during the calendar year.
- Extension of Excess Business Losses Limitation – One of the changes made under tax reform was to limit the amount of business losses a noncorporate taxpayer can deduct in a tax year to $250,000 ($500,000 for joint filers). Any disallowed loss would then be carried forward as a net operating loss to the following tax year. This limitation was set to apply to tax years 2018 through 2025. Under the Coronavirus Aid, Relief, and Economic Security Act, the excess business loss limitation was suspended for the 2018 through 2020 tax years. While this suspension still applies, the Senate version of the ARPA added an amendment to extend the sunset date of the excess business loss limitation through December 31, 2026. Accordingly, absent further legislative changes, this limitation will apply to tax years 2021 through 2026.
- Student Loans – The proposed bill language also excludes from taxable income any student loans discharged in 2021 through 2025. Businesses
- Employee Retention Credit (ERC) – The expanded ERC provisions under the 2021 Consolidated Appropriations Act (CAA), set to expire on July 1, would be made available through December 31, 2021, for eligible employers. In addition, startup businesses established after February 15, 2020, with annual gross receipts of up to $1 million and that otherwise do not meet the ERC eligibility tests would now be eligible for the ERC. The startup ERC is capped at $50,000 per quarter, per employer, and the credit would be computed under the regular ERC rules. The revised ERC rules also include a new provision for “severely financially distressed employers,” which is defined as an employer that experienced a gross receipts reduction of more than 90 percent as compared to the same quarter in 2019. If an employer meets this definition, it may treat all wages paid to employees as qualified wages, regardless of the number of full-time employees. Finally, the ARPA includes a provision to extend the normal three-year statute of limitations to five years for the IRS to make an assessment of any amount attributable to the ERC. The amendments to the ERC made by the ARPA are effective for calendar quarters after June 30, 2021.
- Families First Coronavirus Response Act (FFCRA) Paid Leave Credits – The paid sick and expanded Family and Medical Leave Act credits made available under the FFCRA continue to be available to eligible employers through September 30, 2021. However, the ARPA makes several changes to the credits for wages paid between April 1, 2021, and September 30, 2021, including increasing eligible wages to $12,000 per employee (up from $10,000 in 2020), expanding types of leave to include vaccination, and covering as many as 60 days of paid family leave for self-employed individuals (instead of 50 days under previous law). As a reminder, under the last COVID-19 stimulus bill, the FFCRA employer mandate to provide paid sick and expanded family leave due to COVID-19 reasons wasn’t extended into 2021, but if an employer is otherwise eligible and chooses to voluntarily provide such leave in 2021, the tax credits continue to be available.
- Executive Compensation – Internal Revenue Code Section 162(m) generally prohibits publicly traded employers from taking a deduction for executive compensation in excess of $1 million. Currently, this limitation applies to the CEO, CFO, and the next three highest compensated officers, but beginning in 2027, the ARPA would expand the application of this limitation by five employees, e.g., a publicly traded company’s eight highest compensated employees other than the CEO and CFO.
Government Loan and Support Programs
Economic Injury Disaster Loan Program (EIDL)
- Once a declaration is made for designated areas within a state, the information on the application process for Economic Injury Disaster Loan assistance will be made available to all affected communities as well as updated on our website: SBA.gov/disaster.
- SBA’s Economic Injury Disaster Loans offer up to $2 million in assistance and can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.
- These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The interest rate is 3.75% for small businesses. The interest rate for non-profits is 2.75%.
- SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.
- The SEC has given public companies that were to file between March 1, 2020 and July 1, 2020 an additional 45 days to file.
Families First Coronavirus Response Act
- Requires employers with fewer than 500 employees to provide paid sick leave to employees that are forced to stay home due to quarantining or to care for family members or to care for a child if the school or place of care is closed. The employer can claim a tax credit equal to 100% of the sick leave wages paid limited to $200 per day with a total limit of $10 thousand.
- If the individual is subject to government Covid-19 quarantine orders, has been advised to self- quarantine by a healthcare provider, or is experiencing symptoms of Covid-19 and is seeking diagnosis, the individual employer is qualified to receive a credit of $511 per day.
Main Street Lending Program Businesses with up to 15,000 employees or up to $5 billion in 2019 annual revenues may participate. The Fed released FAQ clarified that affiliation rules under the PPP apply to the MSLP size requirements. Eligible businesses need to have been created and organized under U.S. law before March 13, 2020 and must:
- Be domiciled in the United States, with significant U.S. operations.
- Have a majority of their employees based in the United States.
- Be eligible businesses as modified and clarified by the SBA for purposes of the PPP.
- Participate in only one of the Main Street facilities and not the Primary Market Corporate Credit Facility (PMCCF).
