COVID-19 UPDATE: COVID-RELATED TAX RELIEF ACT OF 2020
Required FFCRA Leave Expires December 31, 2020; Employer Payroll Tax Credit is Extended for Voluntary Leave through March 31, 2021.
Congress did not extend the FFCRA’s emergency paid sick leave (EPSL) and paid expanded FMLA leave, which will expire on December 31, 2020. Instead, the CTRA allows covered employers to receive the refundable payroll tax credit for voluntarily providing qualifying leave from January 1, 2021 through March 31, 2021.
The FFCRA tax credit is only available during this extended voluntary period for leave that would otherwise qualify under the FFCRA. Employees are entitled only to the leave allowance identified in the FFCRA (i.e. up to 80 hours of emergency paid sick leave and up to 10 weeks of paid expanded FMLA leave). Currently, employers are not entitled to tax credits for any amount of leave provided over those caps regardless of when the leave is taken. Unless additional legislation is passed, an employer’s entitlement to tax credits for providing qualifying FFCRA leave will expire on March 31, 2021.
The CTRA appears to allow an employer to offer EPSL and/or expanded FMLA leave independently from one another. In other words, an employer may decide to extend EPSL and take advantage of the tax credit, but decline to offer paid expanded FMLA leave. We anticipate agency guidance will be forthcoming.
Employers should evaluate the impact this development will have on existing leave policies and identify a plan to manage leave, particularly as infections following holiday gathering may increase. Employers should communicate to employees what, if any, leave will be available in the new year and under what terms. Employers should also consider revising their organization’s leave policy to address extended FFCRA leave, and consider the effects this development may have on other leave-related policies such as paid-time-off or vacation buy-out policies. Employers who voluntarily extend FFCRA leave should continue to maintain records to support eligibility for the tax credit. It is particularly important to communicate with employees who are currently on FFCRA leave and identify expectations for leave or return to work after December 31st. Employers must also consider whether an employee is entitled to leave under other state or federal law, including leave as an accommodation under the Americans with Disabilities Act, and/or “regular” FMLA depending on the reason for the employee's absence.
Employer Tax Credit for providing paid FMLA leave.
Even absent the FFCRA payroll tax credit, employers may be entitled to a federal tax credit for providing paid family and medical leave to their employees under the Tax Cuts and Jobs Act of 2017. The CTRA extends that tax credit through Dec. 31, 2025, and applies to wages paid in taxable years beginning after Dec. 31, 2020.
Paycheck Protection Program.
The CTRA extends the Paycheck Protection Program (PPP) through March 31, 2021, and expands eligibility requirements to include all nonprofits, including 501(c)(6) organizations. The bill also reverses IRS guidance and clarifies that otherwise deductible expenses paid with forgiven PPP loan funds are also deductible from gross income. Forgiven loans are excluded from taxable income. This tax treatment also applies to “Second Draw” PPP loans allowed under the Act.
The CTRA expanded the PPP by creating a “Second Draw” program. This assists smaller and harder-hit businesses by providing a maximum loan amount of $2 million. Eligible businesses must have less than 300 employees, have used or will use the full amount of their first PPP loan, and show at least a 25 percent reduction in gross receipts (in the first, second, or third quarter of 2020 as compared to the same quarter in 2019).
The Act further modified the PPP by establishing a simplified loan forgiveness application for loans up to $150,000 and expanded the definition of eligible PPP expenses. The cost of personal protective equipment and adaptive investments needed to comply with federal, state, and local health and safety guidelines are expenses eligible for loan forgiveness. Other eligible expenses now include certain operating expenditures related to software and human resources, property damage costs related to public disturbances during 2020 not covered by insurance, and certain supplier costs pursuant to contracts in effect prior to the PPP loan, which are essential to the recipient’s operations at the time of the expenditure.
Lastly, the CTRA enhances PPP loans for farmers and ranchers. Certain farmers and ranchers can now use their gross income in 2019 as reported on a Schedule F to determine their PPP loan. Lenders can now recalculate PPP loans previously approved to these entities if this calculation would result in a larger loan. Further, Farm Credit System Institutions may now make PPP loans.
While these amendments are effective upon enactment, additional agency guidance is expected to fully implement the PPP provisions of the CTRA.
Extension of expanded unemployment benefits.
The CTRA also extended federal pandemic-related unemployment benefits enacted under the CARES Act. The bill provides for an 11-week extension, through March 14, 2021, of the Pandemic Unemployment Assistance (PUA), the Federal Pandemic Unemployment Compensation (FPUC), and the Pandemic Emergency Unemployment Compensation (PEUC) programs. Under the FPUC, federal $300 weekly supplement benefits are restored beginning after December 26, 2020 and ending March 14, 2021. Under the PUA and PEUC, individuals receiving benefits on March 14, 2021, may have their benefits extended through April 5, 2021 if they have not exhausted their maximum number of weeks (expanded to 50 weeks for PUA and 24 weeks for PEUC).
The CTRA includes a directive for states to implement, by the end of January, methods addressing situations in which claimants refuse to return to work or to accept an offer of suitable work. Employers should be aware of these new upcoming reporting requirements, including instances in which a claimant has the right to refuse work that poses a risk to their health and safety.
Additional Workplace Relief.
The CTRA includes additional tax-related relief related to the workplace including:
- Extension and expansion of the employee retention tax credit.
- An extension of the Work Opportunity Tax Credit through Dec. 31, 2025.
- Deferred payroll taxes.
- A deduction for business meals.
- An extension of expanded unemployment insurance.
We continue to review the bill and evaluate its impact. Our updated PPP and FFCRA summaries will be available on our website once completed. We will also provide other updates related to provisions of the bill as guidance is released by government agencies related to this bill.
The full text of the CTRA is available here.
The information in this publication has been prepared by Baylor Evnen, LLP for general informational purposes only. It is not intended to be legal advice or a substitute for legal counsel on any subject matter. You should not act or refrain from acting on the basis of any information provided in this communication without consulting an attorney for legal advice based on the particular facts and circumstances of your individual situation. This communication is based on COVID-19 information and guidance as of the date of the communication. Subsequent developments in the law, regulations, guidance, and individual facts will materially affect the circumstances of a particular matter.
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