December 22, 2020 Issue:
Congress Passes New Coronoavirus Relief Bill
Action Taken: Late on December 21, Congress approved H.R.133, a bill containing $900 billion in new coronavirus crisis aid. The coronavirus crisis measure—the product of some eight months of struggle by lawmakers—was attached to H.R.133, an omnibus spending bill that will fund the U.S. government’s discretionary spending for the balance of fiscal year (FY) 2020 (i.e., through September 30, 2021). The House passed it around 9 p.m. Monday night, by a bipartisan 359 to 53 vote. The Senate followed suit, 92 to 6, a bit before midnight.
President Trump says he will sign the measure into law, although logistics may delay his required signature by a few days. To prevent a government shut-down during those few days, Congress also enacted a week-long continuing resolution to provide time to put together the required paperwork on the massive measure—at almost 6,000 pages long, some are saying it’s the largest bill ever passed by Congress.
Among the provisions in the behemoth legislation are:
Paycheck Protection Program (PPP): The bill restarts the PPP, and provides authority for small businesses to take a second forgivable PPP loan. The restarted program is authorized through March 31, 2021. It also modifies the PPP as follows:
- Expands the kinds of expenses that are eligible to be paid with forgivable PPP loans to include software, cloud computing and other human resources and accounting needs, supplier costs that are essential to a business’ operation, and the cost of personal protective equipment (PPE) and adaptive equipment necessary to comply with federal or equivalent State health and safety guidelines
- Provides that a lender may rely on certification and documentation submitted by a borrower for either an initial or a second draw PPP loan
- Allows the borrower to elect a covered period ending at the point of the borrower’s choosing between eight and 24 weeks after loan origination
- Simplifies the loan forgiveness application process
- Clarifies that employer-provided benefits in addition to group health insurance are includible in calculating payroll costs. This specifically includes group life, disability, vision and dental insurance benefits
- Makes nonprofit organizations (such as NAIFA and its chapters) with 300 or fewer employees eligible for PPP loans, so long as no more than 15 percent of their receipts and 15 percent of their activities come from/are devoted to lobbying, and so long as the cost of lobbying activities did not exceed $1 million during the most recent tax year ending prior to Feb. 15, 2020.
- Establishes a “second draw” PPP loan program for employers with 300 or fewer employees, for loans up to $2 million, subject to meeting certain conditions such as loss of revenue in 2020 relative to revenue in 2019. Generally, borrowers can receive a loan amount of up to 2.5 times the average monthly payroll costs in the year prior to the loan or the calendar year, up to a maximum of $2 million. Borrowers of a PPP second draw loan would be eligible for loan forgiveness equal to the sum of their payroll costs, as well as covered mortgage, rent, utility payments, operations expenditures, certain property damage costs, certain supplier costs, and worker protection expenditures incurred during the covered period. The 60/40 cost allocation between payroll and nonpayroll costs in order to receive full forgiveness will continue to apply.
- Allows those receiving Economic Injury Disaster Loan (EIDL) to also apply for a PPP loan
- Authorizes almost $300 billion for the re-started and expanded PPP
Tax: The package contains a slew of NAIFA-supported tax provisions important to life and health insurance interests. They include:
- A change in the tax definition of life insurance that replaces a decades-old fixed rate with a benchmark rate that adjusts with market conditions. The rate is a key component of the calculation of a life insurance policy’s maximum permissible investment value. This NAIFA-supported provision was a priority for a number of carriers that made clear it was necessary to make whole life insurance competitive in today’s marketplace. Not included in the bill was a proposal to recharacterize life insurer-held bonds as ordinary rather than capital assets.
- A provision that allows a deduction for business expenses paid with forgiven (tax-free) Paycheck Protection Program (PPP) funds—this deductibility applies to other forgiven loan amounts as well, such as Economic Injury Disaster Loans (EIDLs)
- A provision that forgiven loan money (including EIDL grants) is not includible in gross income (and thus subject to tax).
- A 100 percent deduction for business meals in 2021 and 2022
- An extension (from January 1, 2021 through June 30, 2021) and expansion of the employee retention tax credit (ERTC). The ERTC modifications include:
- An increase in the credit rate from 50 percent to 70 percent of qualified wages, from January 1, 2021 through June 30, 2021
- Expanded eligibility for the ERTC by making it available to businesses that experience a 20 percent (down from 50 percent) decline in gross receipts as compared to the same period last year
- An increase in the limit on per-employee creditable wages from $10,000/year to $10,000/quarter
- An increase in the 100-employee delineation for determining the relevant qualified wage base to employers with 500 or fewer employees
- A modification to the rule governing employers that take PPP loans to allow them to qualify for the ERTC for wages that are not paid with forgiven PPP proceeds.
