In rare show of bipartisanship, Congress overwhelmingly supports relief effort

On Wednesday, the Senate cleared legislation to modify and ease restrictions on the emergency small business loans intended to avert mass layoffs during the COVID-19 pandemic. Included as part of the $2.2 trillion CARES Act* enacted back in March, the popular Paycheck Protection Program (PPP)** has approved more than $510 billion in loans to date despite a rocky roll out.

In recognition that the Coronavirus has kept businesses sidelined longer than expected, H.R 7010 aims to address concerns surrounding a handful of burdensome rules under the program. The key aspects likely to help ease fears among many businesses are:

1. Currently, a business must spend the PPP money in eight weeks and keep all staff employed for the government to fully forgive the loan. The new bill proposes an extension to 24 weeks from receipt of the loan or Dec. 31, 2020 (whichever is earlier) to use the proceeds.
2. Greater flexibility in expenditures by lowering the amount spent on payroll in order to qualify for full loan forgiveness to 60% (instead of the original 75% benchmark)…leaving 40% for non-payroll costs like rent, utilities, etc.
3. Borrowers whose loans are forgiven would be eligible for the deferral of the employer’s portion of Social Security taxes provided by the CARES Act.
4. Workforce reductions will no longer necessarily result in a proportional reduction of loan forgiveness. An employer may be exempt from the associated loan forgiveness reduction if they a) rehire terminated employees; b) hire similarly qualified employees for unfilled positions before Dec. 31, 2020; or c) have an inability to return to pre-COVID levels due to compliance with health and safety standards.
5. Finally, the forgiveness rules are further relaxed with a provision stretching the amount of time employers have to repay their debt. A minimum five-year maturity now replaces the original restrictions that limited the term to two years.

*Coronavirus Aid, Relief, and Economic Security Act

* *Provides companies with forgivable loans that act like grants as long as the majority of the funds are used pay employees

The Families First Coronavirus Response Act (FFCRA) provides small and midsize employers – with fewer than 500 employees – refundable tax credits that reimburse them for the cost of providing paid sick and family leave to their employees as the result of COVID-19. Workers may receive up to 80 hours of paid sick leave for their own health needs or to care for others, and up to an additional ten weeks of paid family leave to care for a child whose school or place of care is closed or unavailable.

The Internal Revenue Service (IRS) recently released a series of frequently asked questions (FAQs) focusing on how businesses should calculate and claim the credit – including how to determine the amount of wages which can be reimbursed. Of particular interest is how health coverage (including FSA/HRA/HSA contributions) is reflected in determining the amount of wages subject to this credit. Qualified health plan expenses provided to employees are included in the amount of the credit, but only to the extent that these expenses were excluded from the employee’s gross income as employer-provided coverage under a group health plan.

Q&As 31, 32, 35 and 36 are highlighted below…

Question #31 – Does the amount of qualified health plan expenses include both the portion of the cost paid by the Eligible Employer and the portion of the cost paid by the employee?

Answer: The amount of qualified health plan expenses taken into account in determining the credits generally includes both the portion of the cost paid by the Eligible Employer and the portion of the cost paid by the employee with pre-tax salary reduction contributions. However, the qualified health plan expenses should not include amounts that the employee paid for with after-tax contributions.

Question #32 – For an Eligible Employer that sponsors more than one plan for its employees (i.e. both a group health plan and a health FSA), or more than one plan covering different employees, how are the qualified health plan expenses for each employee determined?

Answer: The qualified health plan expenses are determined separately for each plan.  Then, for each plan, those expenses are allocated to the employees who participate in that plan. In the case of an employee who participates in more than one plan, the allocated expenses of each plan in which the employee participates are aggregated for that employee.

Question #35 – For an Eligible Employer who sponsors a HSA or Archer MSA and a high deductible health plan (HDHP), are contributions to the HSA or Archer MSA included in the qualified health plan expenses?

