The Consolidated Appropriations Act of 2021 (CAA): What Employers Need to Know
Key Points about the Consolidated Appropriations Act of 2021 (CAA):
- Many of the COVID-19 financial aid packages are set to expire at the end of the year. The Act aims to provide additional economic relief to industries, organizations, and individuals affected by the COVID-19 pandemic.
- Key provisions for employers include modifications to PPP loan forgiveness, a second round of PPP loans for the most impacted small businesses, extended and enhanced tax credits, and a final determination on the deductibility of expenses paid using PPP loan proceeds.
On December 27, 2020, President Trump signed another coronavirus stimulus bill. The Consolidated Appropriations Act of 2021 (CAA) provides $900 billion in aid and extends many of the provisions introduced under the CARES Act. Among provisions for individuals, such as direct cash to workers, rental assistance, and a ban on surprise medical bills, the CAA also enhances aid for small businesses and renews the Paycheck Protection Program.
The highlights of this bill include:
Paycheck Protection Program (PPP) Extension & Second Draw Loans
The CAA allocates roughly $285 billion in additional PPP loan funds for small businesses. Businesses that are seeking PPP loan funds for the first time may apply for a First Round (or First Tranche) PPP Loan, which is subject to the criteria set in the CARES Act. Businesses who received PPP loans funds previously may apply for a PPP Second Draw (or Second Tranche) Loan, which is subject to criteria outlined in the CAA.
In addition, the CAA extends the covered period for all PPP loans until March 31, 2021. It also simplifies the forgiveness process for PPP loans of $150,000 or less. If you’re interested in applying for PPP loan funds or your current PPP loan has not yet been forgiven, here’s what you need to know about the changes to the program:
To be eligible for a First Round PPP loan, you must satisfy the requirements described in the CARES Act.
The eligibility requirements for PPP Second Draw loans are a little different. To be eligible for a PPP Second Draw Loan, you must:
- Have been in operation on or before February 15, 2020,
- Employ fewer than 300 employees, AND
- Have had at least a 25% reduction in gross receipts during any quarter of 2020 (when compared to the same quarter in 2019).
Please note: If your business was not operating in the first or second quarter of 2019, you must compare third quarters. If your business was not operating in the third quarter of 2019, you must compare fourth quarters. If your business was not operating in the fourth quarter of 2019, you may compare your first quarter of 2020 with your second, third, or fourth quarter of 2020 (only if you submit an application on or after January 1, 2021).
There may be exceptions for franchises, as well as businesses in the accommodation and food service industries with multiple locations.
The following entities are also eligible for PPP Second Draw Loans so long as they satisfy the above criteria:
- Nonprofit organizations
- Housing cooperatives
- Veterans’ organizations
- Tribal business entities
- Eligible self-employed individuals, sole proprietors, or independent contractors
- Small agricultural cooperatives
If you meet all of the requirements, you are eligible for one PPP Second Draw Loan.
If you’re a new borrower or have not yet been applied for or been granted loan forgiveness, more types of expenses may be eligible for forgiveness. You can still use First Round and Second Draw PPP loan funds for expenses covered under the CARES Act (such as payroll, rent, mortgage, and utilities). However, under the CAA, expenses that may be eligible for forgiveness also include:
- Covered operations costs (such as software, cloud computing services, or other human resources needs)
- Covered property damage costs
- Covered supplier costs
- Covered worker protection costs (such as personal protective equipment)
- Certain group insurance payments (such as group life, disability, dental, and vision insurance benefits)
This list of expanded forgivable expenses applies to all PPP loan borrowers except for those who were already granted loan forgiveness.
For Second Draw PPP loans, you can borrow up to 2.5× your average monthly payroll costs for the calendar year 2019. You cannot borrow more than $2 million.
There may be differences for seasonal employers and businesses that were not in existence before February 15, 2020. NAICS 72 entities can borrow up to 3.5× their average monthly payroll costs or $2 million, whichever is less.
Repayment & Forgiveness
For both First Round and Second Draw PPP loans, you will be forgiven the full amount for any qualifying payments you make during the covered period. This covered period may span anywhere from 8 to 24 weeks after you first receive your PPP loan. You may elect a covered period within this time frame as well. Qualifying payments include those listed under the Use section above.
For the loan to qualify for forgiveness, you must use at least 60% of the loan amount for payroll costs. You must also maintain your employee headcount. If you lay off employees, the amount of loan forgiveness you receive may be reduced accordingly.
The CAA also simplifies the forgiveness application process for borrowers who receive a PPP loan of less than $150,000. This simplified process only applies to borrowers who have not yet had their loan forgiven.
The simplified forgiveness application process requires eligible borrowers to sign and submit a one-page certification that includes the following information:
- The number of employees they were able to retain because of PPP loan funds
- An estimate of the loan amount used for payroll costs
- The total loan amount
The CAA clarifies that expenses paid with forgiven PPP loan funds ARE tax deductible. This reverses the IRS’s position that the expenses were not deductible.
