The Consolidated Appropriations Act of 2021 (CAA) generally provides annual funding for the federal government. Additionally, this year, the CAA contains several important rules concerning COVID-19 relief. For example, these rules include revisions to the Paycheck Protection Program (PPP) and expansion of the employee retention tax credit. Additionally, the CAA also includes changes to other employer-related tax provisions.
PPP Updates
Included in the CAA is the Economic Aid to Hard-Hit Small Businesses, Non-Profits and Venues Act (Title III). Title III updates the PPP, as originally included within the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Additionally, since the original release, various agencies have released updated guidance on the PPP. The following summarizes some of the changes included within Title III of the CAA:
- Expansion of Loan Uses Eligible for Forgiveness – Title III expands the permitted uses of PPP loan proceeds. These include covered operations expenditures; covered property damage costs; covered supplier costs; and covered worker protection expenditures.
- Definition of Covered Period – The covered period for a PPP loan was 24 weeks (or 8 weeks for borrowers who received their loans prior to June 5th, 2020, and elect to use an 8-week covered period). Title III, however, allows borrowers to select any covered period between 8 weeks after loan origination and 24 weeks after loan origination in length.
- Simplified Forgiveness Application – Title III simplifies the loan forgiveness application and documentation process for many borrowers. First, forgiveness for loans up to $150,000 can occur in full if the borrower submits certification with minimal information. Second, loans over $150,000 will be subject to the Small Business Administration’s (SBA) current loan forgiveness procedures and would remain subject to SBA audit.
- Second PPP Loan Availability – Title III allows eligible entities to receive a second PPP loan (second draw). Specifically, to qualify as an eligible entity, a prospective PPP borrower must: employ not more than 300 employees; and demonstrate a minimum 25% reduction in gross receipts in any quarter of 2020 compared to the same 2019 quarter. Generally, employers can calculate the second draw amount (capped at $2 million) the same as the original PPP loans.
- Loan Forgiveness – Borrowers are eligible for loan forgiveness equal to the sum of various expenses. For example, the costs include payroll costs, covered mortgage, rent, utility payments, covered operations expenditures, and covered worker protection expenditures. These costs must be incurred before the end of the covered period (as mentioned above). The current spending requirement of 60/40 minimum on payroll costs for full forgiveness would continue to apply.
Tax Provision Updates
As mentioned before, the CAA also includes updates to tax provisions related to COVID-19. The following are some of those changes:
- Revised and Expanded Retention Tax Credit – The CAA extends and expands the availability of the employee retention tax credit through June 30th, 2021. There are, however, certain provisions of the CAA that apply only after December 31st, 2020. First, the CAA amends the amount of the employee retention credit to be equal to 70% of qualified wages. These wages include those paid to employees after December 31st, 2020 and before July 1st, 2021. Wages used to calculate the credits are not limited to what employers paid to the employees in any prior period.
- Extension of Credits for Paid Sick and Family Leave – Additionally, the CAA extends tax credits to employers for granting Families First Coronavirus Response Act (FFCRA) sick and family leave. Employers can now receive these credits for granting FFCRA leave until March 31st, 2021.
Employers can review all of the provisions of the CAA here.