Answer: The amount of qualified health plan expenses does not include Eligible Employer contributions to HSAs or Archer MSAs. Eligible Employers who sponsor an HDHP should calculate the amount of qualified expenses in the same manner as an insured group health plan, or a self-insured plan, as applicable.

Question #36 – For an Eligible Employer who sponsors a HRA, a health FSA or a qualified small employer health reimbursement arrangement (QSEHRA), are contributions to the HRA, health FSA, or QSEHRA included in the qualified health plan expenses?

Answer: The amount of qualified health plan expenses may include contributions to an HRA (including an individual coverage HRA), or a health FSA, but does not include contributions to a QSEHRA. To allocate contributions to an HRA or a health FSA, Eligible Employers should use the amount of contributions made on behalf of the particular employee.

These FAQs will be updated to address changes in the law or additional questions as they are raised.

COVID-19-Paid Leave Tax Credit FAQs                 https://www.irs.gov/newsroom/covid-19-related-tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses-faqs#allocable_qualified_health_plan_expenses

President Trump signed the $2.2 trillion Coronavirus stimulus package into law on Friday shortly after the House passed the bill via voice vote.

A few of the significant highlights include:

ACCOUNT BASED PLANS

Over-the-Counter Drugs and Menstrual Care Products – Provides that HSAs, FSAs and HRAs will again be able to pay for or reimburse for OTC drugs and medicines. In addition, expenses for menstrual care products will be treated as qualified medical expenses. This provision is effective for amounts paid and for reimbursements of expenses incurred after December 31, 2019.

Telehealth – Provides that payments for “telehealth and other remote care services” below the deductible will be permitted in an HSA-compatible HDHP. This provision is effective immediately and will last until December 31, 2021. Note: The bill does not define “telehealth and other remote care services.”

CHARITABLE CONTRIBUTIONS 

Allowance of partial above the line deduction – this provision encourages Americans to contribute to charitable organizations by permitting them to deduct up to $300 of cash contributions, whether they itemize their deductions or not.

Modification of limitations – this provision increases the limitations on deductions for charitable contributions by individuals who itemize, as well as corporations.  For individuals, the 50% of AGI limitation is suspended for 2020. For corporations, the 10% limitation is increased to 25% of taxable income.  This provision also increases the limitation on deductions for contributions of food inventory from 15% to 25%.

EDUCATION

Student Loans – The Dept. of Education will allow federal student loan borrowers to suspend payments through September 30, 2020 without penalty as the country battles the Coronavirus pandemic. Interest due on loans during the national emergency will not capitalize at any time during the emergency. The Secretary of Education will ensure that consumer reporting agencies treat loans during this period as if the borrowers were making on time, regularly scheduled payments.

Student Loans (Employer Payments) – This provision will exclude up to $5,250 in qualifying student loan repayments paid by the employer on behalf of the employee from income for income tax purposes.

HEALTH CARE

COVID-19 vaccine – Requires individual and group health plans to cover any preventative vaccine and any drugs to treat COVID-19 at zero cost-sharing within 15 days of receiving a rating by United States Preventive Services Task Force (USPSTF) or a recommendation from the Advisory Committee on Immunization Practices (ACIP).

For additional details on this topic, please see our previous post:

What’s in the Senate’s “historic” stimulus? (March 26) https://tasccapitalconnection.com/2020/03/26/whats-in-the-senates-historic-stimulus/

The Governmental Affairs team continues to review the bill text and subsequent agency guidance; TASC will communicate further on this topic in the near future.

Upper chamber pushes through one of the largest pieces of legislation in modern history 

Below is a high level summary of the relief package that passed the Senate late last night by a vote of 96-0. The House is expected to take up the $2.2 trillion deal on Friday, and President Trump has indicated he’ll sign it shortly thereafter.

Summary of the Coronavirus Aid, Relief, and Economic Security (CARES) Act

KEEPING WORKERS PAID / EMPLOYED

Would provide $377 billion to help prevent workers from losing their jobs and small businesses from going under due to economic losses caused by the COVID-19 pandemic. The Paycheck Protection Program would provide 8 weeks of cash-flow assistance through 100% federally guaranteed loans to small employers who maintain their payroll during this emergency. If the employer maintains its payroll, then the portion of the loan used for covered payroll costs, interest on mortgage obligations, rent and utilities would be forgiven. This provision is retroactive to February 15, 2020 to help bring workers who may have already been laid off back onto payrolls.

