President Trump signed into law on Sunday, December 27 the Consolidated Appropriations Act, 2021 (“CAA”) bill. Congress passed the extremely comprehensive bill late Monday evening, December 21 which includes government appropriation provisions and the long-awaited stimulus package.

Highlights of the Consolidated Appropriations Act, 2021

It provides $600 stimulus payments to individuals, adds $300 to extended weekly unemployment benefits, and provides more than $300 billion in aid for small businesses. This Act includes fresh Paycheck Protection Program (“PPP”) funding, which the CAA affectionally calls the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (the “Act” – for simplicity). The big news of the CAA is that expenses used for PPP forgiveness are tax deductible. The bill appropriates more than $284 billion dollars creating a second PPP loan called a “PPP second draw” loan (PPP2), which will offer loans through March 31, 2021 (or until funds are exhausted).

Note: To avoid confusion, the first PPP loan program created under the CARES Act will be referred to as “PPP1”, and the second PPP loan program created under the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act will be referred to as “PPP2.”

Here’s a look at some of the key funding.

Individual Benefits

• $166 billion for economic impact payments of $600 for individuals making up to $75,000 per year and $1,200 for married couples making up to $150,000 per year, as well as a $600 payment for each child dependent (16 years or under).
• Unemployment benefits: The jobless would receive a $300 weekly federal enhancement in benefits for 11 weeks, from the end of December through March 14.
• The Pandemic Unemployment Assistance program expands jobless benefits to gig workers, freelancers, independent contractors, the self-employed and certain people affected by the coronavirus. The Pandemic Emergency Unemployment Compensation program provides an additional 13 weeks of payments to those who exhaust their regular state benefits.

Small Business Benefits

• Paycheck Protection Program Second Draw Loans (PPP2)
  • Creates a second PPP loan called a “PPP second draw” loan for smaller and harder-hit businesses, with a maximum new loan amount of $2 million.
  • Eligibility. In order to receive a PPP loan under this section, an eligible entity must:
    • Employ not more than 300 employees;
    • Have used or will use the full amount of its first PPP loan; and
    • Demonstrate at least a 25% reduction in gross receipts in the first, second, or third quarter of 2020 relative to the same 2019 quarter. Provides applicable timelines for businesses that were not in operation in Q1, Q2, Q3, and Q4 of 2019. Applications submitted on or after January 1, 2021 are eligible to utilize the gross receipts from the fourth quarter of 2020.
    • Eligible entities include businesses, certain non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural co-operatives.
  • Simplifies the forgiveness process for loans under $150,000 (PPP1 and PPP2). There will be a simplified one page forgiveness certification for loans under $150,000.
  • There are additional expenses that qualify for forgiveness in forgiveness calculations (PPP2).
  • The covered period for forgiveness expenses no longer has to be either 8 weeks or 24 weeks — it can be anywhere in between those durations.
  • Entities that received EIDL grants of less than $10,000 will be able to apply for an additional payment to bring the total they receive to $10,000. Additionally, the EIDL advance grant no longer reduces the PPP loan forgiveness.

Other Highlights

• $25 billion in emergency rental aid and an extension of the national eviction moratorium through Jan. 31, 2021.
• $10 billion in childcare assistance.
• $13 billion for emergency food assistance, including a 15% increase for six months in Supplemental Nutrition Assistance Program benefits.
• Tax deductible business meals – making the cost of meals 100% deductible business expense. This provision is effective for expenses incurred after Dec. 31, 2020, and expires at the end of 2022.

Payroll Tax Repayment

Employers who are deferring their workers’ payroll taxes under Trump’s executive action from August now have until the end of 2021 to increase their employees’ withholding to pay back the taxes owed. Originally, the deferred amount had to be repaid by April 30.

Employee Retention Credit

• The employee retention credit helps businesses that had 1) seen a quarterly 50% drop in revenue or 2) a government order fully or partially suspends business operations for part of a quarter.  The 2020 credit is up to 50% of qualified wages paid (with limitations). This credit used to be not available if a company took a PPP loan, but that is no longer the case. In other words, you can claim both the ERC and receive a PPP loan as long as you do not use the same wages to qualify for both benefits.
• For the first two quarters in 2021, the drop in revenue threshold has been reduced to 20% and the credit has increased to 70% of qualifying wages (with limitations). The CAA also changes the maximum amount of qualified wages per employee to $10,000 per quarter, which previously was $10,000 per employee per calendar year. In our opinion, with both the 2020 and 2021 changes to this credit, it will become a bigger piece of the liquidity solutions for businesses.
• Extends the ending date for the ERC to June 30, 2021.

Flex Spending Account (FSA) Provisions

Employers have the option to:

• Amend their FSA and Dependent Care FSA plans to allow for a carryover of any unused funds from 2020 to 2021 and from 2021 to 2022.
• Create more expansive grace periods for FSAs and Dependent Care FSAs for plan years ending in 2020 or 2021 to 12 months after the end of such plan year.
  • FSAs and Dependent Care FSAs can reimburse individuals who are no longer active participants in the plan. (Note: If you wish to make this amendment, simply do not send a termination. This will extend coverage for that
    participant.)
  • Employers can raise the last eligible age for children’s dependent care to 13 for the 2020 plan year.
• Amend FSA and Dependent Care FSA plans to permit a prospective change in election amounts for plan year ending in 2021, without a corresponding change in status event (similar to Notice 2020-29 passed in May 2020).

Employers who wish to make any of the above proposed optional changes would have to do so by the end of the calendar year following the plan year they wish to amend. For example, employers would have to amend changes to the plan year ending in 2020 by the deadline of Dec. 31, 2021. Contact your Employee Benefits Administrator as  employers must amend their plan to allow for these new provisions. They are not automatic.

View CAA Full Text

What Does This Mean For You Now?

In most cases, our experts note that it is necessary for businesses to be patient as we wait for the new forms, guidance and processes to be issued by the SBA/Treasury, and lenders before applying for forgiveness for PPP1 or to apply for new PPP funding (PPP2). Our goal is to help you maximize forgiveness. We are here to support you as we wait for clarifying information. 

Action Items To Complete While Waiting

• Check with your lender if they plan to participate in PPP2.
• Start gathering revenue information, by quarter, for 2020 .

For more information, we recommend reading this article by the Journal of Accountancy.