After threatening to veto the legislation, President Trump reversed course and signed the bi-partisan legislation to prevent shut down of the government and provide economic relief to individuals and businesses. Included in the legislation are several important provisions for businesses. As always, the full impact of these changes will not be known until the respective federal agencies issue administrative guidance. In the meantime, here are several key provisions you need to understand.
PPP Loans – An Additional $284B in funds plus the opportunity to take a second loan subject to qualifications
The legislation expands eligibility for non-profits and includes set-asides for very small businesses and community-based lenders. It also includes the opportunity to take a 2nd loan for businesses fewer than 300 employees who have at least a 25% drop in gross receipts in a 2020 quarter compared to the same quarter in 2019. Maximum loan size for the second loan is capped at $2M.
Additionally, the act clarifies that businesses can now deduct expenses paid with forgiven PPP loans from their 2020 taxes. The CARES Act and subsequent guidance had specified that expenses paid with forgiven PPP loans could not be deducted as business expenses.
Extension of the Employee Retention Tax Credit – PPP Borrowers now Qualify
Under the CARES Act, employers who qualified could choose between taking a PPP loan or taking the Employee Retention Tax Credit, which provided a tax credit of 50% of wages up to a cap of $10,000 per employee. The new act extends the time period for the credit through June 30, 2021, increases the credit to 70% of qualified wages, and reduces the required year-over-year gross decline in receipts from 50% to 20%. It also increased the eligible company size from 100-500 employees.
You may have ignored this credit due to taking a PPP loan. Assuming you meet the qualifying criteria (including the reduction in gross receipts) this is a credit you will want to explore further.
FFCRA Leave and tax credits extended through March 2021
Employees will continue to be eligible and you will be able to take the credit for benefits (subject to the caps under the FFCRA) through March 31, 2021.
Deferred Payroll Taxes – employee repayment window extended through December 31, 2021
If you allowed employees to defer paying their share of FICA under the August Presidential memorandum, you know you were to start to recoup those deferred taxes between January 1 – April 30. While the President had wanted these deferrals “forgiven”, the act instead extends the window for collecting the deferred amounts through December 31, 2021. You still have W2 reporting requirements for 2020, however the planned issuance of W2-c’s will likely now change to reporting on 2021 W2’s.
Flexible Savings Account Rollovers now allowed for 2020 and 2021.
The Use-It-Or Lose-It provisions of FSA accounts have been waived for 2020 and 2021 allowing balances to roll into the following plan years. Additionally, there is also a provision for employees to make mid-year changes to their 2021 elections.
Employer Provided Student Loan Repayment under the CARES Act extended through December 31, 2025
The CARES Act had provided for employers to make up to a $5,250 annual contribution to repayment of an employee’s student loans that was excluded from the employee’s income (i.e., not taxable to the employee). While many employers may have opted to not take advantage of this provision in 2020, the extension of it through 2025 makes this an attractive benefit in the attraction and retention of employees.
Work Opportunity Tax Credit (WOTC) extended through December 31, 2025.
While typically an annual occurrence, it is great to see this extended this far into the future. If you are not familiar with WOTC, it provides a federal tax credit for hiring employees from groups that face significant barriers, including long-term unemployed, formerly incarcerated, employees with disabilities, and military veterans.
Deduction for Business Meals.
The deduction has been increased from 50% to 100% for 2021 and 2022.
There is a lot here to digest, and as noted at the beginning there will be a frenzy of new administrative guidelines issued to help us understand how to take advantage of these changes. Make sure you and your team are getting help to understand the impact and ensure you are taking advantage of everything you can to help protect and preserve your businesses.
The CTCS Group is here to help.
Chris Thomas, SHRM-SCP is the Principal Consultant with The CTCS Group in Canton, GA. The CTCS Group is focused on providing HR Leadership, Behavioral Assessments, and Consulting to help small businesses grow and thrive. You can subscribe to this blog or request a free consultation at www.thectcsgroup.com.
Disclaimer: The information and recommendations provided in this document should not be considered legal advice and should not substitute for legal advice where the facts and circumstances warrant. Recommendations are provided based on good faith assessment and interpretation of the available legal and regulatory resources.