Legislative Changes for a New Year
Happy New Year!
I trust everyone had a good holiday and I wish you a healthy & prosperous 2021. While we all hope and anticipate a better 2021, at least one thing remains the same…more legislation.
I thought our friends at MZQ Consulting did a nice job of consolidating pieces of the massive legislation passed at the end of last year. This is an excerpt from their recent blog regarding the more immediate impacts of the bill. It is expected that substantially more guidance will be forthcoming regarding much of the legislation.
What You Need to Know Now
After talking about it for ages, Congress finally passed legislation addressing both COVID-19 relief and the problem of surprise balanced billing. They threw in some significant new group health plan and broker-specific transparency requirements just for kicks. It’s all sandwiched in there with funding for most of the federal government, energy and environmental provisions, foreign aid, human rights and education policy changes, and 37 million other things (only a slight exaggeration). For about a week, President Trump had us all wondering if he would sign the 5,593-page behemoth (there is a printer-friendly 2,124 page version too). Then, on December 27, 2020, he picked up his Sharpie and turned the longest bill Congress ever wrote into the law of the land.
1. FSA Relief
The law lets employers allow employees to carry over unused health or dependent care flexible spending account (FSA) funds or extend their spending grace period for up to 12 months for plan years ending in 2020 or 2021. Businesses can also let employees make prospective changes during the 2021 plan year without a corresponding status change.
Our Take: We've already received questions about how the extended grace period works with HSAs, and so far, the IRS has not explained that little nuance! Also, the FSA relief is optional, and employers need to be intentional about if and how they do it and focus on employee communication. If the employer allows prospective changes, they have to do so by a class of employees or across the board, not just when someone asks. As for plan documents, if an employer allows any of these changes in 2021, then by the end of 2022, they will need to approve a plan amendment.
2. Federal Paid Leave
The CAA allows an employer to continue to provide the paid sick leave and expanded family leave for certain qualifying events related to COVID-19 exposure and school and childcare closures through March 31, 2021. Federal tax credits to help make employers whole for the cost of salaries and benefits for employees on leave will also continue through March 31, 2021.
Our Take: Keeping the FFCRA leave going through March 31, 2021, is optional for employers. We did a whole Deep Dive on how it works, which you can find here.
3. Payroll Tax
If an employer postponed withholding and paying the employee's share of payroll taxes, the CAA extends the repayment period through December 31, 2021. Also, penalties and interest will not start to accrue until January 1, 2022.
Our Take: Many businesses did not do this, but for those that did, it's essential information to communicate to affected employees.
4. PPP
The new law provides $284 billion additional dollars in funding for the Paycheck Protection Program (PPP) and liberalizes the PPP forgiveness rules. The list of expenses that can count towards forgiveness now includes many operating expenses and costs associated with retrofitting the workplace for safety concerns arising due to COVID-19. For new and existing loans under $150,000, the forgiveness process requires no documentation. The new law also gives existing PPP loan recipients with higher losses another funding opportunity. "Second draw" loans of up to the lesser of 2.5 times monthly payroll (3.5 times for hospitality and restaurants) of $2 million will be available. These loans follow substantially the same rules as the original PPP loans. It also makes PPP qualified expenses tax-deductible.
Our Take: If any business struggled to find enough approved expenses to make their loan completely forgivable, the CAA should solve their problem. We also like the change that basically ensures no business will pay tax on their PPP money.
5. Retention Tax Credit
The CAA extends the retention tax credit for businesses through June 30, 2021, and improves upon it. Eligible employers can now claim 70% of qualified wages, up from 50%, and the limit on per-employee creditable wages is now $10,000 for each quarter rather than the whole year. The law also lowers the qualification bar and enhances the credit for businesses with 500 or fewer employees.
Our Take: Last spring, the retention credit flew under the radar as a means of assistance for businesses most affected by the pandemic economy, while PPP loans got all of the attention. Employee benefit advisors should take a good look at the new revisions to the credit because more businesses may qualify, and employers can get tax relief for larger amounts of employee wage and benefit costs.
6. Unemployment
Qualified people can continue to get federal pandemic unemployment assistance of $300 a week for 11 more weeks, through at least March 14, 2021. It extends the number of total weeks of eligibility from 39 weeks to 50 weeks.
Our Take: Since the law extends total weeks of eligibility, hold the March 14th date softly. Depending on the person, they might be able to continue to claim benefits through April 5, 2021.
7. Stimulus Payments
Qualified taxpayers will get direct payments of $600 per individual and eligible child dependents in the next few weeks. The economic relief is means-tested based on 2019 incomes. The cut-off is an annual income level of more than $87,000 for single filers/$174,000 for those married filing jointly with no qualifying dependents.
Our Take: Important to keep in mind in case anyone asks a question. Many people already got their payment via direct deposit!
Excerpt from MZQ Consulting Blog. Read the full text here.