New Omnibus Spending Bill Provides For $900 Billion In COVID-19 Aid
On December 21, 2020, on the heels of a brief two-day stop gap measure, which avoided a government shutdown over the previous weekend, Congress passed the Consolidated Appropriations Act, 2021, an omnibus spending bill which, among many other things, provides for approximately $900 billion in Federal Covid-19 aid (the “Relief Package”). The Relief Package is now on the President’s desk awaiting his signature, although President Trump has indicated he wants changes to the bill. If signed into law, the new round of economic stimulus would be the second-largest federal stimulus package ever, following the relief package provided by the $2 trillion CARES Act, which Congress passed in March 2020.
Notably, the bill which was agreed to in principal by congressional leaders on Sunday, December 20, 2020, after months of congressional negotiations, ended up a staggering 5,593 pages, making the bill one of the longest pieces of legislation in American history. This article will address some of the relevant highlights of this massive Relief Package as they relate to Covid-19 aid, in the form of the Relief Package passed by Congress on December 21, 2020. If additional changes are made to the Relief Package before it is signed, we will update this alert.
1. Additional Funds Available Through Paycheck Protect Program
The Relief Package includes $284 billion for one of the most well-known of the original CARES Act programs, the Paycheck Protection Program (“PPP”).
The SBA initially stopped taking applications for the first round of PPP loans in August 2020. However, the PPP has been reopened by this Relief Package for businesses which have not already received a PPP loan.
Additionally, PPP borrowers that returned loan proceeds or did not accept the full amount of their approved PPP loan can reapply for additional PPP funds in an amount equal to the difference between the PPP funds retained by the borrower and the amount of PPP funds initially approved in response to the borrower’s original PPP loan application.
2. Second Round of PPP Loans
The Relief Package also creates a second round of PPP loans for some particularly hard hit small businesses. Employers eligible for the second round of PPP loans generally include most types of business entities, certain non-profit organizations, independent contractors, and sole proprietors. To be eligible, the employer must have 300 or fewer employees, have already used or will use the full amount of their first PPP loan, and have a 25 percent decline in revenue in the first, second, third, or fourth quarter in 2020 as compared to the same quarter in 2019. For businesses which were not in business during parts of 2019, the 25 percent threshold for decline in revenue applies to different quarters, depending on when the business was operational.
The maximum amount of a second PPP loan will generally be the lesser of $2 million or two and one-half (2½) months of the business’s average 2019 monthly payroll (or three and one-half months for hotels, restaurants, and other businesses which fall into NAICS Code 72). Special rules apply for seasonal employers.
3. Deductibility of Expenses Paid with PPP Loan Proceeds
Another significant change provided for in the Relief Package is the deductibility of business expenses paid with PPP loan proceeds which are ultimately forgiven.
The CARES Act specifically provided that the forgiveness of PPP loans would not create taxable income. However, the Internal Revenue Service (“IRS”) subsequently released guidance indicating that expenses paid with forgiven PPP loan proceeds would not be deductible by the borrower. While generally consistent with existing tax law, the denial of a deduction for expenses paid with forgiven PPP loan proceeds was essentially the equivalent of making the PPP loan forgiveness taxable. As such, some argued that the elimination of the deductibility of these business expenses went against congressional intent.
As a result of significant public backlash to the IRS’s position that such expenses were not deductible, and in an attempt to align the PPP to original congressional intent, the Relief Package provides that business expenses paid with proceeds from forgiven PPP loans are deductible by the borrower. This rule applies equally to borrowers who have already obtained PPP loan forgiveness and those who have not.
4. Other Changes to PPP
The Relief Package expands PPP eligibility to local newspapers, TV and radio broadcasters and certain nonprofit organizations.
Additionally, the Relief Package allows PPP borrowers who need to use more than eight weeks, but fewer than the full 24-week covered period, to expend all PPP funds to select the end date for their covered period, as long as it does not result in the covered period extending more than 24 weeks.
The Relief Package also provides simplified PPP loan forgiveness procedures. PPP borrowers with loans up to $150,000 can now utilize a substantially simplified one-page loan forgiveness application.
