Consolidated Appropriations Act

Important Consolidated Appropriations Acts

Facts for HR and Payroll Professionals

On December 27, 2020, the Consolidated Appropriations Act (CAA) was signed into law. The CAA provides an extension of many of the COVID-19 relief measures in the Families First Coronavirus Relief Act (FFCRA), CARES Act, and other regulations addressing the virus. Below is a brief summary of some key parts of this new legislation that impact HR and Payroll teams.
1. Extension of the Families First Coronavirus Relief Act (FFCRA)

What is it?
Starting April 1, 2020, the FFCRA provides businesses with tax credits to cover certain costs of providing employees with required paid sick leave and expanded family and medical leave for reasons related to COVID-19. Daily leave wage limits. This applies to organizations with less than 500 employees.

What has changed?
  • There's no longer a requirement for organizations to offer FFCRA emergency sick and family leave after December 31, 2020.
  • Organizations are now allowed to claim a corresponding tax credit if they allow employees to use any remaining FFCRA sick and family leave time until March 31, 2021.
  • CAA does not provide additional leave hours for 2021.  *Note - If an employee has received the maximum credit in 2020, these amounts do not reset in 2021.

Are there important dates to remember?
The main important date to remember here is what's mentioned above should organizations choose to allow employees to continue taking FFCRA sick and family leave. If you do this, you'll be able to still claim tax credits for leave taken through March 31, 2021 instead of that option ending December 31, 2020 as the original regulations stated.

Another important note: State and local leave laws
Many states and localities have adjusted or expanded their leave policies in response to the COVID-19 pandemic. If you operate in one of these states or localities, be sure to understand the regulations specific to these regions in addition to the federal changes coming from the CAA.

2. Extension and enhancement of the Employee Retention Credit

What is it?
Eligible organizations can receive a refundable tax credit on employee wages and the employer portion of health benefits. This was part of the original CARES Act legislation that was passed in April 2020.

What has changed?
2020 Changes:
  • Retroactively available to employers who received a PPP loan in 2020, but only using wages that are not paid with forgiven PPP loan proceeds.
  • The maximum credit remains the same of $5,000 per employee (50% of wages up to $10,000).
  • Eligibility of the credit does not change for 2020, but does change for calendar year 2021 (see below)
2021 Changes:
  • The credit is extended to cover wages paid after December 31, 2020.
  • Eligible wages are increased to 70 percent instead of the original 50 percent.
  • Eligible wages are increased to $10,000 per calendar quarter.
  • Organizations with less than 500 employees are now eligible for credits (originally only organizations with less than 100 employees were eligible). These organizations can claim an employee retention credit for wages, regardless if the employee was performing services or not.
  • The CAA adds special rules for receiving a refund using Form 7200, which limit advance refunds only to employers with less than 500 employees and amounts not to exceed 70 percent of the average quarterly wages paid in 2019.
  • Organizations can now claim an employee retention credit even if they previously received Paycheck Protection or other business interruption loans.
  • The CAA changed the gross receipts reduction criteria so that organizations can qualify for credits if their gross receipts fell 20 percent or more (originally organizations could only qualify if gross receipts fell 50 percent or more).
  • The CAA expands coverage to include organizations that were not in business in 2019 by changing eligibility based on prior quarter.

Are there important dates to remember?
Organizations can take advantage of the employee retention credits through June 30, 2021 (originally December 31, 2020).

3. Changes to deferral of employee social security tax

What is it?
On August 8, 2020, the president signed a memo that allowed employees to defer the employee portion of social security tax through the end of 2020. Most employees are eligible, but employers have the option to offer this deferral to their employees. Organization are not required to offer the deferral to their employees.

What has changed?
  • The only thing the CAA changed about the social security tax deferment is that it extends the recollection and repayment period.

Are there important dates to remember?
Deferred employee social security taxes may be recollected through December 31, 2021 (originally was April 30, 2021). And the deferred taxes must be repaid before January 1, 2022.
4. Additional Paycheck Protection Program (PPP) funding

What is it?
The PPP allows small businesses to receive a forgivable loan to cover expenses and losses due to the COVID-19 pandemic.
What has changed?
  • PPP funding is expanded to allow certain organizations to receive a second forgivable PPP loan called a “PPP second draw.” Eligibility is limited to small businesses with 300 or less employees who have lost more than 25 percent of revenues in any quarter of 2020, and who have used or will use the entire amount of their first PPP loan.
  • The CAA expands forgivable expenses to include covered operations expenditures, supplier costs, property damage costs that insurance did not cover, investments in facility modifications, and personal protective equipment to operate safely.
  • There are now more forgivable expenses for existing PPP loans – and those loans that have not already been forgiven may use the expanded definition of forgivable expenses.
  • Borrowers with PPP loans of $150,000 or less now have access to a simplified loan forgiveness process.
  • Any 12-week period between February 15, 2019 and February 15, 2020 can now count as a seasonal period for seasonal employers.
  • The CAA earmarks PPP funding for smaller borrowers and underserved communities.

Are there important dates to remember?
The CAA extends the covered period for all PPP loans through March 31, 2021 (originally December 31, 2020).
5. Changes to student loans

What is it?
The CARES Act had a provision that enabled employees to defer the interest on their student loans. There was also a provision that enabled employers to make tax free payments toward their employees’ student loans up to the annual limit of $5,250.

What has changed?
  • Previous legislation extended the student loan interest deferment to January 31, 2021.
  • The CAA expands tax exemption to include tuition reimbursement programs.
  • The CAA extends the tax exemption program for student loan and tuition repayments through January 1, 2026.

Are there important dates to remember?
Employees must start repaying deferred student loan interest after January 31, 2021 (originally was September 30, 2020). And employers offering student or tuition reimbursement programs can do so, tax free, until January 1, 2026 (originally was December 31, 2020).
6. Changes to Health Care and Dependent Care Flexible Spending Accounts

What has changed?
  • The Act authorizes employers to amend FSA plans to permit the carryover of unused benefits for plan years ending in 2020 and 2021, and to extend the grace period applicable to health care FSA plans for plan years ending in 2020 or 2021 to a period of up to 12 months.
  • The Act also provides relief when a dependent ages out of a dependent care FSA eligibility during the pandemic.
  • These changes may be retroactively applied to adopt one or more of the above provisions as long as the plan is operated in compliance with the adopted change.
Please note – the information provided above is not legal or tax advice. Organizations should always consult their legal counsel to understand how this legislation may impact their organization.