COVID-19

Employee Retention Credit Update

The Internal Revenue Service (IRS) has issued an update to its March 2021 guidance. This update, Notice 2021-23, amplifies the March guidance with respect to the Employee Retention Credit (ERC) under Section 2301 of the CARES Act which was amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020, which enhanced rules and extended the credit to June 30, 2021.

With the enactment of the American Rescue Plan, the ERC has now been extended for wages paid after June 30, 2021 through December 31, 2021. IRS guidance on wages paid July 1, 2021 to December 31, 2021 is pending. We encourage you to review the entirety of Notice 2021-23 but below are the key highlights:

Expansion of Eligible Employers

Under the IRS guidance, governmental entities are not eligible for the ERC; however, any governmental entities that are colleges or universities or provide medical or hospital care may now be eligible employers for the first and second calendar quarters of 2021, assuming they satisfy other requirements to be eligible employers.

Decline in Gross Receipts

Additionally, an employer is an eligible employer with respect to any calendar quarter for which its gross receipts for the calendar quarter are less than 80% of its gross receipts for the same calendar quarter in 2019. Therefore, for purposes of the employee retention credit for the first and second calendar quarters of 2021, the determination of whether an employer is an eligible employer based on a decline in gross receipts is made separately for each calendar quarter and is based on an 80% threshold.

Maximum Amount of Employee Retention Credit

For the first and second calendar quarters of 2021, the employee retention credit equals 70% of qualified wages (including allocable qualified health plan expenses) that an eligible employer pays in a calendar quarter. The amount of qualified wages (including allocable qualified health plan expenses) with respect to any employee that may be taken into account is limited to $10,000 for any calendar quarter; thus, the maximum credit for qualified wages (including allocable qualified health plan expenses) paid to an employee is $7,000 for each of the first and second calendar quarters in 2021 (for a total of $14,000).

Qualified Wages

Large eligible employers are eligible employers for which the average number of full-time employees during 2019 was greater than 500. Small eligible employers are eligible employers for which the average number of full-time employees during 2019 was not greater than 500. Notice 2021-20 described the rule that for large eligible employers, qualified wages paid to an employee were not to exceed what the employee would have been paid for working an equivalent duration during the 30 days immediately preceding the commencement of the full or partial suspension of business or the first day of the calendar quarter in which the employer experienced a significant decline in gross receipts. However, this limitation on qualified wages paid during the first and second calendar quarters of 2021 has now been removed.

Employee Eligibility

Notice 2021-20 stated an employee would not be included for purposes of computing the ERC for any period that an employer is allowed a work opportunity credit with respect to that employee. This restriction has now been removed and this does not apply to employee retention credits claimed for the first and second calendar quarters of 2021.

Claiming the Employee Retention Credit

Small eligible employers may elect to receive an advance payment of the ERC in an amount not to exceed 70% of the average quarterly wages paid in calendar year 2019 (the 70% advance rule). The requirement to reduce deposits in anticipation of the credit before requesting an advance continues to apply to 2021 small eligible employers.

If you have any questions regarding the guidance and how it relates to your organization, please contact us.

COVID-19

2021 American Rescue Plan Update – Tax Implications

The highlight of the 2021 American Rescue Plan from an individual perspective are the direct Internal Revenue Service (IRS) payments to taxpayers. Direct payments of $1,400 will be issued to individuals and qualifying dependents along with $2,800 for joint filers. The payments would begin to phase out for individuals with an adjusted gross income (AGI) of $75,000 ($150,000 for couples) and would be zero for AGIs of $80,000 ($160,000 for couples) or more. Heads of households will receive the full amount if they earned up to $112,500, with the payments being cut off completely at $120,000 total head of household income. However, in addition to the direct payments that may impact you personally, there are several changes in tax provisions that will impact your organization’s human resources and payroll policies. Below are the key highlights:Unemployment Benefits

The act makes the first $10,200 in unemployment benefits tax free in 2020 for taxpayers earning less than $150,000 per year.

COBRA Continuation Coverage

The act provides COBRA continuation coverage premium assistance for individuals who are eligible between the date of enactment and Sept. 30, 2021. The act also creates a new Sec. 6432, which allows a COBRA continuation coverage premium assistance credit to taxpayers. This refundable credit applies to premiums and wages paid after April 1, 2021 and through September 30, is allowed against the Sec. 3111(b) Medicare tax, and the IRS may make advance payments to taxpayers of the credit amount.

Under new Sec. 6720C, a penalty is imposed for failure to notify a health plan of cessation of eligibility for the continuation coverage premium assistance. Taxpayers who receive the COBRA continuation coverage premium assistance credit are not also eligible for the Sec. 35 health coverage tax credit. Under new Sec. 139I, continuation coverage premium assistance is not includible in the recipient’s gross income.

