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Client Update – New Stimulus Bill 12/31/2020

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CLIENT UPDATE: On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021, which includes approximately $900 billion in additional stimulus relief related to the COVID-19 pandemic. The long-awaited relief package contains, among other provisions, a second round of direct payments to individuals, additional funds for the popular Paycheck Protection Program, an extension of federal unemployment benefits, and further rental assistance.

Some of the key pandemic relief related provisions included in the over 5,000-page piece of legislation are outlined below, but please note that this publication only highlights some of the more noteworthy portions of the new law. It does not cover every provision and detail contained in the extensive new law. If you have any particular questions, the attorneys at Wadleigh, Starr & Peters, PLLC may be able to assist.

Direct Payments:

The new stimulus package sets aside $166 billion for additional direct payments to individuals. These are one-time direct payments of up to $600 for individuals making up to $75,000 per year, and $1,200 payments for couples making up to $150,000 per year. There is also an additional payment of $600 per eligible minor dependent. The financial thresholds are based upon 2019 adjusted gross income levels, and the payments are phased out over those limits, such that filers with an adjusted gross income of over $87,000 if filing individually, or over $174,000 for those filing jointly, would not receive any payments at all. 

Paycheck Protection Program:

The new law provides an additional $284 billion to reopen the popular Paycheck Protection Program (PPP) for a second round of potentially forgivable loans to small businesses. This bill, however, includes certain modifications to the PPP to ensure funds reach small businesses that desperately need the relief. For example, the new bill provides that eligible applicants cannot have more than 300 employees and must demonstrate at least a 25% loss of gross receipts in any quarter during 2020 when compared to the same quarter in 2019. The loans are also now capped at $2 million, and 60% of the total loan must be used towards payroll while the remaining funds can be used towards other eligible expenses, such as rent and utilities. Additionally, eligibility for PPP loans has been expanded somewhat to include additional businesses, the forgiveness process for loans of less than $150,000 has been simplified, and certain small businesses – such as restaurants – may be eligible to receive larger awards. This program has been extended through March of 2021.

Other Small Business Relief:

In addition to supplementing and extending the PPP, the new law also provides other funding for existing and new programs to help small businesses that have struggled during the pandemic. Some of these appropriations include:

  • $20 billion for the Economic Injury Disaster Loan (EIDL) Advance grant program, which provides $10,000 grants to small businesses and nonprofits located in low-income communities.
  • $15 billion for shuttered venue operators, which provides SBA grants of up to $10 million dollars to live venues, independent movie theaters, and other live performing art organizations that have experienced an economic impact due to the pandemic.   
  • $3.5 billion for continued debt relief payments of principal and interest on certain small business loans guaranteed by the SBA.
  • $2 billion to enhance certain other SBA programs.   

Families First Coronavirus Response Act

            The Families First Coronavirus Response Act (“FFCRA”), which requires employers to provide paid sick leave for COVID related absences and expands FMLA to include leave to care for children whose school or daycare had been closed due to COVID, is still set to expire on December 31, 2020.  However, the new law extends the refundable payroll tax credits for paid sick and family leave through March 31, 2021. Thus, employers who elect to voluntarily provide the paid leave may take advantage of the tax credits.  The law also allows self-employed individuals to elect to use their average daily self-employment income from 2019, rather than 2020, to compute the credit.

Tax Provisions:

The new law extends and enhances several tax credits and incentives previously established under the CARES Act. Perhaps most importantly, the law expands and extends the Employee Retention Tax Credit (ERTC) though July 1, 2021, which will help small businesses across the country retain employees. Notably, the bill increases the credit rate from 50% to 70% for qualified wages and increases the limit on per employee creditable wages from $10,000 per year to $10,000 per quarter. It also expands eligibility by reducing the required year-over-year gross receipts decline from 50% to 20%, and it increases the threshold for treatment as a “large employer” from 100 employees to 500 employees. The law further provides that employers who receive PPP loans can still qualify for the ERTC with respect to wages that are not paid with forgiven PPP loan proceeds.

