The Consolidated Appropriations Act of 2021 (CAA), which was signed into law on December 27, 2020, expands certain aspects of the CARES Act. The new law is 5,593 pages and dense with complicated tax and spending provisions that aim to provide aid during the pandemic. That’s a lot of legislation to digest, so I’ve taken the time to summarize the CAA provisions relevant to rehabilitation therapists.
The CAA replenishes and enhances the PPP loan program.
The CAA dedicated more than $284 billion to replenish Paycheck Protection Program funds while also modifying the loan terms enacted under the CARES ACT for existing and new loans. Forgiven loans were unaffected. Here are the highlights of the changes:
Second Draw PPP Loans
- The CAA allows for a Second Draw PPP Loan. Recipients who returned all or part of their first PPP loan—or didn’t take the full amount—can reapply for an amount equal to the difference between the maximum amount applicable to them and the initial amount they received.
- Eligible recipients can obtain up to $2 million through their Second Draw PPP Loan.
- The second draw loans are only available to recipients that:
- Received PPP loans under the CARES Act;
- Are considered small businesses (i.e., they employ fewer than 300 full- and part-time employees or self-employed individuals); and
- Experienced a 25% decrease in gross receipts during the second, third, or fourth quarter of 2020.
- Businesses can assess decreases at the individual quarter or annual levels.
(For more information about the eligibility requirements of the PPP Second Draw Loans, check out this Vedder Price bulletin or this law blog. Both resources break down the eligibility requirements in an easy-to-reference outline.)
Additional Ways to Use PPP Funds
- The CAA expands the approved use cases for PPP loans, so recipients can use the loan money for the following:
- Expenses related to any business software or cloud-computing service that facilitates business operations, product or service delivery, the processing or tracking of payroll expenses, human resources, sales and billing logistics, or accounting or tracking of supplies, inventory, records, and expenses;
- Property damage costs related to looting and rioting that occurred during 2020 that are not covered by insurance;
- Essential supply costs for operations, made with a contract or purchase order before the PPP loan;
- Business adaptation or modification costs needed for compliance with any state or local government requirement enacted during the pandemic (beginning March 1, 2020). Examples include installing sneeze guards or expanding indoor space to allow for social distancing; and
- Costs related to personal protective equipment (PPE) purchase.
(For more information about the expanded loan use categories, read this Vedder Price Bulletin.)
Expanded Forgiveness and Tax Deduction Eligibility
- Expenses paid with PPP loans are now tax deductible, and PPP loan forgiveness is not considered gross income for tax purposes. This means costs considered when calculating a PPP loan (e.g., salaries, rent, and utilities) are eligible as tax deductions. This is an important clarification, because IRS guidance did not previously allow deductions for PPP loans. Check out this Forbes article for a deeper dive into the CAA’s tax treatment of expenses and business losses related to the PPP loans.
- PPP loan recipients can now choose the covered period for forgiveness. Remember, loan forgiveness is based on the business’s use of funds for eligible expenses during the covered period. Previously, the covered period began when the loan was given to the recipient and ended 8–24 weeks later. The CAA expands the covered period to 24 weeks and allows loan recipients to choose the length of the covered period.
- The CAA simplifies the forgiveness process. New and original forgivable PPP loan amounts are determined by the lesser of the two following calculations:
- The amount of the loan based on qualified expenses, or
- The amount of the loan used for payroll costs during the covered period divided by .60.
- PPP loans of less than $150,000 can be forgiven with a one-page certification of economic necessity.
- Recipients must now certify that the loan is necessary to support ongoing operations and retain employees. Among other requirements, recipients must attest to complying with PPP loan requirements and retain all relevant supporting documentation. The Small Business Administration (SBA) will issue new rules about the simplified forgiveness process, as well as provide a certification form on its website in the upcoming weeks.
- The CAA expands eligible payroll costs for loan forgiveness beyond salary and basic healthcare insurance benefits. It now covers payments for group life, disability, vision, dental, and other insurance benefits.
(Read this Forbes article to get more details about the simplified forgiveness process and to see a sample of the new certification form.)
The Economic Injury Disaster Loan (EIDL) program is back and better than ever.
The EIDL program offers additional SBA funding for small businesses affected by a declared disaster (e.g., the COVID-19 pandemic). The CAA dedicates $20 billion of new grants toward the EIDL program. These grants are available for small businesses in low income communities that have fewer than 300 employees and experienced at least 30% economic loss. Eligible businesses can receive additional funds up to $10,000 until December 31, 2021. If you recall from the CARES Act, the EIDL grant funds were quickly exhausted, so see the SBA website for more information on EIDL grant eligibility and the application process ASAP.
The Employee Retention Tax Credit is expanding to better help businesses retain their employees.
