2020 End-of-Year COVID-19 and Legislative Action
Transcript of Podcast Episode 107
The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law on March 27, 2020. This far-reaching legislation was the largest emergency aid package in U.S. history, making a massive financial injection into our economy with provisions aimed at helping American workers, small businesses and industries struggling with the economic disruption. Yet since that time, numerous influential people from politicians to economists have cried out for more government relief and stimulus because of the devastating impact COVID-19 has had on the American economy and its residents. According to the U.S. Bureau of Labor Statistics in their December 4, 2020, report—“The Employment Situation – November 2020”—14.8 million Americans reported that they either lost their jobs or had reduced hours because of the pandemic. Another 3.9 million were prevented from looking for work due to the pandemic.
After months of political fighting, primarily along partisan lines, Democrats and Republicans in both houses of Congress were finally able to reach a compromise. On December 21, 2020, Congress passed the Consolidated Appropriations Act of 2021 (“CA Act”). This bill was signed into law by President Trump on December 27, 2020, nine months after the CARES Act. The CA Act is the second largest stimulus bill after the CARES Act, with $900 billion of COVID-19 relief, yet represents less than half of what was originally proposed by Democrats. The CA Act consists of 5,593 pages of provisions aimed primarily at funding the federal government, and with COVID-19 relief as an add-on.
The following is a brief summary of some of the provisions of the law impacting our clients and policyholders. There are some provisions that will need clarification and additional guidance by the Treasury Department and the IRS. Of course, clients and policyholders should consult with their own tax and legal advisors to determine how the CA Act impacts their individual situations.
Assistance to Individuals and Families
1. Unemployment Assistance. Federal enhancement of unemployment benefits will be provided up to $300 per week for 11 weeks, from the end of December through March 14, 2021. The original federal enhancement provided by the CARES Act expired in July. In addition, two other unemployment programs created by the CARES Act that were set to expire after Christmas have been extended. The first, the Pandemic Unemployment Assistance program, expands jobless benefits to those who traditionally are not eligible for unemployment benefits such as self-employed individuals, free-lancers, “gig” workers, and part-time workers. The CA Act also extends the Pandemic Emergency Unemployment Compensation program to provide for an additional 13 weeks of unemployment benefit payments to those who exhaust their regular state benefits. Furthermore, the CA Act provides that self-employed workers who have at least $5,000 in annual self-employment income but are disqualified from receiving Pandemic Unemployment Assistance because they are eligible for regular state unemployment benefits, may receive $100 per week in federal benefits.There are still a few states that provide extended unemployment benefits due to the pandemic. The funding for these benefits is typically split between the state and federal governments. However, the CA Act provides for full federal financing of the extended benefits through mid-March. Up to 20 additional weeks of payments, depending on a state’s unemployment rate, are available.
2. Economic Impact Payments (a/k/a “stimulus payments”). The CARES Act provided for direct payments of $1,200 to individuals; $2,400 for married couples; and an additional $500 per dependent child under the age of 17. Payments were phased out depending upon adjusted gross income (“AGI”). The CA Act provides for an additional $600 direct payment to individuals and $1,200 for married couples based upon 2019 tax returns. This is half the amount that the CARES Act provided. However, the CA Act increased the payments for a dependent child from $500 to $600. In addition, the CA Act narrowed the phaseout range for these payments. For individuals, the phaseout range is $75,000 to $87,000. For married couples it is $150,000 to $174,000. For heads of household, it is $112,500 to $124,500. The phaseout maximums under the CARES Act for the first stimulus payments were $99,000 for singles, $198,000 for married couples, and $136,500 for heads of household.To determine AGI limits, the IRS will use the taxpayer’s 2019 tax return, if filed. For those taxpayers who filed electronically, and for those taxpayers where a 2019 tax return was not required, but they used the IRS’s online portal to register for the first stimulus payment, the second stimulus payment will be made automatically and direct deposited into the designated bank account. Otherwise, a paper check will be mailed.
Undocumented immigrants without a Social Security number remain ineligible. However, in a change from the CARES Act provisions, spouses and children of undocumented immigrants will receive the stimulus payments if they have Social Security numbers. In addition, this provision has been made to retroactively apply to the first stimulus payment under the CARES Act. As a result, if one spouse has a Social Security number, he or she can claim up to $1,200, plus an additional $500 for each qualifying child, as a recovery rebate credit on their 2020 tax return if they were denied a first-round payment because both spouses didn’t have a Social Security number.
Another consumer-friendly provision of the CA Act is that the second stimulus payment is not subject to garnishment by creditors. The first stimulus payment under the CARES Act was not afforded that protection. Similarly, the second stimulus payment may not be used by the IRS to pay child support arrears, unlike the first payment. Neither stimulus payment may be used to pay back taxes or other debts owed to the federal or state governments.
The stimulus payments are expected to be distributed as early as next week.
3. Rental Assistance. The CARES Act provided for protection against eviction through the end of 2020. The CA Act extends that protection until January 31. It also provides $25 billion in rental assistance for individuals who lost their sources of income during the pandemic.