- A clarification that specifies that group health plan expenses can be considered qualified wages even when no other wages are paid to an employee
- Extension of the refundable payroll tax credit for coronavirus-related paid sick and family leave through the end of March, 2021—however, the bill does not continue the mandate that employers with 500 or fewer employees provide coronavirus-related paid sick and family leave. That mandate expires at the end of 2020.
- A charitable deduction for 2021 for taxpayers who don’t itemize of up to $300/single taxpayer or $600 for a married couple filing a joint return, and a one-year extension of the CARES Act’s increased limit on itemizing taxpayers’ and corporations’ deductible charitable contributions
- Extension of the time allowed to repay, without penalty or interest, deferred employee Social Security taxes. The extension moves the repayment deadline from May 1, 2021 to January 1, 2022.
- Extension through 2025 of the New Markets and Work Opportunity (WOTC) Tax Credits
- Extension through 2025 of the employer tax credit for paid family and medical leave
Health: There are a number of health-related provisions in the bill, including:
- Surprise billing—the legislation bans surprise billing for out-of-network health care services provided without advance notice and consent to patients. It also sets up a dispute resolution system to resolve disputes between health care providers and insurers/plan sponsors.
- A provision to allow taxpayers to roll over unused funds in their health (and dependent care) flexible spending arrangements (FSAs) from 2020 to 2021, and from 2021 to 2022. The provision also allows employers to let employees make a 2021 mid-year prospective change in the amounts they contribute to their FSAs.
- A provision that makes permanent the rule that allows an above-the-line deduction for unreimbursed medical expenses to the extent they exceed 7.5 percent of adjusted gross income (AGI)
- Extension for two years of the health coverage tax credit
- A requirement that agents and brokers disclose their compensation when it is in excess of $1,000 when selling group or individual health insurance plans and policies
Retirement Savings: The bill contains only a few retirement savings provisions. They are a temporary rule allowing defined contribution (DC) plan sponsors to defer assessments until March 2021 in order to rebuild workforces to avoid plan termination due to turnover in excess of 20 percent; a rule that allows certain construction and building trade workers age 55 or older to continue to work even if they’re receiving retirement benefits; clarification that the CARES Act’s provision that allows penalty-free withdrawals from retirement savings plans for coronavirus-related expenses (and gives the taxpayers three years to repay the loans or recontribute amounts withdrawn) applies to money purchase pension plans; and authority for disaster area residents to borrow up to $100,000, penalty tax free, from an IRA or a retirement plan—and if the loan is repaid within three years, the withdrawal would also be income tax free. The provision also extends for one year the repayment period for new and outstanding retirement plan loans.
Economic Impact Payments: H.R.133 includes authorization of economic impact payments to each qualifying American taxpayer. The full credit amount is $600 per individual, $1,200 per couple, and $600 for children. It is available for individuals with adjusted gross income (AGI) at or below $75,000 ($112,500 for heads of household), and married couples with AGI at or below $150,000. Individuals with children will receive an additional $600 per child aged 16 or younger. For those above this income level, the tax rebate amount will be reduced by $5 for each $100 by which the taxpayer’s AGI exceeds the thresholds. For example, as explained by the Ways & Means Committee Republican summary, an individual without children will not receive any rebate if his/her AGI exceeds $87,000. A married couple without children will not receive any rebate if their AGI exceeds $174,000. A family of four will not receive any rebate if their AGI exceeds $198,000.
Any person that has a valid work-eligible Social Security number (SSN), is not a dependent of someone else, and whose adjusted gross income (AGI) is at or below the thresholds is eligible to receive the credit. The rules for determining income-based eligibility are the same as they were for the first round of economic impact payments sent out after the CARES Act was enacted last spring.
Unemployment Benefits: The bill extends eligibility for unemployment benefits through March 14. It allows for an additional three weeks, to April 5, for those who were receiving unemployment benefits before the March 14 cut-off date for applying for these extended benefits. It also provides for a $300/week federal supplemental unemployment benefit, from December 26, 2020 to March 14, 2021.
The bill also provides funding for COVID vaccine distribution, provision of health care related to the pandemic, and emergency rental assistance to both landlords and renters. It extends the moratorium on evictions, includes support for child care providers, establishes funding for broadband access in rural communities, provides funding for the Post Office, provides funds for nutrition and food insecurity programs, and provides funding for transportation and education.
Government Funding: H.R.133 funds all of the federal government’s discretionary spending for agencies and programs for the balance of FY 2020. Total FY 2020 spending is $1.4 trillion. The National Flood Insurance Program (NFIP) is authorized and funded through the end of the fiscal year, September 30, 2021.