- Have been in sound financial condition prior to the onset of the COVID-19 pandemic.
Businesses that receive loans under the PPP are eligible for the Main Street Lending Program. While nonprofit organizations aren’t eligible for this program, the Federal Reserve and Treasury Department will be evaluating the feasibility of adjusting the borrow eligibility criteria for such organizations. Through the Main Street New Loan Facility (MSNLF), the Main Street Primary Loan Facility (MSPLF), and the Main Street Expanded Loan Facility (MSELF), the Main Street SPV will purchase between an 85% and 95% participation in either new, unsecured term loans from $500,000 up to $25 million through the MSNLF or MSPLF and allow lenders to upsize existing facilities through the MSELF in tranches from $10 to $200 million.
324MSLP has been expanded some of the changes are as follows:
- Maximum term: 5 years (previously, 4 years; there’s no penalty for early payment)
- Minimum loan size: MSNLF and SMPLF reduced to $250,000 (previously, $500,000); MSELF remains at $10 million
- Maximum loan size: The calculation is now the lesser amount of leverage calculations (which remained the same) and now, these new maximums for the MSNLF $35 million (vs. $25 million); MSPLF $50 million (vs. $25 million); and MSELF $300 million (vs. $200 million)
- Principal deferral: 2 years for all facilities (previously 1 year)
- Interest deferral: 1 year for all facilities (no change)
- Principal payment schedule: MSNLF 15%, 15%, 70% in Years 3 through 5, vs. previously equal 33% payments each year; MSELF and MSPLF 15%, 15%, 70% in Years 3 through 5, vs. previously 15%, 15%, and 70% in Years 2 through 4
- Interest rate: LIBOR +3%, no change
- Risk retention by the lender: MSPLF reduced to 5% from 15%; the other two facilities remain at 5%
On December 29, 2020, the U.S. Treasury extended the Main Street lending program’s termination date to January 8, 2021, to allow more time to process and fund loans that were initially submitted to the lender portal on or before December 14, 2020.
Main Street Non-for-Profit The Federal Reserve (Fed) finalized details for two new programs specifically designed for not-for-profit (NFP) organizations: Nonprofit Organization New Loan Facility and Nonprofit Organization Expanded Loan Facility. Based on feedback received on the June proposal, the Fed has made several key changes to the programs:
- Employee threshold reduced from 50 to 10
- A limit on donation-based funding was erased
- Adjustments were made to financial eligibility criteria to accommodate a wider range of NFP models On August 6, 2020, the Federal Reserve Bank of Boston (BOS) released an updated Frequently Asked Questions
Municipal Liquidity Facility The MLF special purpose vehicle (SPV) will provide up to $500 billion in lending to state and local governments through the direct purchase of short-term notes. Eligible notes include tax anticipation notes (TAN), tax and revenue anticipation notes (TRAN), bond anticipation notes (BAN) and other short-term notes that mature no later than 36 months from issuance date. Proceeds can be used to help manage delayed cash flows from tax deadline extensions, revenue and tax reductions, COVID-19-related expenses or required principal and interest payments on government obligations.
Coronavirus Food Assistance Program (CFAP) The program will provide up to $16 billion in direct payments to help deliver relief to America’s farmers and ranchers affected by the SARS-CoV-2 virus and incidence of COVID-19. Applications will be accepted beginning on Tuesday, May 26, 2020, through local Farm Service Agency (FSA) offices.
The CFAP will provide vital financial assistance to producers of agricultural commodities who have suffered 5 percent or greater price decline due to COVID-19 and face additional significant marketing costs as a result of lower demand, surplus production, disrupted shipping and transportation patterns and the orderly marketing of their commodities. Farmers and ranchers will have the opportunity to receive direct support from two funding sources. The first source is $9.5 billion in appropriated funding provided by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to compensate farmers for losses due to price declines that occurred between mid-January and mid-April 2020 and provides support for specialty crops for products that had been shipped from the farm in the same time frame but subsequently spoiled due to the loss of marketing channels. The second funding source uses the Commodity Credit Corporation (CCC) Charter Act to compensate producers for $6.5 billion in losses due to ongoing market disruptions. There is a payment limitation of $250,000 per person or entity for all commodities combined. Applicants that are corporations, limited liability companies or limited partnerships may qualify for increased payment limits where members actively provide personal labor or personal management of 400 hours annually for farming operations up to $250,000 per shareholder or partner (not to exceed three) for a maximum benefit of $750,000. Producers will have to certify they meet the adjusted gross income (AGI) limitation of $900,000 for tax years 2016 through 2018 unless at least 75 percent or more of their income is derived from farming, ranching or forestry-related activities. Producers also must be in compliance with the Highly Erodible Land Conservation and Wetland Conservation provisions. Participation in the U.S. Small Business Administration’s Paycheck Protection Program (PPP) or Economic Injury Disaster Loan program does not affect producer eligibility for the CFAP or any USDA farm program. The PPP duplicate benefit provision does not have an effect on FSA farm programs or farm loan programs.