Family and Sick Leave Credits

The act codifies the credits for sick and family leave originally enacted by the Families First Coronavirus Response Act (FFCRA), P.L. 116-127, as Secs. 3131 (credit for paid sick leave), 3132 (credit for paid family leave), and 3133 (special rule related to tax on employers). The credits are extended to Sept. 30, 2021. These fully refundable credits against payroll taxes compensate employers for coronavirus-related paid sick leave and family and medical leave. The act increases the limit on the credit for paid family leave to $12,000 and increases the number of days from 50 to 60 a self-employed individual can take into account in calculating the qualified family leave equivalent amount. Paid leave credits will also be allowed for leave that is due to a COVID-19 vaccination. The limitation on the overall number of days taken into account for paid sick leave will reset after March 31, 2021. The credits are expanded to allow 501(c)(1) governmental organizations to take them.

Employee Retention Credit

The act codifies the employee retention credit in new Sec. 3134 and extends it through the end of 2021. The employee retention credit allows eligible employers to claim a credit for paying qualified wages to employees. Under the act, the employee retention credit would be allowed against the Sec. 3111(b) Medicare tax. Please refer to our most recent blog post on the Employee Retention Credit for additional guidance.

Miscellaneous Tax Provisions

-The act changes Sec. 162(m), for years after 2026, to add an organizations five highest-compensated employees (besides the employees already covered by Sec. 162(m)) to the list of individuals subject to the $1 million cap on deductible compensation.

-The act extends the Sec. 461(l) limitation on excess business losses of noncorporate taxpayers for one year, through 2027.

-The act provides that targeted Economic Injury Disaster Loan (EIDL) grants received from the U.S. Small Business Administration (SBA) are not included in gross income and that this exclusion from gross income will not result in a denial of a deduction, reduction of tax attributes, or denial of basis increase.

-The act temporarily delays the designation of multiemployer pension plans as an endangered, critical, or critical and declining status and makes other changes for multiemployer plans in critical or endangered status.

If you have any questions regarding these tax changes, please do not hesitate to contact us.

COVID-19

2021 American Rescue Plan Update – Key Funding Impacts

With the enactment of the 2021 American Rescue Plan, we would like to share with you the key features of the latest stimulus impacting governments and non-profits:

State and Local Governments

$350 billion will be provided to state, counties, cities and tribal governments to help them recover from the financial burden of increased expenditures and lost revenues resulting from the COVID-19 pandemic. State and local government recipients can use these funds for incurred costs by December 31, 2024. Funds are to be distributed in two installments with 50% to be delivered to states within 60 days and the remainder to be distributed no earlier than one year later. States are required to distribute funds to smaller towns within 30 days, and a town cannot receive more than 75% of its budget as of January 27th, 2020.

The following is a breakdown of the specific funding amounts that will be allocated to governments:

  • $65.1 billion for counties
  • $45.6 billion for metropolitan cities
  • $19.5 million for towns with fewer than 50,000 people

In addition, $10 billion has been allocated to a Coronavirus Capital Projects Fund to support COVID-19 work, education, and health monitoring.

Funds can be used by government entities for the following purposes:

  • Aid to households, small businesses, non-profits, and other industries impacted financially by the COVID-19 pandemic
  • Provide premium pay to essential employees or grants to employers. Premium pay cannot exceed $13/hour or $25,000 per worker.
  • Support government services affected by a reduction in revenue from COVID-19
  • Make investments in water, sewer, and broadbrand infrastructure.
  • Funds can be transferred by state and local governments to private non-profit groups, public benefit corporations involved in passenger or cargo transportation, and special purpose units of state or local governments.
  • Funds cannot be used towards pensions or to offset revenue resulting from a tax cut enacted since March 3, 2021.

Education

  • $122.7 billion will be provided to the existing Elementary and Secondary School Emergency Relief Fund (ESEA) to remain available through September 30, 2023. State Education Agencies (SEAs) must distribute at least 90% of funds to Local Education Agencies (LEA) based on their proportional share of ESEA Title I-A funds. SEA’s must use their allocations in the following manner: 5% to address learning loss, 1% for afterschool activities, and 1% for summer learning programs. SEA’s must spend funds within one year of receipt.
  • 20% of funding used by LEA’s must be used to address learning loss with the remaining funds to be used for: repairs of ventilation systems, reduction of class sizes and implementation of social distancing guidelines, the purchase of Personal Protective Equipment (PPE), and the hiring of support staff to care for students’ health and well-being. School districts must create and share plans publicly for returning to in-person instruction within 30 days. LEA’s cannot cut per-pupil spending nor reduce per-pupil staffing for any high-poverty school at a rate more than overall cuts in per-pupil spending and staffing across all schools served by the LEA. Note this requirement is not applicable if an LEA serves less than 1,000 students or operates as a single school, or serves all students in a single grade span in one school or is granted a waiver by the Secretary of Education.
  • With respect to the Individuals with Disabilities Education Act (IDEA), $3.03 billion has been provided with $2.58 billion for grants to states, $200 million for pre-school grants under IDEA, and $250 million for programs for infants and toddlers.
  • $2.75 billion has been provided through the Emergency Assistance to Non-Public Schools Program to provide services or assistance to non-public schools that enroll a significant percentage of low-income students and are most impacted by the COVID-19 pandemic.
  • $800 million to support school participation of children and youth experiencing homelessness including wrap-around services
  • $40 billion through the Higher Education Emergency Relief (HEER) Fund with $36 billion allocated to public and private non-profits to remain available through September 30, 2023. At least 50% of funds must be spent on emergency financial aid grants provided directly to students, with the remaining funds to be used for the replacement of lost revenue, reimbursement for emergency expenses, and more. Funds are to be specifically allocated as follows:
  • 37.5% based on full-time equivalent enrollment of Federal Pell Grant recipients
  • 37.5% based on headcount enrollment of Pell recipients
  • 11.5% based on FTE enrollment of non-Pell recipients
  • 11.5% based on headcount enrollment of non-Pell recipients
  • 1% based on the relative share of FTE enrollment of students who were Federal Pell Grant recipients and who were exclusively enrolled in distance education courses prior to the qualifying emergency.
  • 1% based on the relative share of the total number of students who were Federal Pell grant recipients and who were exclusively enrolled in distance education courses prior to the qualifying emergency.