You may apply for a PPP loan until March 31, 2021 or until funds run out. The Act gives the Small Business Administration (SBA) until January 6, 2021 to issue guidance and implement the new rules.
Check with your SBA 7(a) lender, bank, or credit union to make sure they’re participating in the program. Please visit the SBA’s website for a full list of participating lenders and consult your financial advisor for further assistance.
Extended FFCRA Tax Credits & A Note on FFCRA Leave
The CAA does not extend the Emergency Paid Sick Leave and Emergency Family and Medical Leave dictated under the Families First Coronavirus Response Act (FFCRA). These requirements expired on December 31, 2020. As a result, you will not need to provide leave under the FFCRA in 2021. Please check your state and local laws, though, as they may continue to require you to provide this type of leave.
The CAA does, however, extend the tax credits which reimburse you for any emergency paid sick or family leave you provide under the FFCRA until March 31, 2021. Essentially, this means that while you are not required to provide emergency paid sick or family leave under the FFCRA after December 31, 2020, you may choose to do so (as long as the employee still has eligible leave remaining). If you voluntarily provide this leave, you may continue to receive the corresponding tax credits for those leave payments until March 31, 2021.
Extended Employee Retention Tax Credits
The CAA extends Employee Retention Tax Credits until June 30, 2021. This credit covers 70% of qualified payroll expenses (up to $10,000 per employee per quarter) paid after December 31, 2020.
Under the CAA, you can also use an employee retention tax credit in conjunction with a PPP loan (so long as you use it for wages you aren’t paying with funds from a PPP loan).
Economic Injury Disaster Loans (EIDLs)
The CAA provides an additional $20 billion in funding for EIDLs and Emergency Grant Cash Advances. The Act extends the covered period until December 31, 2021.
To be eligible for an Emergency Grant Cash Advance, you must:
- Have fewer than 300 employees AND
- Had at least a 30% economic loss.
If your application is accepted, you may receive an Emergency Grant Cash Advance of $10,000, or the difference between $10,000 and a previous advance grant amount.
EIDLs are not taxable. Additionally, if you receive both an EIDL and a PPP loan, your PPP loan forgiveness will not be impacted. The SBA is set to release additional guidance for borrowers who already had their PPP loan forgiveness impacted by EIDLs.
Extended Unemployment Benefits
The CAA extends unemployment benefits that were set to expire on December 31, 2020 under the CARES Act.
Extended Benefits Period
Unemployed individuals will receive an additional 11 weeks of unemployment benefits. This increases the total unemployment benefits period from 39 weeks to 50 weeks.
Federal Pandemic Unemployment Compensation
Qualifying unemployed individuals will receive $300/week from December 26, 2020 to March 14, 2021 on top of any aid they receive from their state (which averages $200-550/week, depending on the state). This is lower than the $600/week instated under the CARES Act.
Pandemic Unemployment Assistance (PUA) Program
The CARES Act introduced the PUA program to offer financial assistance to workers who wouldn’t typically qualify for unemployment benefits. The CAA extends this program, allowing workers who haven’t yet exhausted their rights to receive assistance until April 5, 2021.
Direct Payments to Workers
The CAA provides one-time direct checks to millions of workers. The actual amount you receive will depend on your marital status and gross annual income.
Single adults who earn less than $75,000/year will receive a $600 check.
Single adults who earn $75,000 – $87,000/year will receive a reduced check amount.
Single adults who earn more than $87,000/year will not receive a check.
Couples who earn less than $150,000/year will receive a $1,200 check.
Couples who earn $150,000 – $174,000/year will receive a reduced check amount that depends on their combined income amount.
Couples who earn more than $174,000/year will not receive a check.
Parents will receive an additional $600 per child under the age of 17.
Additional provisions covered under the CAA that may or may not apply to your employees and organization include:
- Temporary Flexible Spending Account (FSA) relief
- The CAA allows individuals with eligible FSAs to carry-over unused balances into the next plan year. It also makes grace period and election change rules more flexible.
- Extended Employee Social Security Tax Deferral
- Employees may choose to defer their portion of social security tax until December 31, 2021. They must pay these deferred taxes before January 1, 2022.
- Student Loans
- Tax exempt tuition reimbursement programs for student loan repayments are extended to January 1, 2026. You may contribute up to $5,250 in combined tuition reimbursement for each employee.
While the Consolidated Appropriations Act of 2021 (CAA) has faced criticism for not being as comprehensive as it could be, it does still offer relief for businesses to take advantage of. It’s important to note that the regulations and interpretations stated here may change. At Sentric, we’re doing everything we can to accommodate these changes and stay abreast of the latest developments.
From all of us at Sentric, we’re wishing you continued health and safety.
Legal Disclaimer: The information contained in this guide is for general informational purposes only. Under no circumstance shall we have any liability to you for any loss or damage of any kind incurred as a result of the use of the template or reliance on any information provided in this template. Your use of the template and your reliance on any information is solely at your own risk.