Why the Consolidated Appropriations Act of 2021 matters and how to take advantage of it

The end of 2020 brought relief for many Americans — mentally, emotionally and financially. The anticipated Consolidated Appropriations Act of 2021 (CAA) passed at the end of December, extending benefits enacted by the Families First Coronavirus Response Act (FFCRA), CARES Act and ensuing presidential memos. The CAA arrived at a pivotal time, as many measures were set to expire at the end of 2020. 

While HR and payroll professionals are tackling year-end processing, reporting and 2021 planning, CAA evaluation should still top your list of priorities to ensure its benefits aren’t missed or underused.

Why the Consolidated Appropriations Act matters

CAA brings more than $900 billion to qualified individuals and small businesses. The legislation aims to deliver significant benefits to those hit hardest by the pandemic. Its goal is to keep employees on payroll and employer-provided healthcare.

Though CAA is an extension of FFCRA and CARES in many ways, there are a few key differences to be aware of. The most significant are changes to the Paycheck Protection Program (PPP) and Employee Retention Credit (ERC).

PPP eligibility and requirements under CARES

Congress extended the Paycheck Protection Program several times. Under CARES, employers with 500 or fewer employees were eligible for up to $10 million in relief. The amount is calculated by multiplying the average total monthly payroll costs for the prior year by 2.5. 

The loan can be forgiven if used to retain workers and maintain payroll costs, or for other business costs such as paying rent, mortgage or utilities.

What’s changed for PPP under CAA

There are significant changes to the PPP that expand eligibility, benefits and designated uses. The good news for many businesses is the added possibility of a second PPP loan, known as a second draw. 

• Overview: All new loans cap out at $2 million and the coverage period extends through March 31, 2021. Under CAA, borrowers can select any covered period between eight weeks after the loan origination and 24 weeks after the loan origination. Business expenses paid with PPP loan funds are also tax-deductible.

• Expanded forgivable expenses: The forgivable expenses now also include covered operations expenditures, covered property damage, supplier costs and worker protection expenditures (such as personal protective equipment). The expansion allows businesses more flexibility with a greater likelihood of forgiveness.

• Possible second draw: The calculation for a second draw is the same as the original PPP loan. The average total monthly payroll costs for the prior year are multiplied by 2.5 (3.5 for the hospitality industry). To be eligible, a business must employ fewer than 300 employees and demonstrate at least a 25% reduction to gross receipts for any quarter in 2020 compared to 2019. An important qualifying factor is that a business must have used (or will use) all funds from its initial PPP loan. 

• Simplified forgiveness process: There’s a simplified forgiveness process for loans under $150,000 — a welcome relief for the smallest businesses that may not employ a designated HR professional. The borrower simply submits a short certification on how they used their PPP funds. This could include the number of employees retained or the estimated amount spent on payroll expenses, for example. Once forgiven, the business must keep relevant records for at least 4 years. 

ERC eligibility and requirements under CARES

Under CARES, the Employee Retention Credit is a refundable tax credit for employers equal to 50% of qualified employee wages (this includes health plan expenses). The ERC aims to prevent layoffs and encourage furloughs as an alternative. 

The amount of eligible pay per employee capped at $10,000 for all of 2020, meaning the maximum credit an employer could receive over the course of the year was $5,000. If the business had less than 100 employees, all wages to every employee were eligible for the credit. For businesses with 100 employees or more, only wages paid to employees who were not providing services were eligible.

To be eligible under CARES, the company had to either partially or fully suspend operations due to a governmental COVID-19-related order, or experience a 50% or more decline in gross receipts over the same quarter of the prior year. 

What’s changed for ERC under CAA

Like the PPP, ERC saw significant changes under the CAA. The credits are richer, more accessible and extended to June 30, 2021. The biggest benefit is that businesses that took a PPP loan are also eligible for ERC, which applies both moving forward and retroactively. 

• Expanded eligibility: The CAA expands ERC to businesses with up to 500 employees; this accounts for all wages to all employees — regardless of whether they’re performing services. Employers are also now eligible if their decline in gross receipts is below 80% compared to the same period last year.

• Greater benefits: Under CCA, the total applicable wages increase to $10,000 per quarter and can reimburse employers for up to 70% of qualifying wages. This means you can receive up to $7,000 in credit per employee, per quarter for the first two quarters of 2021. 

• Applying retroactively: If you received a PPP loan and want to apply ERC to your 2020 expenses, there are a few things to be aware of. First, the narrower eligibility rules established under CARES will still apply for any 2020 ERC. 

Additionally, you cannot use PPP and ERC for the same purpose. If you used a PPP loan to pay employees and it was forgiven, you cannot use ERC for the same wages. However, if the PPP did not fund wages or was not forgiven, you can go back now and apply ERC against those wages.

Further benefits under CAA

There are additional benefits employers can explore beyond PPP and ERC. They include:

• An extension on tax credits for FFCRA leave benefits
• Extended due date for repayment of deferred employee social security tax
• Continued student loan provisions under the tuition reimbursement plan 
• Provisions to healthcare flexible spending accounts (FSA) and dependent care FSAs 

These benefits are optional, but enrollment would bring extra financial relief to businesses and employees. Business and HR leaders should seek guidance from professional advisory resources to determine which programs best suit company needs.

The Small Business Administration is already accepting applications for First Draw and Second Draw PPP loans as well as ERC. Don’t miss out on the benefits the CAA can provide your organization to help you and your employees overcome the financial burdens caused by COVID-19.

Corinne Tirone serves as the Director Of Government Relations at Paylocity, bringing 10 years of experience as a legal professional with a demonstrated history of leading compliance and government relations in a SaaS environment. Prior to her role at Paylocity, Corinne was a Compliance Analyst at Paycor, Inc. and a Legal Research Associate at LexisNexis.