In a much needed holiday gift for businesses and individuals who continue to be affected by COVID-19, Congress finally approved a $900 billion aid package follow-up to the CARES Act (the Winter Covid-19 Relief Bill), the several trillion dollar stimulus that was enacted early in the pandemic. The bill, part of the larger annual spending bill, will hopefully be signed into law by President Trump in the coming days although the President has indicated his disappointment about the small amount of direct relief to individuals included in the bill. The bill was passed by both houses of Congress by a veto proof majority and is expected to become law whether or not the President chooses to exercise his veto power.
White and Williams has and will continue to provide more detailed updates on important components of the legislation, some of which address matters beyond COVID-19-related relief and support, including a new Paycheck Protection Program and tax deductibility of expenses paid for with PPP funds, extension and expansion of the employee retention tax credit, direct payments to individuals, additional unemployment assistance, restrictions on surprise medical billing, rental assistance and extension of the eviction moratorium, education funding, vaccine distribution, testing and tracing, and other healthcare funding. In the meantime, here is a brief overview of several pieces of the legislation:
Paycheck Protection Program
The Winter COVID-19 Relief Bill provides for $284 billion of funding for a new round of the popular Paycheck Protection Program (PPP), which was established by the CARES Act and allowed borrowers to receive forgivable loans to be used to retain employees and cover certain other basic operating expenses. New and existing businesses may participate in the program. However, eligibility for PPP Part II is more restrictive and targeted then the original PPP.
Borrowers that have already received a PPP loan can get an additional loan (a so-called “second draw”), if they continue to satisfy the original PPP eligibility requirements (including the “economic necessity” test) and now (i) employ no more than 300 employees, (ii) have used the entire amount of their initial PPP loan, and (iii) and can demonstrate a 25% reduction in gross receipts during a fiscal quarter in 2020 compared with the same quarter in 2019.
First-time applicants, by contrast, will only be required to satisfy the original eligibility rules. Eligible recipients can receive second draws equal to 2.5 times the applicant’s average monthly payroll costs (or 3.5 times payroll costs for businesses in the accommodation and food services industries) up to a maximum $2 million loan (down from the $10 million maximum for initial PPP loans).
Furthermore, the bill includes a number of significant changes to the program that apply to new PPP loans as well as to existing PPP loans, such as:
- Borrowers can now choose the duration of their “covered period” for purposes of loan forgiveness for any time between eight and 24 weeks. This change enables a borrower to better align its covered period with the payroll periods in which PPP funds are used, thereby minimizing reductions in loan forgiveness based on decreases in the borrower’s full-time equivalent headcount and employee pay rates, which are measured during the covered period.
- Expenses that are otherwise deductible and are paid with the PPP proceeds that are forgiven can now be deducted for federal income tax purposes. This rule reverses a post-CARES Act IRS ruling that expenses paid with forgiven loans are not tax deductible, and applies to all PPP loans (even if the loans have already been forgiven). For more information on this important change, read our alert, Congress Allows Deduction of Expenses Funded by Forgiven PPP Loan.
- The non-payroll forgivable uses of PPP loans have been expanded to include four additional categories of “covered operational expenditures” (software designed to facilitate post-COVID operations), “covered property damage” (expenses related to public disturbances that occurred in 2020 and were not covered by insurance), “covered supplier costs” (expenditures under a purchase order in effect before the covered period relating to the supply of goods that are essential to the borrower’s operations), and “covered worker protections” (expenditures for personal protective equipment and adaptive investments to help the borrower comply with COVID-19 health and safety guidelines and requirements).
- The maximum forgivable amount of a PPP loan is no longer reduced by the amount of any Economic Injury Disaster Loan advance received by the borrower.
For the time being, many of the key rules of the original PPP program remain intact (including the requirement that borrowers spend 60% of the loan proceeds on “payroll costs” to be eligible for forgiveness). However, because the bill specifically directs the Small Business Administration to issue additional regulations, the labyrinth of rules and guidance that borrowers will need to navigate will undoubtedly continue to evolve (as has been the case since the PPP’s inception).
Major Tax Provisions
- As stated above, the bill provides that otherwise deductible expenses which are paid with the proceeds of a Payroll Protection Loan are deductible. This had been perceived as a significant weakness of the CARES Act.
- The bill improves the coordination between the Payroll Protection Loan benefits and the Employee Retention Tax Credit, by allowing employers who utilize both programs the ability to elect that expenses receive treatment under the more favorable program under rules to be issued.
- The Employee Retention Credit itself is expanded, permitting a credit of up to 70% for wages of up to $10,000 per quarter.
- The Work Opportunity Tax Credit is extended for five years.
- The bill provides that payroll taxes that were deferred under the CARES Act may be repaid within one year following the expiration of the deferral.
Major Benefits Provisions
- There are a number of provisions governing group health plans which coordinate with the rules restricting “surprise” balance billing by medical providers, as well as establishing a resolution process for such bills.
- The bill establishes a process for resolving disputes about the amount a plan will pay for services provided by an out of network.
- The bill provides for transparency in compensation paid by health benefit plans to service providers (including brokers), similar to the disclosures already applicable to qualified plans.
- The rules providing for partial terminations of qualified plans are temporarily suspended, likely to prevent these from occurring due to short term layoffs or furloughs.
- The “use it or lose it” rule applicable to flexible spending accounts is significantly relaxed for 2020 and 2021, essentially allowing amounts deferred to such accounts to be rolled into the following year.