ASSISTANCE FOR WORKERS, FAMILIES, AND BUSINESSES

This relief package includes a dramatic expansion and reform of the unemployment insurance (UI) program. The extended UI program in this agreement increases the maximum unemployment benefit by $600 per week and ensures that laid-off workers, on average, will receive their full pay for four months. It ensures that all workers are protected whether they work for businesses small, medium or large, along with self-employed and workers in the gig economy.

Rebate Checks

• $1,200 for individual taxpayers; married couples who file a joint return are eligible for up to $2,400.
• Those amounts increase by $500 for every child.
• These checks begin phasing out after a single taxpayer has $75,000 in AGI and $150,000 for joint filers. The rebate amount is reduced by $5 for each $100 a taxpayer’s income exceeds the phase-out threshold.  The amount is completely phased-out for single taxpayers with incomes exceeding $99,000 and $198,000 for joint filers.  The IRS will base these amounts on the taxpayer’s 2018 tax return.

Retirement Funds – Consistent with previous disaster-related relief, this provision waives the 10% early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes.  In addition, income attributable to such distributions would be subject to tax over three years, and the taxpayer may re-contribute the funds to an eligible retirement plan within three years without regard to that year’s cap on contributions.  Further, the provision provides flexibility for loans from certain retirement plans for coronavirus-related relief.

 Charitable Contributions

• Partial above the line deduction – this provision encourages Americans to contribute to charitable organizations by permitting them to deduct up to $300 of cash contributions, whether they itemize their deductions or not.
• Limitations – this provision increases the limitations on deductions for charitable contributions by individuals who itemize, as well as corporations.  For individuals, the 50% of AGI limitation is suspended for 2020. For corporations, the 10% limitation is increased to 25% of taxable income.  This provision also increases the limitation on deductions for contributions of food inventory from 15% to 25%.

Student Loans: Employer Payments – This provision will exclude up to $5,250 in qualifying student loan repayments paid by the employer on behalf of the employee from income for income tax purposes.

Business Taxes

• Estimated tax payments (corporations) – this provision allows corporations to postpone estimated tax payments due after the date of enactment until October 15, 2020.  There is no cap on the amount of tax payments postponed.
• Employer payroll taxes – this provision allows employers and self-employed individuals to defer payment of their share of the Social Security tax they would otherwise be responsible for paying to the federal government with respect to their employees. It requires that the deferred employment tax be paid over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022.

HEALTH CARE

COVID-19 Vaccine – Requires individual and group health plans to cover any preventative vaccine and any drugs to treat COVID-19 at zero cost-sharing within 15 days of receiving a rating by United States Preventive Services Task Force or a recommendation from the Advisory Committee on Immunization Practices.

EDUCATION

Student Loans – The Dept. of Education will allow federal student loan borrowers to suspend payments through September 30, 2020 without penalty as the country battles the coronavirus pandemic. Interest due on loans during the national emergency will not capitalize at any time during the emergency. The Secretary of Education will ensure that consumer reporting agencies treat loans during this period as if the borrowers were making on time, regularly scheduled payments.

ACCOUNT BASED PLANS

Telehealth – Provides that payments for “telehealth and other remote care services” below the deductible will be permitted in an HSA-compatible HDHP. This provision is effective immediately and will last until December 31, 2021. Note: The bill does not define “telehealth and other remote care services.”

Over-the-Counter Drugs and Menstrual Care Products – Provides that HSAs, FSAs and HRAs will again be able to pay for or reimburse for OTC drugs and medicines. In addition, expenses for menstrual care products will be treated as qualified medical expenses. This provision is effective for amounts paid and for reimbursements of expenses incurred after December 31, 2019. Note: Unlike the telehealth provision (above), this does not have an expiration date.

