Employers Must Provide COBRA Premium Subsidy For the Period 4/1/21 – 9/30/21

As part of the American Rescue Plan Act of 2021 (ARPA), which was signed into law March 11, 2021, employers who are subject to COBRA or state mini-COBRA law, must pay 100% of their involuntarily terminated employees’ COBRA premiums during the period April 1, 2021 through September 30, 2021. 

Involuntarily terminated employees do not include those terminated for gross misconduct; however, it does include those individuals who may have lost health care coverage due to an involuntary reduction of hours.  This subsidy is not limited to those individuals who are terminated during the April 1 through September 30, 2021, subsidy period but includes any individual who was previously involuntarily terminated and is still within the 18-month (or 9-month for PA mini-COBRA or 36-month special circumstance) coverage period even if they did not originally elect coverage.  Employees who voluntarily left their job do not qualify for the subsidy, nor do individuals who qualify for COBRA coverage due to anything other than involuntary reduction of hours/termination.  In addition, individuals who are eligible for other coverage, such as through a new employer, are not eligible for the ARPA subsidy and face a $250 penalty for willful or fraudulent claim of eligibility. 

A COBRA eligible individual must be enrolled in or elect COBRA during the subsidy period (April 1 through September 30) to be entitled to the subsidy.  The subsidy ends on September 30, 2021, or sooner if their COBRA coverage period ends prior to September 30, 2021.  In other words, if an employee was involuntarily terminated (for other than gross misconduct) on January 20, 2020, and was eligible for COBRA coverage beginning February 1, 2020, whether or not they elected coverage, they would be eligible for this 100% subsidy COBRA coverage for the period April 1, 2021 through August 31, 2021.  This subsidy does not extend a person’s eligible coverage period. 

Employers are required to provide written notification to previously terminated employees who are still within the coverage period, even if they initially declined coverage, within 60 days of April 1, 2021.  The new election period is 60 days from the date of the employer’s written notice.  If elected, the participant does not need to pay premiums back to the original COBRA coverage period through March 31, 2021.  They can be covered only for this special subsidy period…but not longer than the COBRA coverage period for which they’re eligible considering their termination date. 

Employers must also modify their current qualifying event letters to include the subsidy information.  You should work with your COBRA third-party administrator or visit the www.dol.gov website for help with these letters/notices. (At the time of this blog posting an updated model notice is not available on the DOL website, but they are required to have it posted no later than April 30, 2021.)

The good news here is that qualifying employers will receive a dollar-for-dollar payroll tax credit for the subsidies they were required to cover.  Since the ARPA is so new, the IRS has not yet released full details on this payroll tax credit.  For our payroll clients, it will be included on their second and third quarter Forms 941 when applicable.  Please be certain to provide your payroll processors with the details of the subsidies paid.    If you have further questions about the ARPA COBRA subsidy for your business, please contact your accountant or payroll processor.

American Rescue Plan Act Extends COVID-19 Sick Paid Leave

The FFCRA paid sick leave provisions ended December 31, 2020, as a requirement for employers, but was extended through March 31, 2021, for employers who wished to continue the program for their employees and for employer’s payroll tax credits.  However, the American Rescue Plan Act (ARPA) that was passed March 11, 2021, once again makes it a requirement for employers to offer the paid sick leave related to COVID-19 beginning April 1 through September 30, 2021. 

As of April 1, 2021, a new 10-day leave period is available to employees, even those that used the full two weeks allotment under the FFCRA.  In other words, the clock resets as of April 1, 2021.  THE ARPA also extends the reasons for paid sick leave to include time off to receive the COVID-19 vaccine(s) or time to recover from a vaccine-related illness or injury. 

The ARPA adds a tax credit for the Medicare portion of the FICA tax paid on qualified sick leave pay. 

Under the FFCRA, there were some exemptions for employers with less than 50 employees or greater than 500 employees.  The ARPA does away with those exemptions. 

As a reminder, some of the provisions of the FFCRA were:

  • Provide employees with up two weeks (limited to 80 hours) of paid sick leave at the employee’s regular rate of pay when the employee is unable to work because they are quarantined, experiencing COVID-19 symptoms and seeking a medical diagnosis related to the disease. (Not to exceed $511 per day/$5,110 in the aggregate for any employee.)
  • Provide employees with up to two weeks (limited to 80 hours) of paid sick leave at two-thirds of the employee’s regular rate of pay because the employee is unable to work because of a bona fide need to care for an individual subject to quarantine, or to care for a child (under 18 years of age) whose school or child care provider is closed or unavailable for reasons related to COVID-19.  (Not to exceed $200 per day/$2,000 in the aggregate for any employee.)
  • Part-time employee’s paid sick leave was limited to the calculated hours they worked in their average two-week period. 
  • Employers receive 100% reimbursement through a Form 941 tax credit for all qualifying wages paid as well as a tax credit for amounts paid or incurred to maintain health insurance coverage for the affected employees during their leave (up to $12,000 in the aggregate for all calendar quarters). 
  • Employers also received a credit for the employer’s Social Security portion of the FICA tax on the qualified sick leave pay. 
  • Employers should retain some sort of documentation to support the qualification of the paid sick leave in case your Forms 941 are ever audited.  (However, use care in what documentation you’re requesting from employees to avoid potential HIPPA or discrimination issues.) 

For our payroll clients, please be sure to specify the type of paid sick leave to your processor so that we can be sure the leave and credits are handled properly. 

We note that the ARPA also provides that the federal government will pay (through September 30, 2021) 100% of COBRA insurance premiums for employees who lose their job because of the pandemic.  We continue to watch for more guidance on this new legislation that was passed last week.  If you have questions on any of this, please call your CASI contact.

