President Trump Signs COVID-19 Bill Into Law

On Sunday, December 27 President Trump signed a massive coronavirus relief package into law. The legislation was part of a bigger Omnibus bill that also ensured the federal government continued to be adequately funded through September 30, 2021. The relief bill helps to inject much needed stimulus into the economy and to individuals as a response to the continued distress caused by the COVID-19 pandemic.

Prior to the Christmas holiday both the Senate (92-6) and the House (359-53) overwhelmingly passed the legislation with bipartisan support.

Below is a summary of the major items that could impact our business clients. If after reviewing you have any questions or need further interpretation of the new law, we are here to answer those questions.

1) Clarification of Tax Treatment of Forgivingness of PPP Loans

The CARES Act provided that amounts forgiven under the PPP loan provisions should be excluded from gross income.

In May 2020, the Department of Treasury provided guidance in Notice 2020-32 that any expenditures attributed to amounts forgiven PPP loan would be treated as non-deductible expenses.

Congress “clarified” that expenditures related to a forgiven PPP loan will continue to be deductible according to normal tax rules. Further, no adjustments will be made to tax basis of assets, or other reduction in tax attributes, on account of the forgiveness of such a loan.

A special rule addresses owners of partnerships and S corporations and provide that the forgiveness of the loan will be treated as exempt income for purposes of allocating income and the related adjustments to the basis of the owners’ interest in the partnership or S corporation.

2) Tax Treatment of Subsequent PPP Loans, Other Covered Loans and Other Relief Programs.

The tax treatment afforded to amounts forgiven under the PPP Loans will also apply to the subsequent PPP loans.

Similar tax treatment will apply to recipients of forgiven indebtedness described in Section 1109(d)(2)(D) of the CARES Act (Treasury Program Management Authority).

Likewise, the same treatment extends to other relief provisions under the CARES Act, such as the receipt of emergency EDIL grants and loan repayment assistance under the subsidy for certain SBA loans.

Targeted EIDEL advances and Grants for Shuttered Venue Operators likewise receive similar favorable treatment, and such amounts may be excluded from income, without the disallowance of expenses, basis adjustments or loss of tax attributes.

3) Payroll Tax Repayment

Employers who elected to defer their workers' payroll taxes under the President’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.

4) Payroll tax credits are extended and expanded.

Payroll credits for paid sick leave and emergency FMLA leave included in the Families First Coronavirus Response Act (FFCRA) are extended through March 31, 2021. Initially they were set to expire at the end of 2020.

The employee retention credit’s applicability has also been expanded and extended through June 30, 2021. Eligible businesses must demonstrate calendar-quarter gross receipts are less than 80 percent of the same calendar quarter in 2019. In addition, businesses can potentially participate in both the PPP and employee retention credit; provided they don’t use the same expense for both programs.   The refundable credit is amended to be 70 percent of wages (previously 50 percent) up to $10,000 per employee for any calendar quarter.

5) Waiver of Certain Modifications to Farming Losses

The CARES Act changed the carryback provisions from two years to five years for net operating losses from farming.

The Act now provides that taxpayers may elect to waive the five year carryback and retain the original two year carryback.

Additionally, taxpayers are permitted to revise previously made elections with respect to the carryback.

6)  Agricultural Programs

Provides $11.2 billion to support agricultural producers, growers, and processors. Key aspects include (1) payments to livestock/poultry growers for losses suffered due to insufficient processing access or contract changes related to COVID-19; (2) no less than $1.5 billion to purchase food and agricultural products and provide loans and grants to small and midsize food processors or distributors (including seafood processors/distributors); and (3) payments to producers of advanced biofuel, biomass-based diesel, cellulosic or conventional biofuels, or other renewable fuels due to COVID-19 market losses.

7) Support for Dairy, Livestock, and Farm Stress

Provides $400 million to pay for milk to be processed into dairy products and donated to nonprofit entities.

Provides $60 million for facility upgrade and planning grants to meat and poultry producers to transition to federal inspection.

8) FCC COVID-19 Telehealth Program

Section 903 appropriates an additional $250 million for the FCC COVID-19 Telehealth Program authorized under the CARES Act.

The section provides for increased oversight to the existing telehealth program to ensure funds are allocated to eligible applicants in each state and the District of Columbia such that not less than one applicant in each state (and the district) receives funding under the program, unless no such applicant is eligible from a state or the district.

9) Return to Work Reporting Requirement

There is now further and clearer guidance on how to report an employee who refuses to return to work, as well as plain language about returning to work

10) Modifications to the Credits for Paid Sick and Family Leave

The FFCRA previously provided for mandatory leave for paid sick leave and family leave for small employers (fewer than 500 employees). The provisions provide for a maximum number of paid hours in different categories of leave. Employers receive a tax credit for providing such payments, subject to income limits and caps. Originally, such provisions terminated effective December 31, 2020.

The Act provides that eligible employers may continue to provide the paid sick leave and family leave through March 31, 2021. Employers that “opt in” to the paid leave will continue to be eligible for the corresponding tax credit. However, the number of eligible hours for each employee in each category is not reset.

The paid leave provisions are expanded to cover self-employed individuals so that eligibility is determined in the same manner as if they worked for a third party employer.

