On December 27, 2020, about one week after Congress approved the new legislation, the President signed into law the long-awaited coronavirus relief and spending package. For employers, critical provisions of the new law include extensions of the Paycheck Protection Program (“PPP”); federal unemployment benefits under the Coronavirus Air, Relief and Economics Security (“CARES”) Act; and tax credits under the Families First Coronavirus Response Act (“FFCRA”). Highlights of those changes are below.
The new law provides additional funding for and expands the Paycheck Protection Program. The law reopens the PPP for qualifying businesses who have not applied before, as well as an expanded list of entities, including 501(c)(6) non-profits. Allowable uses of the loan amount have also been expanded to include certain operations expenditures, property damages costs, supplier costs and worker protection expenditures. Additionally, rejecting the IRS’s policy to date, the new law states that business expenses paid for with PPP loans may also be tax deductible, even if such loan amounts may be forgivable. The law also clarifies that employee wages paid with PPP loans that are not forgiven may also qualify for the employee retention tax credit.
Critically, the new law also allows certain small business to apply for “second draw loans” if they have exhausted their first PPP loan. The maximum loan amount for second draw loans is 2.5 times the average cost of monthly payroll (for restaurants and hospitality businesses, loans can be up to 3.5 times the average monthly costs), up to $2 million. To be eligible for second draw loans, the business may not employ more than 300 individuals, and generally must have had at least a 25% reduction in revenues between the current quarter and the same period in 2019.
Unemployment Insurance Benefit Extension
The new law has amended the CARES Act to extend the Pandemic Emergency Unemployment Compensation (“PEUC”) – which had provided 13 additional weeks of unemployment benefits under the CARES Act – for an additional 11 weeks (up to a maximum of 50 weeks) of unemployment benefits. For individuals who have otherwise exhausted their unemployment benefits, the extended benefits will cover periods of unemployment through March 14, 2021. For individuals who have not exhausted their PEUC by March 14, 2021, their benefits may continue through April 5, 2021.
The new law also provides an additional $300 per week for all eligible individuals on top of their existing unemployment benefit (the CARES Act had previously added $600 per week through July 2020). Although the $300 per week benefit was set to begin as early as December 26, 2020, the time it took to sign the bill may delay its implementation. The $300 benefit will end on March 14, 2021. The new law continues to cover all individuals covered under existing state eligibility requirements and the CARES Act.
FFCRA Paid Leave Tax Credit Extension
The new legislation further extends the tax credits available for employers who voluntarily provide the emergency paid sick leave and the emergency family and medical leave benefits under FFCRA between January 1 and March 31, 2021. Notably, the legislation does not mandate employers to provide such leave benefits after December 31, 2020.