Another COVID-19 relief bill was signed into law by President Trump on December 27, 2020. The Consolidated Appropriations Act, 2021 (CAA 2021) is huge – 5,593 pages spending $2.3 trillion dollars! We want to tell you about the $900 billion for COVID relief.
Today, let’s hit the major payroll items.
Extension of Paid Sick and Family Leave Credits
Originally set to expire December 31, 2020, now extended through March 31, 2021. The FFCRA requires certain employers to provide paid leave to workers who are unable to work or telework due to circumstances related to COVID-19.
The cost of providing this leave is offset with refundable tax credits against employment taxes for qualified wages.
Self-employed folks can now use their reported wages from tax year 2019 instead of 2020 to compute the credit available to them.
Extension of Deferred FICA (Social Security Tax)
Back in August 2020, President Trump signed a Presidential Memorandum allowing for the optional postponement of the withholding, deposit, and payment of the employee’s share of Social Security tax (6.2%), for the period September 1, 2020 through December 31, 2020.
That was supposed to be paid back by April 30, 2021 but repayment is now extended through December 31, 2021 and penalties and interest will not begin to accrue on the deferred amounts until January 1, 2022.
Extension AND Expansion of Employee Retention Credit (ERC)
Under the CARES Act, the employee retention credit (ERC) provides a refundable payroll tax credit for 50% of qualified wages of up to $10,000 per employee for a maximum credit of $5,000 per employee. BIG changes here!
First, the credit is extended for two quarters, through June 30, 2021. Next, it is bigger than before, here’s how:
(1) increases the ERC rate from 50% to 70% of qualified wages;
(2) expands the eligibility for the credit by reducing the required year-over-year .gross receipts decline from 50% to 20% and provides a safe harbor allowing employers to use prior quarter gross receipts to determine eligibility;
(3) increases the limit on per-employee creditable wages from $10,000 for the year to $10,000 for each quarter;
(4) increases the 100-employee delineation for determining the relevant qualified wage base to employers with 500 or fewer employees;
(5) allows certain public instrumentalities to claim the credit;
(6) removes the 30-day wage limitation, allowing employers to, for example, claim the credit for bonus pay to essential workers;
(6) allows businesses with 500 or fewer employees to advance the credit at any point during the quarter based on wages paid in the same quarter in a previous year; and,
(7) provides rules to allow new employers who were not in existence for all or part of 2019 to be able to claim the credit.
Extensions of Unemployment
We sincerely hope that none of you are experiencing this now but if you are, or if you know someone…
First, what’s the difference between Pandemic Unemployment Assistance (PUA) and Federal Pandemic Unemployment Compensation (FPUC)? PUA is unemployment insurance for people who don’t qualify for their state’s unemployment; it is funded by the federal government. FPUC, also funded by the federal government is extra cash on top of regular unemployment and PUA.
PUA is extended through March 14, 2021 and benefits can now be claimed for 50 weeks, increased from 39 weeks. FPUC is also extended through March 14, 2021. It pays $300 a week, not $600 like the first time around, but still, $300.
Non-profits. The Federal government will continue to provide 50% of the cost of unemployment benefits for employees through March 14, 2021.
Other Payroll-related Extenders
Work Opportunity Tax Credit (WOTC). Has been extended through December 31, 2025. WOTC is a general business credit to employers hiring individuals of one or more of 10 targeted groups. WOTC Targeted Groups
Employer tax credit for paid family and medical leave. Has been extended through December 31, 2025. BUT, emergency paid “sick leave” and expanded “family and medical leave” requirements are NO LONGER mandated. This means that employers may offer both, but employees are not entitled to either.
As for the credit itself, employers can take this general business credit through March 31, 2021. This allows employers to: 1) to recover costs of providing required FFCRA leave in 2020, and (2) to voluntarily provide paid emergency "sick leave" and emergency "family and medical leave" through March 31, 2021.
Exclusion for certain employer payments of student loans. The up to $5,250 exclusion from employee income for educational assistance provided for under an employer’s qualified educational assistance program is also extended through 2025.
Maybe not payroll, but!
Temporary allowance of full deduction for business meals. Remember when the TCJA limited the food and beverage deduction to 50% through 2025? Starting January 1, 2021 through December 31, 2022 everything you eat and drink that satisfies a business purpose is 100 PERCENT TAX DEDUCTIBLE. We still recommend separate accounts for meals and entertainment and encourage you to support your local restaurants as Congress intended with this change!