Self-employed individuals may opt to calculate eligible benefits by using daily average net earnings from 2019 instead of basing such calculations only on 2020 income.

11) Election to Terminate Transfer Period for Qualified Transfers from Pension Plan for Covering Future Retiree Costs

Permits employer/sponsor of pension plan the ability to make an election to terminate any existing transfer period effective as of any taxable year specified by the sponsor.

Specified taxable year must begin after the election date.

Assets previously transferred to either health benefits or life insurance account in prior, qualified future transfer (and related income), which were not used as of the election effective date, are required to be transferred back to transferor plan within a reasonable amount of time.

Assets transferred back to transferor plan are treated for certain purposes as an employer reversion, unless an equivalent amount is transferred back to the applicable health benefits or life insurance account prior to the end of the five-year period beginning after the original transfer.

Provision is effective for taxable years beginning after December 31, 2019

12) Motor Carrier Safety Grant Relief Act of 2020 - Relief for Recipients of Financial Assistance Awards from the Federal Motor Carrier Safety Administration (the “FMCSA”)

For aid from the FMCSA awarded to recipients in fiscal year 2019 or fiscal year 2020, all applicable periods of availability during which recipients may expend such aid are extended under this subtitle for one (1) year.

13) Subtitle D – Extension of Waiver Authority

This subtitle expands through fiscal year 2021 the Secretary of Transportation’s authority to waive or postpone any highway safety grant requirements under Sections 402, 404, 405, or 412 of Title 23, Section 4001 of the FAST Act, or 23 CFR Part 1300.

14) Paycheck Protection Program (PPP)

Renewed funding of $284 billion for the Paycheck Protection Program (PPP) to provide forgivable loans to first- and second-time small business borrowers. The bill expands eligibility for nonprofits and includes set-asides for very small businesses and community-based lenders. Second-time loans are limited to businesses with fewer than 300 employees and at least a 25 percent drop in gross receipts in a 2020 quarter compared to the same quarter in 2019. The maximum loan size for second-time borrowers is $2 million. Businesses taking a PPP loan will now be able to take the Employee Retention Tax Credit (ERTC), when previously they were only allowed to opt into one or the other.

PPP loans can be used to pay qualifying expenses, which have been expanded to include expenses such as covered property damage, supplier costs, or worker protection expenditures in addition to employee wages or operating expenses like rent and utilities. When used for qualifying expenses, PPP loans are forgivable. The bill provides a simplified forgiveness application process for loans up to $150,000.

The bill also clarifies that businesses can deduct expenses paid with forgiven PPP loans. This clarification applies to old loans and to new loans and does not include guardrails or limitations. Typically, forgiven debt is considered taxable income. In the CARES Act, lawmakers specified that forgiven PPP loans would not count as taxable income. They also intended that expenses paid for with PPP loans would be deductible but did not specify so in law. Section 265 of the tax code generally prohibits firms from deducting expenses associated with income that is tax-free, so without specification, the Treasury Department ruled that expenses paid for with PPP loans were not deductible. This clarification results in a two-part subsidy to businesses comprised of deductions and tax-free loan forgiveness. Lawmakers intended this two-part subsidy when crafting the CARES Act, and the Joint Committee on Taxation scored the original provision as such. This clarification, a kind of technical correction, does not have a budget impact.

15) Economic Injury Disaster Loan Program & Small Business Administration (SBA) Debt Relief Payments

It also provides $20 billion for new EIDL grants (economic injury disaster loan program) for businesses in low-income communities, $43.5 billion for continued Small Business Administration (SBA) debt relief payments, and $2 billion for enhancements to SBA lending. An additional $15 billion of dedicated funding is set aside for live venues, independent movie theatres, and cultural institutions.

16) Employee Retention Tax Credit

Extension and expansion of the Employee Retention Tax Credit through July 1, 2021. The bill increases the refundable payroll tax credit from a maximum of $5,000 to $14,000 by changing the calculation from 50 percent of wages paid up to $10,000 to 70 percent of wages paid up to $10,000 for any quarter. The bill clarifies that businesses will now be able to take the Employee Retention Tax Credit and participate in the PPP.

17) Low-Income Housing Tax Credit

Increases allocations to states for the Low-Income Housing Tax Credit (LIHTC). This credit subsidizes the construction and rehabilitation of housing developments that have strict income limits for eligible tenants and their cost of housing.

18) Deduction for Business Meals

Expansion of the deduction for business meals to 100 percent for 2021 and 2022.

19) Emergency Rental Assistance

Appropriates $25 billion for rental assistance in 2021, distributed among states, the District of Columbia, U.S. territories, tribal communities, and some government agencies. At least 90% of the funds must be used for rental assistance programs over the next 12 months, whereas the remaining 10% may be used for housing stability services.

The states and territories distributing the funds must prioritize low-income households and households with unemployed individuals.

Landlords may apply for funds on behalf of their tenants.

20) Eviction Moratorium

The expiration date of the order of the Centers for Disease Control and Prevention, which places a temporary halt on residential evictions, is extended through January 31, 2021.

21) Healthcare Operating Loss Loans

Authorizes HUD to insure mortgages for healthcare facilities that were financially sound before March 13, 2020, that have since exhausted all other forms of assistance. The loan insured by HUD may be up to one year’s worth of the healthcare facility’s expenses.