The CARES Act Employee Retention Tax Credit (ERTC) is expanding. Here’s how it helps eligible employers keep their employees using fully refundable tax credits:
- The ERTC is extended through June 30, 2021;
- The refundable payroll tax credit is increasing from $5,000 to $14,000. That credit is calculated based on 70% of wages paid (up to $10,000 per quarter);
- Employer eligibility is expanding due to the year-over-year reduction in gross receipts down to 20%;
- The limit on per-employee creditable wages is increasing from $10,000 per year to $10,000 per quarter;
- Businesses with 500 or fewer employees can advance the credit any time during the quarter—based on wages paid in the same quarter of the previous year;
- Employers can include new employees (i.e., people who were not employed by the business in 2019) in their credit calculations; and
- Employers can now use the ERTC and request PPP loans.
For more information about your ERTC eligibility, read this Forbes article.
In certain cases, employers can opt to provide—and claim the payroll tax credit for—paid sick leave.
The Family First Coronavirus Response Act (FFCRA) mandate of paid family and sick leave expired December 31, 2020. However, the CAA allows employers to voluntarily extend the paid leave program through March 31, 2021, for leave related to COVID-19 illness. Employers exercising this option can claim the payroll tax credit for wages paid—albeit capped at 80 hours per employee, and taken from whatever leave time the employee had remaining from April 1,2020–December 31, 2020. The tax credit cannot be applied to employees who used the entire amount of eligible paid sick leave in 2020. There are limitations to this tax credit, so be sure to read this insurance blog summary of the CAA changes for paid sick and family leave.
Employer Social Security payroll tax deferrals are extended.
The CAA extends the repayment period for deferred employee Social Security tax deferrals through December 31, 2021. Employers must pay deferred employee Social Security taxes by December 31, 2021.
There is relief for employers who sponsor employee retirement plans.
As explained here, when the number of plan participants decreases by at least 20% in a plan year, the IRS typically considers the reduction to be a partial termination—meaning “all affected participants must become 100% vested in their plan benefits.” However, the new relief bill “provides that a qualified plan will not be treated as having a partial termination under Code section 411(d)(3) during any plan year that includes the period beginning on March 13, 2020, and ending on March 31, 2021, if the number of active participants covered by the plan on March 31, 2021 is at least 80% of the number of active participants covered by the plan on March 13, 2020.” This essentially takes partial termination off the table for employers who experienced large temporary reductions in their workforce due to the impact of the COVID-19 pandemic.
Unemployment insurance compensation benefits are making a comeback.
The CAA extends the Pandemic Unemployment Assistance (PUA) program through March 14, 2021, to help unemployed and self-employed workers. Most importantly, the Federal Pandemic Unemployment Compensation (FPUC) program is officially reinstated; people who are eligible for state benefits will receive supplemental unemployment payments of $300 per week. Check out this blog post for more information about the CAA unemployment relief programs.
There are important changes to Flexible Spending Accounts (FSAs).
Because nobody anticipated the 2020 pandemic, employees may not have correctly funded their FSA accounts. Under the CAA, employers have the option to amend their plans to allow participants to use the remaining funds. Stay tuned for the IRS rules related to FSA relief provisions. Below is a high level summary of employer options:
- Health FSA and dependent care FSA balances may be carried over into the following year;
- The grace period for unused health FSA and dependent care FSA funds may be extended for 12 months for 2020 and 2021;
- Participants can spend down their health FSAs for health plans that terminate in 2020 or 2021;
- Participants may use dependent care FSAs for expenses related to children who aged out during the 2020 plan year; and
- Participants may change the FSA mid-year for any reason—or retroactively (subject to certain restrictions) for 2021 plans.
A word of caution about these FSA relief provisions: The IRS has yet to release its foundational rules for the employer options, so consult your attorney and tax advisor prior to amending your FSA plans. Additionally, read this law blog post and this law bulletin for more details about employer options.
Student loan repayment assistance continues.
Employers may continue to make tax-free employee student loans payments up to $5,250 through December 31, 2021. For more information, see this detailed outline about the CAA’s student loan relief provisions.
The Provider Relief Fund has gotten some flexibility—and more money.
The CAA adds $3 billion to the Provider Relief Fund. Remember, the CARES Act created the Provider Relief Fund to reimburse eligible healthcare providers for healthcare-related expenses or lost revenues attributable to coronavirus. Physical therapists who billed Medicare fee-for-service in 2019 and who care for individuals with suspected or actual COVID-19 may be eligible for Provider Relief Funds to cover lost revenue. In addition to adding more money to this fund, the CAA creates more reporting flexibility: when calculating their eligibility, clinics can use numbers obtained by comparing their budget to their actual lost revenue.
An extreme word of caution about the Provider Relief Fund: Providers must meet the eligibility requirements to receive this grant. If a provider is wrong about his or her eligibility—or improperly uses the funds—the Department of Health and Human Services (HHS) will want its money back, and audits may ensue. Furthermore, the Provider Relief Fund’s rules are murky, and HHS continues to release clarifications about those rules. Carefully review this HHS FAQ for guidance about this program to ensure you satisfy all of its terms and conditions.
So, there you have it! That is more than five thousand pages of healthcare-related COVID-19 relief law in a nutshell. I hope this summary and the supporting links help you understand how to access the critical relief you need to keep your physical therapy practice thriving in 2021. Best of luck!