Congress Passes Large Scale COVID-19 Relief Legislation

December 22, 2020

Package Tied to FY21 Spending & Tax Extenders Package

After months of Congressional debate and negotiations, yesterday the House of Representatives released an FY21 government spending, COVID-19 relief and tax extenders package, totaling roughly $2.3 trillion. Less than 12 hours later, the House passed the legislation 359 to 53, and sent it over to the Senate who approved the bill by a 93-7 vote. President Trump has said he will sign the bill later this week (another short-term government extension was also approved last night to provide time for the bill to become law).

The legislation includes another round of one-time stimulus checks to qualifying individuals, an extension of enhanced unemployment benefits ($300 per week), and significant funding for testing, cleaning and COVID-19 vaccine rollout. Given the enormous scope of the legislative package, this update focuses on the business-centered pieces, many with a direct impact on the household goods moving industry.

 

Paycheck Protection Program (PPP)

 By most measures, the PPP was the most utilized program by companies, as created by the earlier CARES Act. The approved legislation renews the PPP (providing $284 billion in funding) and broadens its scope and application for businesses and organizations, among other changes. The program has been expanded until March 31, 2021 (the new application deadline). 

 

Loan amounts through the PPP are generally limited to 2.5 times a company’s average payroll. To be eligible for full loan forgiveness, PPP borrowers are required to spend at least 60% of the funds on payroll over a covered period of either eight or 24 weeks. The Small Business Administration (SBA) administers the program, and will update its website to reflect the changes made, the loan application process, and FAQs over the next two weeks. 

 

Highlights of the renewed program are below:

 

“Second Draw” PPP Loans

The legislation includes second draw loans for companies meeting size eligibility and demonstrating revenue loss. Second draw loans are limited to businesses with fewer than 300 employees, and those that have had 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. Second draw loan applicants must have (or intend to), spend the full amount of the first PPP loan proceeds.

 

Deductibility

The legislation overrules an earlier IRS determination, and makes PPP loan proceeds eligible for ordinary business deductions (meaning loan recipients can deduct payroll costs and similar expenses with PPP money). This applies to all PPP loans (past and future) and is not limited by loan amount. House and Senate leadership had generally been supportive of this change, which has been sought by the business community for the past six months. IAM actively supported this provision, which would have had a significant bottom line impact for PPP participants if it were not included in the bill.

 

Expands PPP Permissible Expenditures

Forgivable loan expenditures are expanded, and include software, cloud computing, human resources and accounting needs. Some essential supplier costs are also covered, along with personal protective equipment purchases made for employees. The SBA will update guidance in this area in the coming weeks.

 

Eligibility of 501(c)(6) Organizations

The PPP is also opened to 501(c)(6) non-profit organizations, with a couple key restrictions. Eligible entities must have fewer than 300 employees, and must spend less than 15% of its revenue on lobbying activity. Trade associations have been particularly active in support of this expansion.

 

Other Business Provisions

 

Employee Retention Tax Credit 

The legislation also expands the Employee Retention Tax Credit (ERTC) 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 to 70 percent of wages paid, up to $10,000 for any quarter. Importantly, the bill also allows employers to participate in both the PPP and utilize the ERTC. The IRS will issue updated guidance and FAQs, after the bill is signed into law.

 

Repayment of Employee Tax Roll Deferral

For companies that chose to defer the employee-side payroll tax, the repayment deadline has been moved from April 2021 to December 31, 2021. 

 

Deduction for Business Meals

The bill expands the deduction for business meals to 100 percent for 2021 and 2022. The permissible deduction prior to the bill’s passage was 50 percent.

 

If you have any questions regarding these provisions, (or any other elements of the bill not highlighted), please contact Bryan Vickers with IAM's Government and Regulatory Affairs team, bvickers@pacellp.com, 703-403-2882. As always, information within IAM's Legislative and Regulatory updates should be reviewed by your company’s tax and/or counsel, and not be construed as legal advice. IAM will keep members apprised of developments as they occur.