In addition, the new law:

  • Includes a payroll tax deferral whereby workers whose payroll taxes have been deferred since September 2020 would be given until December 31, 2021 to pay the government back, instead of by April 30, 2021.
  • Extends charitable giving incentives through 2021, allowing a $300 above the line deduction for individuals who do not itemize their deductions.
  • Temporarily allows a 100% business expense deduction for meals (up from 50%) as long as the food or beverages are provided by a restaurant. This tax incentive is effective for expenses incurred after December 31, 2020 and expires at the end of 2022.
  • Clarifies the tax treatment of the PPP and other SBA programs. Specifically, forgiven PPP loans, EIDL grants, and certain loan repayment assistance will not be treated as taxable income, and deductions are allowed for expenses paid with proceeds from such programs.

Unemployment Benefits:

The new law allocates $120 billion in additional federal funding with respect to unemployment insurance. In particular, the law:

  • Revives and extends the Federal Pandemic Unemployment Compensation (FPUC) program through March 14, 2021, thereby providing $300 per week in additional unemployment benefits for individuals who are unemployed and receiving any unemployment benefit from December 26, 2020 through March 14, 2021.
  • Extends the Pandemic Emergency Unemployment Compensation (PEUC) program from 13 weeks to 24 weeks. Under the PEUC program, individuals who have exhausted their regular state unemployment benefits can now receive federally funded benefits for up to 24 weeks.
  • Extends the Pandemic Unemployment Assistance (PUA) program, which provides unemployment benefits to certain workers not traditionally eligible for state unemployment benefits, such as self-employed individuals, independent contractors, freelancers, and other individuals in non-traditional employment setting.

Further, note that, under the PEUC and PUA programs, applications will not be accepted after March 14, 2021; however, those individuals receiving benefits prior to March 14, 2021 can still receive benefits until April 5, 2021.

Moreover, in addition to the extension of previously established unemployment benefit programs under the CARES Act, the new relief package also establishes the Mixed Earner Unemployment Compensation program, which provides up to a $100 per week benefit to individuals who receive at least $5,000 a year in self-employment income. This $100 weekly benefit can be in addition to both any other unemployment benefits the individual would otherwise be entitled to receive under traditional state unemployment and the $300 per week benefit under the FPUC. Similar to the FPUC and PUA programs, the Mixed Earner Unemployment Compensation program extends through March 14, 2021.

Rental Assistance:

The new law provides some much-needed relief to Americans struggling to make their monthly rental payments and for those who face imminent eviction for non-payment of rent. Notably, the bill extends the CDC rental eviction moratorium through January 31, 2021. It also allocates $25 billion for a new program through the U.S. Treasury Department that will provide emergency rental assistance to families across the country that have been impacted by the COVID-19 pandemic. The funds distributed from this program can be used towards rent (past and future), as well as towards energy and utility expenses.

Healthcare:

The law allocates significant funds to assist hospitals and healthcare providers with combating the COVID-19 pandemic and to assist in vaccine distribution. For example, the law provides approximately $20 billion for the manufacturing and production of vaccines. Additionally, more than $8 billion has been allocated to the CDC and the states for vaccine distribution. The law also provides over $20 billion to states to assist with testing, contact tracing and other COVID-19 mitigation programs. Among other healthcare related appropriations, the law also directs an additional $3 billion towards hospitals and health care providers for reimbursement of healthcare related expenses resulting from the pandemic.  

Other Allocations

            The new law provides for a variety of other allocations as well. For example, about $13 billion has been allocated for agricultural production, $45 billion for the transportation sector (including $15 billion for airlines to support their payrolls), $10 billion for the US Postal Service, and over $80 billion for education funding. These examples are just a small sampling of some of the funds allocated through this new legislation.   

Conclusion

            As discussed above, the new law provides some critical and much needed pandemic relief. However, some politicians are calling for additional aid. For example, President Trump has challenged Congress to increase the direct payments to individuals, and it appears that the House has already voted to increase the amount of such payments to $2,000. Whether the Senate approves such an increase, however, remains to be seen. Additional funding, or other forms of pandemic relief, could be forthcoming as well in the near future. Wadleigh’s COVID-19 Response Team will continue to monitor this situation closely and provide updates as the situation develops.

            Please note that this publication only highlights some of the key provisions of the new stimulus relief package. It does not cover every provision and detail contained in the over 5,000-page law. The full text of the law can be found here: https://assets.documentcloud.org/documents/20433222/bills-116hr133sa-rcp-116-68.pdf

Finally, if you have a specific question regarding this new stimulus package and how it may affect you or your business, the attorneys at Wadleigh, Starr & Peters, PLLC can assist.