Coronavirus Food Assistance Program 2 (CFAP 2) Applications for the original $19 billion Coronavirus Food Assistance Program (CFAP 1) administered by the U.S. Department of Agriculture (USDA) ended for most producers on September 11, 2020. A second program, CFAP 2, was opened from September 21 through December 11, 2020. The USDA reopened CFAP 2 for signups on April 5, 2021, for at least 60 days to either apply or make modifications to an existing CFAP 2 application. New Loan Guidance On August 3, 2020, the Federal Financial Institutions Examination Council issued guidance on the continuing need for loan accommodations and insights on the related accounting and internal control issues. While some borrowers may be able to resume contractual payments at the end of the initial accommodation period, other borrowers may face continued financial challenges. This new guidance clarifies how earlier relief from troubled debt restructuring (TDR) accounting in Coronavirus Aid, Relief, and Economic Security Act (CARES Act) Section 4013 might be extended to additional accommodations as follows:
- If a financial institution elects to account for a loan modification under §4013, an additional loan modification also could be eligible under §4013 if the subsequent loan modification meets the following criteria: COVID related, Executed on a loan that was not more than 30 days past due as of December 31, 2019, Executed between March 1, 2020, and the earlier of 60 days after the date of termination of the national emergency or December 31, 2020
- If a financial institution does not elect to account for a loan modification under §4013 or a loan modification is not eligible under §4013, additional modifications should be viewed cumulatively in determining whether the additional modification is a TDR
- For all other subsequent loan modifications, a financial institution can appropriately evaluate the subsequent modifications by referring to applicable regulatory reporting instructions and internal accounting policies to determine whether such modifications are accounted for as TDRs
HHS Provider Relief Funding Eligibility Per the notice, allocation of funds under this general distribution will be open to the following providers:
- Providers that previously received, rejected, or accepted a general distribution Provider Relief Fund (PRF) payment. Providers that have already received payments of approximately 2 percent of annual revenue from patient care may submit more information to become eligible for an additional payment
- Behavioral health providers, including those that previously received funding and new providers
- Healthcare providers that began practicing January 1, 2020, through March 31, 2020. This includes Medicare, Medicaid, CHIP, dentists, assisted living facilities, and behavioral health providers This is welcome news to providers that were ineligible for previous funding, such as those that began practicing in 2020 and certain behavioral health providers that are confronting the emergence of increased mental health and substance abuse issues. Payment Criteria Method Payments to eligible providers will be allocated based on the below criteria:
- Provider applications will be reviewed for comparison to confirm previously received PRF payments to equal approximately 2 percent of patient care revenue from prior general distributions -Applicants that haven’t yet received PRF payments of 2 percent of patient revenue will receive a payment that, when combined with prior payments (if any), equals 2 percent of patient care revenue
- With the remaining balance of the $20 billion budget, an equitable add-on payment will be calculated considering: -A provider’s change in operating revenues from patient care -A provider’s change in operating expenses from patient care, including expenses incurred related to coronavirus -Payments already received through prior PRF distributions
Application Deadline Providers can submit their application from Monday, October 5, 2020, through November 6, 2020. HHS urges providers against waiting to apply until the last week of the application window, and to apply early to help expedite the review process and distribution of funds to as many providers as possible.
Update On November 18, the U.S. Department of Health & Human Services (HHS) issued two long-awaited clarifications related to Provider Relief Fund (PRF) reporting. These clarifications relate to the treatment of capital expenditures and year-over-year lost revenue calculations. Both clarifications are generally considered favorable to providers in PRF reporting.
Update On January 15, 2021, the Health Resources & Services Administration (HRSA) opened the much-awaited Provider Relief Fund (PRF) Reporting Portal (Portal). The Portal, which is to be used by providers who received one or more payments exceeding $10,000 in the aggregate, is where providers will submit to HRSA the usage of PRF payments.
Consolidated Appropriations Act The Consolidated Appropriations Act also includes additional funding and assistance to taxpayers affected by COVID-19, including:
- Direct payments – A second round of Economic Impact Payments of $600 for individuals making up to $75,000 per year and $1,200 for couples making up $150,000 per year, as well as a $600 payment for each dependent child. This means a family of four could receive $2,400 in direct payments. Treasury Secretary Steven Mnuchin has indicated these payments will start going out to families as early as next week. Note, similar to the CARES Act, this provision doesn’t provide payments for adult dependents, e.g., dependents above the age of 17, which includes college students.
