2020 Year-End COVID Relief Legislation: New and Updated Tax Provisions for Businesses

In the waning days of 2020 (Sunday, Dec. 27), President Trump signed HR 133, the Consolidated Appropriations Act, 2021, a combination COVID-19 stimulus/relief and omnibus government funding bill passed by the House and Senate on Dec. 21, 2020. The Act provides approximately $900 billion to bolster the U.S. economy amid the continued spread of COVID-19.

In addition to a new round of Paycheck Protection Program (PPP) funding and individual “2020 Recovery Rebates” (refundable tax credits) in the amounts of $600 per taxpayer and $600 per qualifying child, several employer-related tax provisions were included in the Act. A summary of these provisions is below:

Extension of Certain Deferred Payroll Taxes: On August 8, 2020, the President of the United States issued a memorandum to allow employers to defer withholding employees’ share of social security taxes from Sept. 1, 2020 through Dec. 31, 2020, and required employers to increase withholding and pay the deferred amounts ratably from wages and compensation paid between Jan. 1, 2021 and April 31, 2021. Beginning on May 1, 2021, penalties and interest on deferred unpaid tax liability will begin to accrue. The provision extends the repayment period through Dec. 31, 2021. Penalties and interest on deferred unpaid tax liability will not begin to accrue until January 1, 2022.

Clarification of Tax Treatment of PPP Loans: The Act clarifies that gross income does not include any amount that would otherwise arise from the forgiveness of a PPP loan. This provision also clarifies that deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven, and that the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness. The provision is effective as of the date of enactment of the CARES Act, meaning it applies to what are now known as “First Draw PPP” loans. The provision provides similar treatment for Second Draw PPP loans, effective for tax years ending after the date of enactment of the provision. PRINTING United Alliance, Promo Marketing's parent organization, strongly advocated legislating this clarification to ensure Congress’ intent in establishing the pandemic-related forgivable loan program was followed.

Clarification of Tax Treatment of EIDL & Other Small Business Financial Assistance: The Act clarifies that gross income does not include forgiveness of certain loans, emergency EIDL grants, and certain loan repayment assistance, each as provided by the CARES Act. The Act also clarifies that deductions are allowed for otherwise deductible expenses paid with the amounts not included in income by the CARES Act, and that tax basis and other attributes will not be reduced as a result of those amounts being excluded from gross income. The provision is effective for tax years ending after date of enactment of the CARES Act.

Election to Terminate Transfer Period for Qualified Transfers from Pension Plan for Covering Future Retiree Costs: The Act would allow employers to make a one-time election during 2020 and 2021 to end any existing transfer period for any taxable year beginning after the date of election, provided the maintenance of effort continues to apply as if the transfer period were not shortened, the employer ensures the plan stays at least 100 percent funded throughout the original transfer period, the plan has funding targets for the first five years after the original transfer period, and all amounts left in the retiree benefits account at the end of the shortened transfer period must be returned to the pension plan (without application of an excise tax to such amounts). Applying the current-law requirements during the market volatility related to the coronavirus pandemic has caused plans that have been historically far over 120 percent funded to fall below 120 percent and face a requirement to immediately restore these large market losses in order to get back to 120 percent funded.

Extension of Credits for Paid Sick and Family Leave: The Act extends the refundable payroll tax credits for paid sick and family leave, enacted in the Families First Coronavirus Response Act, through the end of March 2021. It also modifies the tax credits so that they apply as if the corresponding employer mandates were extended through the end of March 2021. There is also a technical corrections made via the Act to coordinate the definitions of qualified wages within the paid sick leave, paid family and medical leave, and the exclusion of such leave from employer OASDI tax. This provision is effective as if included in FFCRA.

Self-Employment Income & Paid Sick and Family Leave: The Act allows for the election to use prior year net earnings from self-employment in determining average daily and self-employment income for purposes of credits for paid sick and family leave. Specifically, it allows individuals to elect to use their average daily self-employment income from 2019 rather than 2020 to compute the credit.