The Relief Package also added additional categories of non-payroll expenses as eligible PPP expenses that can be counted in calculating PPP loan forgiveness (subject to the existing 40 percent limit on non-payroll expenses). Some of these additional expenses include certain business software or cloud computing service that facilitates business operations, property damage caused by public disturbances not otherwise covered by insurance, and operating or capital expenditures made in response to guidance issued by the Department of Health and Human Services, the CDC, or OSHA. The language of the Relief Package specifically limits the use of these additional categories to borrowers whose loans have not already been forgiven prior to the enactment of the Relief Package.
5. EIDL Advance Does Not Reduce Forgivable Amount of PPP Loan
Under the CARES Act, any Economic Injury Disaster Loan (“EIDL”) advance received by a PPP loan borrower was required to be used to reduce the amount to the PPP loan which was otherwise eligible for forgiveness. This provision has been repealed by the Relief Package.
6. Employee Retention Tax Credit
The Relief Package extends the Employee Retention Tax Credit, a tax credit made available under the CARES Act, through July 1, 2021. The Employee Retention Tax Credit was originally only available for 2020. The credit is equal to 50% of the first $10,000 of qualified wages paid to an employee during an eligible quarter, and could be used as an offset to an employer’s payroll tax liability.
The Relief Package modified the Employee Retention Tax Credit to increase the tax credit from 50 percent to 70 percent of qualified wages and to increase the eligible wage limit per employee from $10,000 annually to $10,000 per quarter.
To be eligible for the newly expanded 2021 Employee Retention Tax Credit, an employer’s gross receipts for a calendar quarter in 2021 must generally be less than 80 percent of its gross receipts for the same calendar quarter in 2019, or the employer must have experienced a full or partial suspension of operations due to a governmental order.
The definition of qualified wages for purposes of the Employee Retention Tax Credit was also expanded for employers with 101 to 500 employees. Under the CARES Act, qualified wages for eligible employers with 100 or fewer employees included all wages paid to any employee, while qualified wages for eligible employers with more than 100 employees (defined as large employers) only included wages paid during periods in which the employees were not providing services.
The Relief Package changes the definition of a large employer to mean one with more than 500 employees. As a result, eligible employers with 101 to 500 employees can generally count as qualified wages for purposes of the Employee Retention Tax Credit wages paid to any employee during the applicable period.
7. Extension of Families First Coronavirus Response Act (FFCRA) Paid Leave Credits
Congress declined to directly extend the mandatory Covid-19 related leave, which was enacted under the Families First Coronavirus Response Act (“FFRCA”). Instead, the Relief Package makes FFCRA leave optional for the period between January 1, 2021 and March 31, 2021.
However, Covered Employers that wish to voluntarily provide FFCRA leave benefits may do so through March 31, 2021, and said employers will be eligible to take the tax credit for the leave in the same manner as they were entitled to do under the mandatory FFCRA leave.
8. Extension of Repayment Deadline for Deferred Payroll Taxes
This summer, President Trump issued a Presidential Memorandum which allowed employers to defer the 6.2% employee share of Social Security tax on wages paid from September 1, 2020 through December 31, 2020. (Read more about the Presidential Memorandum here and here.) Following the Presidential Memorandum, the IRS issued Notice 2020-65, which clarified that the deadline for repaying the deferred Social Security taxes would be April 30, 2021. The Relief Package extends the due date for the deferral repayment from April 30, 2021 until December 31, 2021.
9. $15 Billion Set Aside for Grants to Live Venues, Theaters, Museums, Zoos
Certain live venues, independent movie theaters and cultural institutions are eligible to receive grants based on the revenue losses they experienced during the pandemic. To be eligible for these grants, eligible organizations must have a specified reduction in gross receipts. Similar to the second PPP loan thresholds, the reduction of gross receipts must be at least a 25 percent decline in revenue in the first, second, third, or fourth quarter of 2020 as compared to the same quarter in 2019.
The Relief Package sets up a priority system for which entities are first in line to receive these grants. Eligible entities whose revenue during April 1, 2020 to December 31 2020 is 10 percent or less than its revenue during the same period in 2019 will be first in line to receive these grants. These entities may apply for the grants within 14 days after commencement of the administration of the grant awards.
Next in line are eligible entities whose revenue during April 1, 2020 to December 31 2020 is not more than 30 percent of its revenue during the same period in 2019. These entities may apply for the grants during the next 14 days after the first-priority entities, above.
