Stay Ahead of Law Changes & Protect Yourself Against Being Audited: Corporate Transparency Act and Reasonable Compensation

New Stimulus Relief

Last night, President Trump signed a bipartisan omnibus spending bill that included $1.4 trillion to fund the federal government and $900 billion in additional COVID relief. Among the following COVID relief measures are additional funds for the popular Paycheck Protection Program (PPP).

Below is a summary of the key provisions in the Second Coronavirus Economic Aid Bill that will likely impact your organization. Please note that the president redlined portions of the bill after signing it in the hopes that Congress would incorporate the revisions and increase the stimulus check amount from $600 to $2,000 per person for applicable recipients. Today the House approved the measure to increase stimulus payments to $2,000 per eligible person. The measure moves to the Senate next.

Key Tax & Paycheck Protection Provisions

  • Paid Sick and Family Leave Credits
    • Extends the paid sick and family leave credits against employment taxes from the Families First Coronavirus Response Act (FFCRA) for three additional months to March 31, 2021.
    • The bill does not extend the FFCRA’s mandate to provide paid sick leave or paid family and medical leave beyond December 31, 2020.
  • Changes to the Employee Retention Tax Credit (ERTC)
    • Repeals the provision denying the ERTC to employers receiving a PPP loan. Instead, mechanisms would be created to prevent the same wages from being used for both PPP loan forgiveness and the ERTC.
    • Extends the ERTC to apply to wages paid before July 1, 2021 (instead of January 1, 2021).
    • Increases the credit percentage from 50% to 70% of applicable wages.
    • Increases the per-employee limitation on applicable wages from $10,000 total to $10,000 per calendar quarter. In combination with the increased credit percentage, this would increase the maximum credit per employee from $5,000 to $7,000 per quarter (up to $14,000 for the first two quarters in 2021).
    • The following language was added to the ERTC provisions that specifically address PEOs such as G&A Partners: Any forms, instructions, regulations, or guidance described in paragraph 2 shall require the customer to be responsible for the accounting of the credit and for any liability for improperly claimed credits and shall require the certified professional employer organization or other third-party payors to accurately report such tax credits based on the information provided by the customer. It is not clear whether this provision applies retroactively or just to new credits taken in 2021.
    • Makes the ERTC available if the business experienced a decline of at least 20% in gross receipts (instead of a 50% decline) as compared to the same calendar quarter in the prior year.
    • Modifies the small-employer definition of qualified wages to apply to employers that have 500 or fewer employees (instead of 100 or fewer employees).
  • Creates a temporary employee retention credit of 40% of qualified wages up to $6,000 (maximum credit of $2,400 per eligible employee) for eligible employers affected by certain qualified disasters—this credit is retroactive and does not apply to COVID-related disasters.
  • Contains the following updates to the PPP:
    • Uses $284 billion in new funds to create a second loan from the PPP called a “PPP second draw” loan for smaller and harder-hit businesses, with a maximum loan amount of $2 million.
    • Creates a simplified application process for PPP loans under $150,000.
    • Provides a process for borrowers to request an increased loan amount if regulations were updated, even if the loan has already been fully disbursed.
    • Allows entities in industries assigned to NAICS code 72 (Accommodations and Food Services) to receive PPP loans of up to 3.5 times their average monthly payroll costs.
    • Expands the forgivable expenses that can be covered by a PPP loan (payroll, mortgage interest, rent, and utilities) to include covered operations (software, cloud computing, and other human resources and accounting needs); property damage costs due to public disturbances not covered by insurance that occurred during 2020; covered supplier costs; and covered worker protection expenditures (PPE).
    • Makes 501(c)6 organizations that do not lobby eligible for PPP loans.
    • Makes the expenses covered by PPP loans tax-deductible.
  • Allows rollover options for health and dependent care flexible spending arrangements from 2020 to 2021, and from 2021 to 2022, and also permits employers to allow employees to make a 2021 mid-year prospective change in contribution amounts.

Further details on these provisions can be found in this summary document provided by the Community Bankers Association. The Small Business Administration must now develop processes and procedures consistent with the guidelines outlined in the new legislation. This, along with the implementation of the technology and infrastructure needed to accommodate the anticipated volume of new PPP applications, may take up to a few weeks.

Key Unemployment Insurance Provisions

The COVID-19 relief provisions also make the following changes to unemployment insurance:

  • Unemployed individuals get an additional $300 per week from December 26, 2020, to March 14, 2021.
  • Extends and phases out Pandemic Unemployment Assistance (PUA), a temporary federal program covering self-employed and gig workers, to March 14, 2021, and extends benefits from 39 to 50 weeks with all benefits ending April 5, 2021.
  • Extends and phases out Pandemic Emergency Unemployment Compensation (PEUC)—which provides additional weeks when state unemployment runs out—to March 14, 2021. After this date, no new applications will be accepted through April 5, 2021.
  • Extends provisions to March 14, 2021, including interest-free loans to the states.
  • No federal money will be provided to shore up the shortfalls in state unemployment funds.

Key Miscellaneous Provisions

The omnibus spending bill contained so-called “tax extenders,” which are temporary provisions in the tax code that are designed to support specific economic activities.

There are three provisions of interest to PEOs such as G&A Partners that have been extended for five years. They are:

  • The employer credit under section 45S for paid family and medical leave, originally enacted as part of tax reform in 2017
  • The expanded exclusion for employer-provided educational assistance, including student-loan repayment benefits, as enacted as part of the CARES Act:
    • An employer may contribute up to $5,250 annually toward an employee’s student loans, and such payment would be excluded from the employee’s income.
    • The $5,250 cap applies to both the new student loan repayment benefit as well as other educational assistance (e.g., tuition, fees, books) provided by the employer under current law.
  • An extension to the Work Opportunity Tax Credit (WOTC) through December 31, 2025

In addition to these provisions, the bill will provide a temporary allowance of a full deduction for business-meal food and beverage expenses provided by a restaurant that are paid or incurred in 2021 and 2022. Currently, the deduction is available for only 50% of such expenses.

It also includes provisions to end the practice of surprise medical billing, holding patients harmless from surprise bills, including from air ambulance providers. It prohibits out-of-network providers from “balance billing” unless they give patients 72-hour notice of their network status and an estimate of the charges. Most significant to employer-sponsored health plans is that the bill allows for an independent dispute resolution (IDR) process to address surprise medical billing. Under an IDR process, the self-insured employer—not the contracted insurance carrier—would be responsible for settling claims disputes.

(original content provided by G&A Partners)

More updates to follow.

 

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