Consolidated Appropriations Act of 2021 (CAA)

Introduction

At a Glance

• Extension of tax credits on leave benefits from FFCRA
• Extension and enhancement of Employee Retention Credits
• Additional funding for Paycheck Protection Program (PPP) loans with updated eligibility requirements and possibility of second loan for hardest-hit small businesses
• Expanded unemployment insurance benefits
• Student loan provisions
• Direct stimulus payments
• Temporary relief for Healthcare FSAs and Dependent Care FSAs
• Extended due date for repayment of deferred Employee Social Security tax

Extension of FFCRA Sick and Family Leave and Corresponding Tax Credits

The Act extends the leave benefits and tax credits offered under the FFCRA.

Highlights

• Extends payroll tax credit to employers offering use of FFCRA Emergency Sick Leave and Family Leave through March 31, 2021
• Optional: employers do not have to offer use of FFCRA emergency sick and family leave after December 31, 2020, and changes do not provide additional leave hours for 2021. However, if an employer allows employees to use remaining FFCRA sick and family leave time through March 31, 2021, the employer may also claim the corresponding tax credit.
• Daily leave wage limits of $511 for self and $200 for dependent benefits remain. The corresponding tax credit structure remains the same as was in place for 2020.

Paylocity clients can refer to PEAK Knowledge Base article PCTY-84561 for additional information on FFCRA leave and credits.

Extension and Enhancement of Employee Retention Credit

Employee retention credits are extended through June 30, 2021 with additional enhancements.

Highlights

• Changes applicable to eligible wages paid after December 31, 2020
• Percentage of applicable wages increased to 70% from 50%
• Total applicable wages increased to $10,000 per calendar quarter instead of $10,000 total earnings through December 31, 2021
• Qualifying wages threshold for “Large Employers” increased from 100 to 500 Employees, meaning that employers with 500 or fewer employees can claim an employee retention credit whether the wages are for employees who are performing services or not
• Adds special rules for receiving a refund via 7200 by limiting the advance refund to employers with less than 500 employees and for amounts not to exceed 70 percent of the average quarterly wages paid in 2019
• Employers are eligible for the credit of a decline in Gross receipts of less than 80% compared to the same period in the prior year. CARES compared the same period in the prior year at a rate of 50%
• Allows employers not in business in 2019 to determine eligibility based on prior quarter
• Remove prohibition on employers receiving Paycheck Protection or other business interruption loans from claiming the ERC, so employers can take advantage of both options

Paycheck Protection Program Funding

The Act extends the PPP program and permits certain small employers and industries to apply for a second forgivable PPP loan, which will be called “PPP second draw.”

Highlights

• Funding to allow the hardest-hit small businesses to receive a second forgivable PPP loan
• Extends covered period for all PPP loans through March 31, 2021
• Eligibility for a second draw would be limited to small businesses with 300 or fewer employees that have sustained a 25 percent revenue loss in any quarter of 2020 and have used or will use entire amount of their first PPP loan
• Forgivable expenses are expanded to include covered operations expenditures, supplier costs, covered property damage costs, investments in facility modifications, and personal protective equipment to operate safely. Covered operations expenditures include payments for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses.
• Clarification of requirement for employees earning $100,000 during the applicable period refers to a prorated annualized basis during the period it was paid.
• Business expenses paid for with the proceeds of PPP loans are tax-deductible, consistent with Congressional intent in the CARES Act.
• Loan forgiveness process is simplified for borrowers with PPP loans of $150,000 or less.
• Borrower can elect covered period ending point for forgiveness between 8 and 24 weeks after loan origination.
• Expands seasonal period for seasonal employers to any 12-weeks between February 15, 2019 and February 15, 2020.
• Clarifies gross income does not include amounts from forgiven PPP loans.
• Funding is set aside to ensure that smaller borrowers and underserved communities get the help they need
• Existing PPP loans that have not already been forgiven may use the expanded definition of forgivable expenses

Expansion of Unemployment Insurance Benefits

• Restores Federal supplemental unemployment insurance benefits of $300 per week on top of state benefits paid after December 26, 2020, until March 14, 2021, creating a combined maximum benefit period of 50 weeks (previously 39), with a three-week phase-out for benefits on claims that haven’t reached the 50-week cap
• Provides authority to states to waive overpayments made without fault on the part of the individual
• Limits retroactivity for additional $300 benefit to payments due after December 1, 2020

Student Loans

• The temporary provision to extend tax-exempt tuition reimbursement programs to student loan repayments under section 127 is extended through January 1, 2026
• Repayments are still subject to the annual limit of $5,250 combined with any tuition reimbursement made on behalf of the employee.

Deferral of Employee Social Security Tax

• Per the August 8 Presidential Memorandum, employees are allowed to defer their portion of social security tax through the end of 2020. The Act extends the recollection period through December 31, 2021, originally scheduled to end April 30, 2021
• These deferred taxes must be repaid before January 1, 2022

Direct Payments (Recovery Rebates)

• Direct payments of $600 per individually filed tax return. Benefit amount begins to phase out at:
  • $75,000 (single filer)
  • $112,500 (head of household)
• Direct payments of $1,200 in the case of eligible individuals with jointly filed tax returns. The benefit amount begins to phase out at $150,000 for a joint filer.
• Additional payment of $600 for each qualifying child.

Temporary Relief for Healthcare FSAs and Dependent Care FSAs

• Healthcare FSAs and Dependent Care FSAs with plan years ending in 2020 can amend their plans to allow unused balances to carry-over into the 2021 plan year. The same will apply for 2021 plan year going into 2022.
• Healthcare FSAs with grace periods ending in 2020 or 2021 can be amended to extend the grace period to 12 months after the end of the plan year and permit post-termination reimbursements for employees who terminate participation in the plan
• For Dependent Care FSAs, the Act increases the maximum age to 14 for dependent care beneficiaries who aged-out during the pandemic
• Healthcare FSAs and Dependent Care FSAs with plans ending in 2021 can amend their plans to allow a prospective election change to either plan without regard to any change in status
• Amendments to add these features must be done later than the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective (ex. Calendar 2020 plan amendments must be adopted on or before December 31, 2021)

Thank you for choosing Paylocity as your Payroll Tax and HCM partner. This information is provided as a courtesy, may change, and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney, or Advisor.