Consolidated Appropriations Act, 2021
There are many interesting and advantageous programs, expansions, and extensions in the recently enacted Consolidated Appropriations Act, 2021 (CAA) – which includes what is generally being called “COVID-19 Relief.” We have not covered all of them here, but hope that the summaries listed will provide you and your institution with basic information with which to begin your analysis of the various opportunities that continue to abound.
Paycheck Protection Program1 (forgiveness)
If you have waited to apply for PPP loan forgiveness, the Consolidated Appropriations Act, 2021 (CAA) has some added bonuses for you! Remember, you must apply for “PPP1” loan forgiveness within 10 months of the end of your “covered period.”
The “CAA” has a provision for simplified forgiveness for PPP1 and PPP2 loans that are $150,000 or less. This requires a one-page certification (form forthcoming?) in which the borrower is required to:
The number of the employees the borrower was able to retain because of the PPP loan.
The estimated amount of the total PPP loan the borrower spent on payroll costs.
The total PPP loan amount.
Certification that the borrower accurately provided the required certification and complied with the PPP loan regulations issued by the SBA.
Also, borrower must retain employment records that prove compliance with SBA regulations for 4 years.
Also, under the CAA, the borrower may refine the “covered period” to be defined as beginning on the date the loan originates and an ending date that can be chosen by the borrower as a date between the end of the eighth week and the end of the twenty-fourth week following the origination date. This, in effect, allows a borrower-defined covered period different from the 56-day or 168-day covered periods previously established.
Finally, the Employee Retention Credit is available to PPP1 and PPP2 borrowers where it was previously unavailable to those institutions who had received PPP loans.
Paycheck Protection Program2
Second verse, same as the first – well, sort of. Many institutions who received PPP1 loans/grants should qualify for a similar amount of PPP2 loans/grants. The biggest changes being 300 or fewer employees and being able to document a 25% decrease in “gross receipts” from any quarter 2020 vs. the corresponding quarter in 2019.
This big bullet points for PPP2 are as follows:
As with the original PPP loan/grant, application will be made through a lender such as your bank (not the SBA).
Loan calculations will be based on 2.5 times average monthly payroll – like the first round.
Second-time borrowers must have no more than 300 employees.
Second-time borrowers must have used (or will use) the full amount of their first PPP loan.
Second-time borrowers must show evidence of at least a 25% decrease in “gross revenues” (to be further defined) in a 2020 quarter vs. the corresponding quarter of 2019.
Like “PPP1,” PPP2 second-draw loans may be forgiven for payroll costs up to 60% and other (non-payroll) costs up to 40%.
In addition to the PPP1 “non-payroll costs” of rent, mortgage interest, lease payments, and utilities, PPP2 adds new categories of these costs.
The new cost categories include: certain COVID-related outlays, including costs incurred for personal protective equipment (PPE); costs incurred to comply with federal or state health and safety guidelines; costs incurred for software, cloud computing and other human resources and accounting needs; and costs related to property damage due to public disturbances that took place in 2020 that were not covered by insurance.
Higher Education Emergency Relief Fund
It appears from a preliminary survey that this second round of HEERF funding will be to the same institutions receiving the funds on the first go ‘round and that funds will be more than was received under CARES Act Section 18004(a)(1) (Student and Institutional portions) for most institutions.
The COVID-19 Relief package (CAA) also includes a second round of Higher Education Emergency Relief Fund (HEERF) dollars in the amount of approximately $22.7 billion. The law indicates that most allocations (we are unsure at this point of any changes/updates to eligible institutions) should be made available within 30 days of the bill’s signing into law on December 27, 2020. Also, it appears that institutions who have already submitted approved applications under CARES Act Section 18004(a) would not be required to reapply for the new funds (i.e. submit a new application for funding).
We hope to have further information from ED in the next week or so.
Paid Sick Leave (FFCRA)
Many institutions paid their employees through 2020 regardless of their work schedules. Some of those employees likely met one or more of the six criteria (see below) for the FFCRA credits. With the potential up-to-12-week refundable credits that might be generated through the FFCRA’s “Paid Sick Leave” (2-weeks) and Emergency Family and Medical Leave (up to 10 additional weeks), institutions should closely review these opportunities before filing Form 941 for the fourth quarter of 2020. In addition, consider amending Form 941’s for 2020 quarters two (June 30, 2020) and three (September 30, 2020) if you meet the criteria for these credits and have signed and approved leave request forms for the affected employees.