Healthcare

  • $47.8 billion for testing and tracing activities for COVID-19
  • $7.66 billion for state, local and territorial public health departments to establish, expand and sustain their public health workforce
  • $7.6 billion for community health centers
  • $3 billion for block grant programs under the Substance Abuse and Mental Health Services Administration
  • $200 million to support COVID-19 infection control in skilled nursing facilities and $250 million for “strike teams” to assist skilled nursing facilities; funding will be provided until one year after the end of the public health emergency.

Human Services

  • $39 billion for child care through $15 billion for the Child Care and Development Block Grant (CCDBG) and $24 billion for newly created child care stabilization grants
  • $1 billion for Head Start programs
  • $150 million in additional funds for the Maternal, Infant, and Early Childhood Home Visiting program
  • $1 billion for the Pandemic Emergency Fund, which provides one-time benefits such as cash and vouchers to eligible families with low incomes
  • $1.5 billion for the Community Mental Health Services Block grant for 2021
  • $1.5 billion for the Prevention and Treatment of Substance Abuse Block grants for 2021
  • $420 million for grants to Certified Community Behavioral Health Clinics
  • $450 million for programs under the Family Violence Prevention and Services Act, including $198 million for grants to support survivors of sexual assault
  • $250 million for programs under the Child Abuse Prevention and Treatment Act
  • Permanently increases the total funding for the Child Care Entitlement to States from $2.9 billion to $3.05 billion per year (an increase of $130 million) and temporarily waives state matching funds for 2021 and 2022
  • $1.434 billion for programs under the Older Americans Act, including $750 million for nutrition programs for 2021
  • $4.5 billion for the Low-Income Home Energy Assistance Program
  • $50 million for the Title X Family Planning program

Medicaid/Medicare Policy Funding and Medicaid FMAP (Federal Medical Assistance Percentages) Funding

  • Requires state Medicaid and Children’s Health Insurance Program (CHIP) to cover vaccines and COVID treatment without any cost sharing and extends the period of this policy by a year for one year after the end of the COVID-19 pandemic
  • Allows CMS to waive a Medicare requirement that a ground ambulance service include the transportation to a hospital to receive Medicare payments if they didn’t transport the beneficiary due to COVID-19 related protocols

Increases the federal FMAP by 10 percentage points for state expenditures on home and community-based services (HCBS) for four fiscal quarters

  • Modifies Medicaid allotments for disproportionate share hospitals (DSH) to account for the 6.2 percentage point increase to states’ FMAP. The HHS would have to ensure that the total DSH payments that a state may make in a fiscal year is equal to the total payments it could have made without the FMAP increase during the pandemic.

Housing

  • $27.4 billion in emergency rental assistance including $21.55 billion for emergency rental assistance via the Corona Relief Fund (remains available through Sept. 30, 2027, if obligated by Oct. 1, 2022) and $5 billion for emergency housing vouchers (funds available through Sept. 30, 2030), $750 million for tribal housing needs, and $100 million for rural housing. The first 40% of funding for the emergency rental assistance program will be provided within 60 days of enactment.
  • $5 billion to assist people who are homeless with immediate and long-term assistance (emergency housing vouchers). Funds will remain available until September 20, 2030.
  • $9.96 billion for a Homeowner Assistance Fund with $100 million for housing counseling via NeighborWorks America with funding remaining available through Sept. 30, 2022
  • Not more than 15% of funds paid to state and local governments can be used for administrative costs.

Transit Funding

  • $30.5 billion for grants to transit agencies for operating expenses, including payroll and PPE costs
  • $26.1 billion for Urbanized Area Formula Grants to aid transit service in urbanized areas
  • $2.21 billion for urban and rural area grantees that require additional assistance due to the pandemic
  • $1.7 billion for Capital Investment Grants
  • $281 million in operating assistance formula grants for states to support rural transit agencies in areas with fewer than 50,000 people
  • $100 million for intercity bus services to support essential connections in rural areas

If you have any questions about any of these funding programs and the impacts on your organization, please do not hesitate to contact us.