Today, the Internal Revenue Service (IRS) published a set of questions and answers (Q&A) regarding Notice 2020-18 which provided relief to taxpayers during the Coronavirus (COVID-19) pandemic. The Notice provided that all 2019 federal income tax returns and payments that were due April 15, 2020…are now to be received/paid on or before July 15, 2020.

The Q&A offers important new detail regarding the extensions, some of which are highlighted here:

• Extensions – Form 4868 (relating to individuals) and Form 7004 (relating to businesses and trusts) can be filed by July 15th to qualify for an automatic extension through October 15, 2020.
• Employee Contributions – The deadline for employees to make contributions to Individual Retirement Accounts (IRAs), Health Savings Accounts (HSAs) and Archer Medical Savings Accounts (MSAs) for 2019 has been extended as part of the filing deadline extension. The extension also affects the grace period for employers to contribute to workplace-based retirements plans for the 2019 tax year.
• Estate & Gift Taxes – The normal filing and payment due dates apply for estate and gift tax purposes. Taxpayers seeking extensions must file Form 8892 or Form 4868 to qualify for an automatic extension through October 15, 2020.
• Exempt Organizations – If a Form 990-T was originally due to be filed on April 15, then it has been postponed to July 15. Note: The due date remains unchanged for taxpayers whose Form 990-T is due on May 15.
• Excise Taxes – The relief does not apply to the filing of any information returns or payment of any excise tax, because the Notice is limited to federal income tax returns and payments.

Notice 2020-18: https://www.irs.gov/pub/irs-drop/n-20-18.pdf

Q&As: https://www.irs.gov/newsroom/filing-and-payment-deadlines-questions-and-answers

Earlier today, the Senate passed the Families First Coronavirus Response Act (HR 6201) by an overwhelming margin of 90-8. The package, also known as “phase two,” now heads to President Trump’s desk.

It’s important to point out that the legislation has been amended to modify / scale back key aspects of the FMLA and sick leave provisions. The revised bill text now provides as follows:

FMLA

Under the original bill, employers (with fewer than 500 EEs) were to provide up to 12 weeks of FMLA leave to an eligible employee for “a qualifying need related to a public health emergency.”  This “qualifying need” has now been limited to instances where an employee is unable to work – or telework – due to the need to care for a child if the child’s school or place of child care has been closed or the child care provider is unavailable, due to a public health emergency.

The original bill also provided for an initial 14 days of unpaid leave; however, in the amended version this number is reduced to 10 days.  As before, this first segment days of can be unpaid…and an employee can opt to substitute accrued vacation, personal, or sick leave.

The remaining FMLA leave must be paid at two-thirds of the employee’s regular rate, for the number of hours the employee would otherwise be scheduled to work. Notably though, this new iteration limits the amount of required pay for leave to no more than $200 per day and $10,000 total.

Sick Leave

Under the new language, employers (with fewer than 500 EEs) would be required to provide paid sick time to an employee who is unable to work – or telework – because:

1. the employee is subject to a federal, state, or local quarantine or isolation order related to COVID-19;
2. the employee has been advised by a health care provider to self-quarantine because of COVID-19;
3. the employee is experiencing symptoms of COVID-19 and is seeking a medical diagnosis;
4. the employee is caring for an individual subject to quarantine or isolation;
5. the employee is caring for a son or daughter whose school or place of care is closed, or child care provider is unavailable, due to COVID-19 precautions; or
6. the employee is experiencing substantially similar conditions as specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.

The amendment limits an employer’s requirement of paid leave to $511 per day ($5,110 total) where leave is taken for reasons 1, 2, and 3 noted above (generally, an employee’s own illness or quarantine); and $200 per day ($2,000 total) where leave is taken for reasons 4, 5, or 6 (care for others or school closures).

Effective Date

The bill would take effect 15 days after enactment, and sunset on December 31, 2020.

Note: Small businesses (fewer than 50 EEs) are exempt if the required leave would jeopardize the viability of their business.