At the end of the 28-day period, all eligible entities may apply for the grants. The initial grants will generally be the lesser of 45 percent of the eligible business’s gross earned revenue for 2019 or $10 million. If there are grant funds remaining after all three eligible entity groups have applied for and received grants, eligible entities may then apply for supplemental grants.
Grant funds must generally be used for certain specified business expenses incurred between March 1, 2020 and December 31, 2021.
10. Direct Payments
Another round of direct payments to taxpayers was one of the most contentious issues during the congressional negotiations regarding this new round of stimulus. The final Relief Package does provide for such direct payments. Notably smaller than the direct payments authorized in March 2020, the direct payments provided under the Relief Package are as follows:
- $600 to individuals making up to $75,000 per year;
- $1,200 to couples making up to $150,000; and
- $600 per dependent child.
As with the direct payments made earlier in 2020, payment amounts are phased out for higher incomes, but they will phase out completely faster at lower income thresholds than in the earlier direct payments (because the overall potential direct payment is less).
11. Unemployment Insurance
The Relief Package also restarts supplemental federal pandemic related unemployment benefits. However, the amount authorized is $300 per week, rather than the $600 per week benefit which expired in July. These benefits will be provided for a total of 11 weeks, beginning at the end of December and continuing until March 14, 2021.
Additionally, the Relief Package extends two other existing CARES Act unemployment programs affecting an estimated 12 million people which were otherwise set to expire on December 26, 2020. The first of these two programs, the Pandemic Emergency Unemployment Compensation program, was extended by the Relief Package to provide 13 additional weeks of unemployment payments to individuals who have otherwise exhausted available state benefits. The second program, the Pandemic Unemployment Assistance, has been expanded to provide jobless benefits to “gig” workers, independent contractors, freelancers, and self-employed individuals affected by the coronavirus.
12. Rental Assistance
The eviction protection, otherwise set to expire at the end of the 2020, was extended until January 31, 2021. The Relief Package, in the first-ever federal assistance program of its kind, provides $25 billion in funds to be distributed by state and local governments to help individuals and families that may be facing eviction due to falling behind on rent during the Covid-19 pandemic.
13. Vaccine, Testing, Healthcare
The Relief Package provides funds for vaccine, testing, and healthcare related purposes. Of those funds, $20 billion has been allocated to purchase vaccines in order to make the vaccines available at no charge. Moreover, $8 billion has also been set aside for distribution of Covid-19 vaccines. Also worth noting, the Relief Package provides $22 billion for contact tracing, mitigation, and Covid-19 testing, as well as $4.5 billion for mental health related services.
14. Money for Schools and Childcare
The Relief Package provides $82 billion in aid for K-12 schools and colleges. Of this $82 billion, $54 billion will go to public K-12 schools affected by the pandemic, $23 billion will be provided to universities and colleges, and $4 billion will be provided to a Governors Emergency Education Relief Fund. The bill also provides $10 billion in support for struggling childcare providers. For more information about aid for K-12 schools and colleges, see AALRR’s earlier alert here or contact your usual counsel at AALRR.
15. State and Local Government Relief Not Provided for in the Relief Package
Despite its massive size, both in terms of spending and length of the legislative text, there are some areas of relief not provided for or addressed in the Relief Package. One of the most conspicuously absent forms of relief is direct aid to state and local governments, which was not included in the final Relief Package. This absence is contrary to lawmakers’ initial discussions regarding relief for state and local governments, which was one of the more contentious relief items being negotiated.
However, while not directly providing funds to state and local governments, the final Relief Package does provide emergency funding for schools, state highways and support for intercity buses.
Additionally, under the Relief Package, the deadline for spending the $150 billion in coronavirus relief funds previously authorized by Congress has been extended by one year. This will provide some breathing room for State and local governments, which in some cases have been struggling to use all the funds by the previous December 30, 2020 deadline.
This latest Relief Package comes just before the end of the year, at a time when many individuals, families and businesses are in need of economic support. This massive legislative endeavor addresses many, but not all, of the potential areas in need of relief. The full (5593 page) text of the Relief Package can be found here.
As always, the attorneys on AALRR’s Business and Tax Team are available to answer your questions and help you and your business navigate these complex issues as they unfold.