- Unemployment insurance – The federal unemployment insurance benefits provided by the CARES Act, which expired in July, are renewed to provide an additional $300 per week for all workers receiving unemployment benefits through March 14, 2021.
- Funding for schools – $82 billion has been allotted to providing funding for states, K-12 schools, and higher education institutions significantly affected by the coronavirus pandemic.
- Rental assistance – This legislation establishes an emergency federal rental assistance program to be distributed by state and local governments and directed to assist those affected by COVID-19 who are struggling to make rent. Assistance under this program applies to past-due rent and future rent payment, as well as to pay utility and energy bills and prevent shutoffs.
- Vaccine research and distribution – Funding is earmarked for vaccine testing and distribution, with a portion of funding sent directly to states for testing, tracing, and COVID-19 mitigation programs.
- Coronavirus Relief Fund extension – This bill extends the spending deadline to December 31, 2021, for funds previously appropriated to states and localities by the Coronavirus Relief Fund in the CARES Act.
American Rescue Plan Act of 2021 (ARPA)
- Restaurant Grants – The ARPA establishes a $25 billion Restaurant Revitalization Fund for 2021 to be administered by the U.S. Small Business Administration (SBA). Of this funding, $5 billion is allocated to restaurants whose gross receipts in 2019 were less than $500,000, and the first 21 days of the program prioritizes small businesses owned by women, veterans, or socially and economically disadvantaged individuals. Eligible entities include restaurants, food trucks, bars, caterers, taprooms, and other similar places of business in which the public or patrons assemble for the primary purpose of being served food or drinks. However, publicly traded companies, state or local government-operated businesses, entities (together with their affiliates) that have more than 20 locations, and entities that applied for a shuttered venue operator grant don’t qualify. Grant amounts will be limited to a restaurant’s pandemic-related revenue loss (measured as the difference in gross receipts in 2020 compared to 2019) up to $10 million and limited to $5 million per physical location. Note, if the grant is made based on estimated amounts for a loss in 2020 and the actual revenue loss is less than the grant amount, or the restaurant doesn’t use all the grant proceeds before the last day of the covered period (December 31, 2021, or a later date as determined by the SBA), the restaurant must return the extra grant amount to the U.S. Department of the Treasury. Grant proceeds may be used to cover payroll costs, mortgage payments, rent, utilities, maintenance expenses, operational expenses, paid sick leave, and supplies. Any funds an entity receives from the restaurant revitalization fund won’t be treated as taxable income, and expenditures paid with grant funds will still be deductible.
- SBA Loan Programs – This bill provides an additional $7 billion in Paycheck Protection Program (PPP) funding and expands eligibility for PPP loans to a wider sphere of nonprofit entities and internet publishing organizations. Importantly, eligible nonprofit organizations would now qualify for a PPP loan as long as they employ not more than 500 employees per physical location (300 per physical location for Second Draw loans) and meet all other criteria. The ARPA also provides for an additional $15 billion in funding for targeted Economic Injury Disaster Loan (EIDL) advances. One-third of this EIDL funding is earmarked for businesses that suffered a revenue loss of greater than 50 percent and employ fewer than 10 people.
- Shuttered Venue Operators Grants – The ARPA provides an additional $1.25 billion to the shuttered venue operators grant program. It also removes the requirements under the CAA that prohibited an entity from both receiving a PPP loan after December 27, 2020, and being eligible for a shuttered venue operators grant. Instead, the amount of the grant should be reduced by the PPP loan amount received after December 27, 2020. Given that the current PPP application deadline is March 31, 2021, and the shuttered venue program isn’t yet accepting applications, organizations that may qualify for both will want to act quickly to consider whether to apply for a PPP loan.The U.S. Small Business Administration (SBA) has announced plans to open the SVOG application process on April 8, 2021. The SBA has released seven sets of frequently asked questions.
- Farm Loan Assistance for Socially Disadvantaged Farmers & Ranchers (§1005) - The ARPA provides a payment up to 120 percent of the outstanding indebtedness of each socially disadvantaged farmer or rancher as of January 1, 2021, for debt relief from a direct or guaranteed Farm Service Agency (FSA) loan or a Commodity Credit Corporation Farm Storage Facility loan. The extra 20 percent is intended to address taxes following the debt relief. Unlike other ARPA provisions, there is no cap on this expenditure, “such funds as may be necessary, to remain available until expended, for the cost of the loan modifications and payments.”
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Further Covid-19 advice
The information contained herein on Covid-19 government measures within the G8, consists solely of information that can be found on the websites of one or more Praxity Participant firms, and has not been written, modified or verified by Praxity, it’s staff, officers or directors.