- The bill provides that group health plans, including employer sponsored plans, will be required to make disclosures regarding prescription drug expenses to government regulators, including the manner in which rebates or other arrangements impact those expenses.
Rent Relief
The bill expands on the CARES Act and includes funding for nationwide rental assistance for qualified individuals and families.
Under the bill, funds will be provided for: (i) direct financial assistance, including but not limited to, future rent, rental arrears, and overdue utility payments, or (ii) housing stability services, such as case management services. Renters may collect up to 12 months of financial assistance but up to 15 months in certain circumstances. Eligible tenants can submit an application for such funds.
However, and of utmost importance to commercial real estate stakeholders, landlords and property owners may apply for such financial assistance on their tenants’ behalf provided they obtain permission from the tenant beforehand. In most cases, the funds will be paid directly to the landlord or utility company.
In order to qualify for such rental assistance, renters must meet all of the following criteria: (i) qualifies for unemployment, or has experienced a reduction in household income, incurred substantial costs, or experienced a financial hardship related to COVID-19; (ii) can show that they are at risk of losing their home; and (iii) has a household income that is below 80% of the area median income (which, it should be noted, differs based on the county and household size).
Further, to determine a household’s income, all grantees must consider either the household’s total income for 2020 or its monthly income at the time of applying for the financial assistance. However, when using the monthly income method, the income eligibility must be re-determined every three months. Priority consideration will be given to applications in connection with eligible households that are at or below 50% of the area median income, or with at least one unemployed household member whose unemployment has lasted at least 90 days. However, all households that receive certain other forms of housing assistance are ineligible to receive this assistance.
FFCRA Tax Credit
The bill does not extend the Families First Coronavirus Response Act (FFCRA), which is set to expire on December 31, 2020, but it does extend the tax credit available under FFCRA to any covered employer which voluntarily provides emergency sick and family leave within the FFCRA framework through March 31, 2021.
By way of background, FFCRA mandated that employers with less than 500 employees provide up to 80 hours emergency paid sick leave and up to 10 weeks emergency paid family leave to employees affected by COVID-19 and reimbursed those employers for such payments through a tax credit.
Starting January 1, 2021, employers with less than 500 employees will no longer be obligated to provide FFCRA paid emergency sick or family leave to employees. The bill does allow employers to voluntarily extend FFCRA leave benefits to those employees who did not exhaust their FFCRA leave benefits in 2020, and receive a tax credit reimbursing the employer for those benefits utilized during the first quarter of 2021.
Importantly, the bill does not give employees a “new bank” of emergency sick and family leave benefits. The tax credit is available for payments made to employees who did not exhaust their FFCRA benefits in 2020. If an employee exhausted FFCRA leave benefits in 2020, the employer will not be eligible for a tax credit if it provides additional benefits in 2021.
Telehealth and Medicare
The bill includes provisions intended to benefit healthcare providers, including increased rates of payment and expanded Medicare coverage for telehealth services.
Starting January 1, 2021, Medicare’s fee schedule for services rendered by physicians and other professionals shall be increased by 3.75%. This provision is limited to 2021 only, and the bill expressly provides that increased rates will not be taken into account in determining fee schedules for services rendered after 2021.
The bill also expands Medicare-funded telehealth services. The categories of covered telehealth care now include mental health in addition to previously included disorder services. Telehealth services rendered to eligible individuals will be paid by Medicare as long as the provider has treated the patient in-person within six months of the telehealth visit. The requirement for in-person treatment does not apply if the patient is being treated in connection with a substance abuse disorder.
The legislation also allocates an additional $250 million in funds to development of the COVID-19 Telehealth Program which is administered by the Federal Communications Commission (FCC). Successful applicants will receive funds from the FCC in order to purchase telecommunications services used for telehealth. The bill makes the process in place more applicant-friendly, requiring the FCC to provide applicants with opportunities to update and amend their applications, including a 10-day window to submit supplemental information upon denial.
Federal Reserve Emergency Lending Programs
One of the last political issues resolved prior to the pending passage of the bill related to the express termination of the Federal Reserve’s emergency lending programs created by the CARES Act which were set to expire on December 31, 2020, but which the Fed expressed an interest in retaining. The CARES Act temporarily expanded the powers of the Fed by providing approximately $600 billion in funds for various economic programs which were intended to supply the Fed with tools to support the economy during the pandemic including, among other things, commercial paper purchase facilities, a dealer credit facility and programs to support secondary loan market purchases.
The most notable of these programs was the “Main Street Business Lending Program” which was intended to allow the Fed to purchase significant participation interests in commercial loans originated by banks in an effort to provide a loan program for businesses that did not fit the criteria for PPP loans. The Main Street loan program was ultimately unsuccessful and many of the other programs proved unnecessary as the economy began to rebound after the initial wave of shut-downs.
Because the Main Street loan program proved unpopular, and many of the other proposed programs were not necessary, approximately $429 billion remained unallocated from the initial appropriation. The bill reallocates those funds to programs included in the bill, expressly terminates the Fed programs created by the CARES Act, and makes clear that renewal of the programs would require further Congressional action. This was a compromise, as the initial provisions introduced by Senator Pat Toomey (R. Pa.) expressly prohibited any future expansion of Federal Reserve authority in an effort to reduce the tools available to the Fed under a new administration.
[View source.]
