In recent months and as a result of long negotiations between Congress’s Democrats, Republicans, and the White House on another round of stimulus legislation, the possibility of a deal is becoming real.
In May, the Democrats in the House released COVID-19 Phase 4 legislation, the Health and Economic Recovery Omnibus Emergency Solution Act (HEROES Act). In July, the Senate Republicans released their adaptation, Health, Economic Assistance, Liability Protection, and Schools Act (HEALS Act). Although the House passed a pared down form of the HEROES Act in October, the bill didn’t pass in the Senate, nor was the Senate able to pass its very own disentangled adaptation HEALS Act.
Stimulus bill negotiations kept on failing primarily because of the parties failing to agree on subsidizing for state and local governments, liability protection for organizations against coronavirus-related lawsuits, and an additional round of stimulus checks to individuals. Another reason for their disagreement has been the size of the following stimulus package. Democrats have pushed for proposed legislation totaling as much as $3 trillion, while Republicans have demanded to stay under $1 trillion.
On December 1, a bipartisan gathering of House and Senate lawmakers revealed a $908 billion legislative framework, which filled in as the starting place for negotiations of a stimulus package. Because of the continuous disagreements between the parties on state and local aid and liability protections, those arrangements were separated from the $908 billion package into a separate $160 billion bill. The remaining $748 billion proposal, tentatively named the Emergency Coronavirus Relief Act of 2020 (ECRA), contains the less controversial arrangements and is probably going to fill in as the foundation for the bill that is planned to be attached to the $1.4 trillion omnibus spending measure to keep the public authority open. This alert will feature a couple of the more notable arrangements contained in the ECRA.
- Paycheck Protection Program – PPP
The ECRA gives several changes to the Paycheck Protection Program (PPP), including an arrangement regarding the deductibility of costs paid with PPP loan continues. The U.S. Department of the Treasury and IRS took a position that since organizations are not taxed on the returns of a pardoned PPP loan, such costs are not deductible. This position got significant pushback from PPP loan recipients and tax professionals, so to clarify legislative expectation behind the PPP, the ECRA specifically allows for the full derivation of costs paid with PPP loan continues that are pardoned.
There are four sorts of additional non payroll costs that PPP continues could be utilized toward under the ECRA (yet would at present be dependent upon the necessity that 60% of continues should be utilized for payroll costs):
Covered Operations Expenditures – This incorporates payments for software of distributed computing administrations that facilitate business measures
Covered Property Damage – Costs related to property damage and vandalism or plundering that happened during 2020 public distress and were not covered by insurance
Covered Supplier Costs – These are expenditures made by a borrower pursuant to a contract, request, or purchase request basically before the date of payment of the PPP loan and are for the inventory of products that are essential to the operations of the borrower’s business
Covered Worker Protection Equipment – Cost of personal defensive equipment that a borrower was needed to purchase to follow CDC, OSHA, or U.S. Department of Health and Human Services prerequisites. These can be capital expenditures such as installing a drive-thru window, air filtration systems, health screening costs, and physical barriers such as sneeze guards.
PPP participants also would get additional clarity on choosing a covered period. As of recently, PPP loan recipients could pick between (1) the 24-week covered period starting on the PPP loan dispensing date and (2) if the borrower got its PPP loan preceding June 5, 2020, the borrower could choose to utilize an eight-week covered period. In any case, the ECRA would allow borrowers to choose the end date of their covered period. This is a beneficial clarification for those requiring over about two months however not the full 24 weeks and aligns certain full-time representative (FTE) and pay-rate decrease arrangements with the payroll time frames that the borrower incorporates.
Under the rehired special case and wage rate restoration exemption, the ECRA would expand the date by which FTE and rate restorations would be made to fall under the particular safe harbors from December 31, 2020, until September 30, 2021.
For borrowers of $150,000 or less, the ECRA gives that the covered loan amount will be pardoned if the borrower presents a one-page on the web or paper structure, which should be released by the U.S. Small Business Administration (SBA) inside seven days of ECRA enactment. In this structure, the borrower should attest to compliance of Section 7(a)(36) of the Small Business Act.
Borrowers of more than $150,000 yet under $2 million would not, at this point be needed to present the payroll tax filings, state joblessness filings, or the canceled checks, receipts, or other evidence of payment for non payroll costs. Be that as it may, borrowers inside this range should in any case maintain these records for four years after the absolution accommodation for payroll records and three years for non payroll records.
There also are open doors for taxpayers to get additional PPP assets:
Second Draw Loans –Taxpayers with 300 or less workers that sustained a 30 percent income misfortune in any quarter of 2020 (as compared to the same quarter in 2019) may get a PPP loan based on the lesser of over multiple times its average regularly scheduled payroll cost or $2 million. The general necessities for qualifying for loan absolution and utilization of loan continues would be the same as original PPP loans.
Supplemental Funding Request on Initial PPP Loan –In May, the SBA gave a between time final guideline allowing a borrower to demand a supplemental PPP loan if, resulting to the hour of application, regulations were given that would have increased the loan amount it might have gotten. Notwithstanding, if the bank already presented a Form 1502, which tells the SBA the name of the borrower and the loan amount, the borrower couldn’t utilize this cycle for additional subsidizing. The ECRA would eliminate the Form 1502 necessity and allow supplemental demands in all cases that the loan amount would have changed because of new principles. This is an important improvement for partnerships.
In addition, the ECRA would give expanded financing occasions to farmers and ranchers, §501(c)(6) organizations, and covered scene operators. On the off chance that you fall into one of these categories, counsel your tax advisor on how you might take advantage of these arrangements whenever enacted.
2- Other Stimulus Provisions in the ECRA
The ECRA also would broaden several Coronavirus Aid, Relief, and Economic Security Act (CARES Act) arrangements that were set to terminate by the end of the year, as well as give additional financing to programs like COVID-19 testing and vaccine administration. Specifically, the ECRA would:
Broaden pandemic joblessness insurance programs through April 2021 with week by week $300 payments (beforehand, these payments were $600 every week)
Expand the moratorium on educational loan payments, interest, and assortments on government-held federal understudy loans through April 30, 2021
Give $10 billion to help youngster care suppliers battling because of the COVID-19 pandemic
Give $25 billion in rental assistance through the Coronavirus Relief Fund, with 90% of the assets needed to be utilized for payment of lease, utilities, and related lodging stability administrations with 10% of assets available for lodging stability administrations
Give grants and financing to help COVID-19 testing and tracing endeavors by states, localities, and regions
Expand §1112 of the CARES Act, which gives payment of principal, interest, and associated charges on qualifying SBA 7(a) loans
Give additional subsidizing to other SBA loan programs to increase guarantees on SBA 7(a) loans and diminish expenses on 7(a) and 504 loans; give loan endowments to 7(a) loans; and by and by give Economic Injury Disaster Loan grant advances
Increase uphold for healthcare suppliers, including giving additional subsidizing to the Provider Relief Fund
As recently noticed, the ECRA is a framework of what may be attached to the spending bill, so any of these arrangements could change. In addition, there are talks that the spending bill may contain another round of stimulus checks (amount at this point unclear, however current conversation is $600 to $700 per qualifying individual) and a measure to broaden various tax arrangements that recently lapsed or are set to terminate at December 31, 2020, e.g., worker maintenance credit, various energy credits, derivation for qualified educational cost and related education costs.
As with most subjects related to COVID-19, changes are being made rapidly. Please note that this information is current as of the date of publication.