Consolidated Appropriations Act of 2021
Employee Retention Tax Credit
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act or the “CARES Act” was signed into law. One key piece of the Act is the Employee Retention Tax Credit that provides eligible employers a credit they may take in advance against Employment Taxes. The Consolidated Appropriations Act expands the program and allows employers to take advantage of the credit through June 30, 2021.
Other Key Changes to the Employee Retention Tax Credit
- The Act includes a retroactive change to 2020 to allow retention credits in conjunction with PPP loans, with no double counting of wages included in PPP loan forgiveness.
- The applicable credit percentage has increased from 50% to 70% of qualified wages.
- The limit on per-employee creditable wages increased from $10,000 for the year to $10,000 per quarter.
- The year-over-year decline in receipts threshold has decreased from 50% to 20%, and eligibility may be based on the preceding calendar quarter.
We are actively working on processes and necessary technology changes to accommodate the revisions to the Employee Retention Tax Credit. If your business was impacted by a COVID-related government shutdown or experienced a revenue decline, we suggest you begin or continue discussions within your management team or with your CPA to determine if you qualify under the new guidelines. Should you decide to take advantage of the Employee Retention Tax Credit please contact a member of your service team to discuss the details.
Changes to Flexible Spending Accounts
Several temporary relief measures in the Act give organizations the option to amend their Section 125 cafeteria plans to allow participants more time to use funds in their FSA accounts. Employers may amend their Section 125 plan retroactively, as long as it is adopted no later than the last day of the calendar year following the year in which the amendment is effective.
Some of the provisions made possible by the Act include:
- Allows employees to change their health FSA or dependent care FSA contribution rate during 2021 without requiring an election-change event such as the birth or adoption of a child, or a change in marital status.
- Allows plans to permit health and dependent care FSAs to carry over any unused benefits up to the full annual amount from the 2020 plan year to 2021 plan year and 2021 plan year to 2022 plan year.
- Allows plans to expand the grace period from 2.5 months to 12 months for unused benefits or contributions in health and dependent care FSAs for plan years ending in 2020 or 2021.
- Allows plans to extend the maximum age of eligible dependents from 12 to 13 for dependent care FSAs for the 2020 plan year.
- Allows plans to permit a prospective change in election amounts for health and dependent care FSAs for plan years ending in 2021.
Emergency Paid Sick & Family Leave Tax Credits
The Consolidated Appropriations Act extends until March 31, 2021, the period during which credits for emergency paid sick leave and paid family leave under the Families First Coronavirus Response Act (FFCRA) are available. This now allows private employers with less than 500 employees, that had significant numbers of employees to take advantage of the COVID-19-related paid sick and family leave provisions passed in the FFCRA, an extension until March 31, 2021, as long as the employer offers that leave through March 31, 2021.
Second Round of PPP Loans
Perhaps the most significant of the stimulus measures in the Act is the new iteration of the Small Business Administration’s Paycheck Protection Program (PPP) loans that expands the type of potentially forgivable loans available to an organization. The PPP may help organizations that have previously not qualified or been on the fence about applying for loans from the federal program while also prohibiting publicly traded companies and lobbying firms from accessing the program.
Also under the Act, certain businesses that previously received PPP loan proceeds are eligible to apply for a second PPP loan. These loans are for smaller and harder hit businesses.
PPP borrowers may apply for a second PPP loan of up to $2 million, but must meet the following rules:
- Have 300 or fewer employees.
- Have used or will use all of their first PPP loan funds.
- Be able to show at least a 25% decline in gross revenue for any 2020 quarter compared with the same quarter in 2019.
In general, first- and second-time PPP borrowers may receive a loan amount of up to 2.5 times the average monthly payroll costs in the one year prior to the loan or the calendar year. The maximum for a first-draw PPP loan is $10 million, the same as the original PPP. No second-draw PPP loan can be greater than $2 million, and only one second-time PPP loan may be received.
For more details on these and other aspects of the Consolidated Appropriations Act, we encourage you to visit our CBIZ COVID-19 Resources Page.