4. Flexible Spending Arrangements. Unused balances that employees may have in employer-sponsored healthcare or dependent care flexible spending arrangements (“FSAs”) for plan years 2020 and 2021 may be carried over to the following year. Typically, FSAs are “use it or lose it” propositions. Pre-tax money is used to fund these accounts, but account balances that are not used for qualified expenses at the end of the year or applicable grace period, are forfeited. Note, however, that employer plans must be amended to include these new provisions. They are not mandatory.
Assistance to Small Businesses
1. Business Loans. The Small Business Administration’s (“SBA’s”) Paycheck Protection Program (“PPP Loan”) created under the CARES Act expired in August. The CA Act has reopened the PPP Loan program with another $284 billion to help small businesses retain employees. The program is open to first-time applicants as well as those who previously received a PPP loan. For first-time applicants, the requirements are similar to those under the CARES Act. However, for companies that previously received a PPP loan and wish to apply for a second, unlike the CARES Act which allowed for companies with 500 employees or fewer to utilize the program, the CA Act provides that only companies with fewer than 300 employees that have seen drops of at least 25 percent of their revenue during the first, second or third quarter of 2020 would be eligible for a second loan. It would also reduce the amount a borrower can receive from $10 million to $2 million. In addition, proceeds from the first loan must have been, or are expected to be, fully used. The CA Act contains other provisions to provide businesses with more flexibility on how they spend the money and simplifies the forgiveness process for loans under $150,000.
2. Emergency Injury Disaster Loan. Another $10 billion will be provided to the SBA to fund its Emergency Injury Disaster Loan (“EIDL”) program. Under the CARES Act, the program was aimed at small employers with fewer than 500 employees, including sole proprietors and independent contractors. These businesses could obtain expedited access to money through an Emergency Grant for up to $10,000 received within three days of application to maintain payroll and related expenses. Because these payments are grants and not loans, they are not required to be repaid. Under the CA Act, the EIDL program is available only to employers located in a low-income community, with fewer than 300 employees, and having suffered economic loss greater than 30 percent. The CA Act also clarifies that EIDL payments are not taxable income and would not be deducted from PPP loans with respect to forgiveness of those loans.
3. Employee Retention Credit. The CARES Act provided for an Employee Retention Credit (“ERC”) to encourage employers to keep employees on the payroll. The ERC was a fully refundable tax credit equal to 50 percent of qualified wages paid to employees. The maximum amount of qualified wages taken into account with respect to each employee was $10,000, so the maximum credit was $5,000 for any employee. The CA Act has extended the ERC through July 1, 2021, for calendar quarters commencing after December 31, 2020. It also expanded the credit to 70 percent of qualified wages. Therefore, the maximum credit is now $7,000 for any employee. In addition, an employer must show that gross receipts for such calendar quarter are less than 80 percent of the gross receipts for the same calendar quarter in 2019, or it experienced a full or partial suspension of operations during the quarter due to a governmental order.
4. Payroll Taxes. Under President Trump’s executive action in August 2020, employees were allowed to defer payment of their share of payroll taxes and had until April 30, 2021, to pay them. The CA Act provides that these payroll taxes can continue to be deferred but are due by December 31, 2021.
5. Business Expense Deduction. The CA Act temporarily allows a 100 percent business expense deduction for meals (rather than the current 50 percent) as long as the expense is for food or beverages provided by a restaurant. This provision is effective for expenses incurred after December 31, 2020, and expires at the end of 2022.
Other Assistance
There are many other provisions in the Consolidated Appropriations Act of 2021 of varying nature. Some provisions provide money for the purchase and distribution of vaccines, testing and assistance to hospitals and healthcare providers that lost revenue because of the pandemic. Other provisions provide for assistance to schools and colleges, and to support childcare providers. Still other provisions aid theatres, museums, performing arts venues and cultural institutions. Assistance has also been provided to support transportation services, including airlines, transit systems and passenger rail lines; increasing the Supplemental Nutrition Assistance Program and child nutrition benefits; and increasing broadband access to the internet during the pandemic.
As a result of partisanship, what was not included in the Consolidated Appropriations Act of 2021 were provisions to provide direct aid to states and local governments. Also not included were provisions to limit liability for companies who operated during the pandemic. These were among the most contentious provisions that could not be resolved.
Conclusion
There are many provisions in the Consolidated Appropriations Act of 2021 that will help individuals, families and small businesses. While this is welcome relief, many economists believe that more will need to be done to combat the virus and stimulate the economy. It remains to be seen what the new Biden Administration will be able to achieve. Much of President-Elect Biden’s agenda will depend upon the two Georgia Senate run-off elections on January 5, 2021. A Democratic win of both seats will create a 50-50 split in the Senate, but still give the Democrats control because Vice President-Elect Harris will provide the tiebreaking vote in the Senate. The Democrats already control the House.
As legislative developments occur, we will be sure to let you know how they may impact you, your family and your business.