This “two-week” provision has been extended through March 31, 2021. The FFCRA included this provision – which can go hand-in-hand with “Expanded Family and Medical Leave” payments (up to 10 additional weeks).
Qualified sick leave wages are wages (as defined in section 3121(a) of the Internal Revenue Code (the "Code") for social security and Medicare tax purposes) or compensation (as defined in section 3231(e) of the Code) that Eligible Employers must pay eligible employees for periods of leave during which they are unable to work or telework because the employee:
Is subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
Has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
Is experiencing symptoms of COVID-19 and seeking a medical diagnosis;
Is caring for an individual who is subject to a Federal, State, or local quarantine or isolation order related to COVID-19, or has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
Is caring for a child of such employee if the school or place of care of the child has been closed (including the closure of a summer camp, summer enrichment program, or other summer program), or the child care provider of such child is unavailable due to COVID-19 precautions; or
Is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.
For those who qualify for Paid Sick Leave under the first three items above, the maximum amount of qualified sick leave wages is $511 per day. The maximum amount of qualified sick leave wages paid due to the need to care for others as described above is up to $200 per day and $2,000 in the aggregate.
Expanded Family Medical Leave Act (FFCRA)
Like Paid Sick Leave, this potential credit has been extended through the first quarter of 2021. Qualified family leave wages are wages (as defined in section 3121(a) of the Internal Revenue Code (the “Code”) for social security and Medicare tax purposes) or compensation (as defined in section 3231(e) of the Code) that Eligible Employers must pay eligible employees for periods of leave during which they are unable to work or telework due to a need for leave to care for a child of such employee if the child’s school or place of care has been closed (including the closure of a summer camp, summer enrichment program, or other summer program), or because the child care provider of the child is unavailable, for reasons related to COVID-19. The first ten days for which an employee takes leave for this reason may be unpaid. However, during that 10-day period, an employee may be entitled to receive qualified sick leave wages as provided under the ESPLA or may receive other forms of paid leave, such as accrued sick leave, annual leave, or other paid time off under the Eligible Employer’s policy. After an employee takes leave for ten days, the Eligible Employer must provide the employee with qualified family leave wages for up to ten weeks.
The Eligible Employer is required to pay the employee qualified family leave wages in an amount equal to at least two-thirds of the employee’s regular rate of pay, multiplied by the number of hours the employee otherwise would have been scheduled to work, not to exceed $200 per day and $10,000 in the aggregate for the calendar year.
Employee Retention Credit
Previously, institutions receiving a PPP1 loan could not participation in the Employee Retention Credit (ERC) program under the CARES Act. Now, CAA allows this – and expands the credit. We look forward to guidance on retroactive (amending Form 941) filings and other aspects of this broadened opportunity.
This credit has been expanded and extended through June 30, 2021. In addition, the CAA opened up the opportunity for taking advantage of this credit to those institutions who received a PPP loan.
The CAA has increased the ERC credit from 50% to 70% for 2021 calendar quarters. And, rather than the $10,000 per employee payroll limit for all of 2020, the limitation is changed to $10,000 per employee per quarter*.
The CARES Act instituted the Employee Retention Credit as a fully refundable tax credit for employers equal to 50 percent of qualified wages (including allocable qualified health plan expenses) that Eligible Employers pay their employees. This Employee Retention Credit applies to qualified wages paid after March 12, 2020, and before January 1, 2021 (the CAA extended this through June 30, 2021). The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000*, so that the maximum credit for an Eligible Employer for qualified wages paid to any employee is $5,000.
Eligible Employers for the purposes of the Employee Retention Credit are employers that carry on a trade or business during calendar year 2020, including tax-exempt organizations, that either:
Fully or partially suspend operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or
Experience a significant decline in gross receipts during the calendar quarter.
**2020 Form 990 – PPP Reporting
Outside of the realm of the CAA, you should be aware that the DRAFT Form 990 instructions for 2020 state, “The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) established the Paycheck Protection Program (PPP) to provide loans to small businesses as a direct incentive to keep their workers on payroll. The loans are forgiven if all employee retention criteria are met and the funds are used for eligible expenses. Amounts of PPP loans that are forgiven may be reported on [Form 990, Part VIII] line 1e as contributions from a governmental unit in the tax year that the amounts are forgiven.”
Note that there could be a “book/tax” difference for institutions who recorded their PPP Loan/Grant as a “conditional grant.” More to come on this issue.
The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.
© 2021 Moja & Company, LLC