President Trump’s Employee Social Security Tax Deferral Order Remains Unclear

The Treasury Department and the IRS have issued guidance on the August 8, 2020, order by President Trump to defer the withholding, deposit, and payment of certain employee payroll tax obligations on wages from September 1, 2020 through December 31, 2020. 

Under the guidance: 1) the due date for the withholding and payment of the employee’s portion of the 6.2% Social Security tax on applicable wages is postponed until the period beginning January 1, 2021, and ending April 30, 2021; and 2) the deferred taxes must be withheld and paid from wages and compensation paid between January 1, 2020, and April 30, 2021.  This tax deferral is not available to those employee’s with taxable wages of $4,000 or more for a bi-weekly period (or the equivalent of $104,000 annually during the deferral period). 

It’s important to note, that it does not separately postpone the deposit obligation for employee Social Security.  That is because the deposit obligation does not arise until the tax is withheld, so by postponing the time for withholding the employee Social Security, the deposit obligation is delayed by operation of the regulations.  Additionally, it does not postpone the employer’s portion of the Social Security tax. 

There are two main concerns with this payroll tax deferral: 1) will employees be able to afford the double tax withheld from their paycheck during the payback period beginning January 1, 2021; and 2) how an employer handles the situation if an employee leaves the employer before the tax is paid back.  Interest, penalties, and additions to tax will begin to accrue on the employer’s federal tax account on any unpaid applicable taxes beginning May 1, 2021. 

We await definitive guidance from the Treasury Department whether employers have the choice to opt in or opt out on this payroll tax deferral.  It is also unclear if employees can compel their employer to defer the tax.  We are currently operating under the premise that the employee deferral is not required by the employer.  We also recommend that employers tell an employee inquiring about the deferral that you are awaiting further guidance from the IRS and Treasury Department.  Look for another post when we receive such guidance. 

THE PAYCHECK PROTECTION PROGRAM FLEXIBILITY ACT (PPPFA)

The Paycheck Protection Program Flexibility Act (PPPFA) passed nearly unanimously by the U.S. House of Representatives and U.S. Senate.  President Trump signed it into law on Friday June 5, 2020.  The PPPFA was intended to ease some of the forgiveness provisions of the CARES Act passed on March 27, 2020, as well as correct some of the deficiencies of the CARES Act.  Here are some of the highlights.

  • Time Period to Use the Loan Proceeds – The time period for PPP loan borrowers to expend loan proceeds was extended from 8 weeks to 24 weeks. This provides more time to small businesses to use PPP-provided funds.  Current PPP borrowers can elect either an 8-week covered period or a 24-week covered period.  New borrowers will have to use a 24-week covered period.  The covered period cannot extend beyond December 31, 2020.
  • Flexibility on use of PPP Proceeds – Recall, the CARES Act did not have any requirement on the amount required to be used on payroll costs in order to receive forgiveness.  The Small Business Administration (SBA) added a requirement that at least 75% of the loan proceeds must be spent on payroll costs to achieve full forgiveness.  The PPPFA provided additional flexibility to PPP loan borrowers on how they use those proceeds by lowering the amount required to be spent on payroll to qualify for full loan forgiveness — to 60%.  While the PPPFA made this 60% a “cliff”, the Treasury Department issued a June 7, 2020 statement advising of its intention to abolish the 60% cliff, but no more details are available at this time.   
  • Extended Date to Rehire and/or Eliminate Reduced Salary and Wages –  Under the CARES Act, the date to rehire employees was June 30, 2020. This is the period by when an employer may rehire employees or eliminate a reduction in salary, or wages that would otherwise reduce the forgivable amount of a paycheck protection loan.  The date is extended to December 31, 2020.
  • Reduced Headcount Penalty – The PPPFA removes a reduced-headcount penalty for businesses facing workforce challenges by providing that the forgiveness amount must be determined (and shall not be reduced due to a reduction in the number of employees) if the recipient is (1) unable to rehire former employees and is unable to hire similarly qualified employees, or (2) unable to return to the same level of business activity due to compliance with federal requirements or guidance related to COVID-19.  A borrower should be able to document this in good faith.
  • Loan Term – Originally, the loans had a 2-year term.  The PPPFA extended the term to 5 years for PPP loans that originate after the passage of the PPPFA (June 5, 2020).  For example, for any PPP Loans or parts of Loans that are not forgiven, they will become a 5-year loan.  For existing PPP loans, banks and borrowers are permitted to mutually agree to modify the maturity terms to adjust for this change.
  • Payroll Tax Deferral – Under the PPPFA, PPP borrowers with loan forgiveness may also qualify for the COVID-19 related tax credit to defer payroll taxes, which had been previously prohibited.
  • Deferral of Loan Payments – Payment are not due until after the bank receives the forgiveness amount for your loan from the SBA. However, if the borrower does not apply for forgiveness for 10 months after the last day of the covered period, payments will become due 10 months after the end of the covered period.  This new deferral does not apply to borrowers who elect the 8-week covered period.

NOTE: – According to the Small Business Administration (SBA), there remain funds available for PPP loans.  As of June 6, 2020, there still remains approximately $160 billion of funds available.  The PPP application deadline remains June 30, 2020.

We can expect additional guidance as well as modified application and forgiveness forms from the Treasury and SBA in the future.

The contents are intended for general informational purposes only and are not tax or legal advice. You are urged to consult a tax advisor or lawyer concerning your own situation and legal questions.

House Passes Bill to Loosen Rules on PPP Loans

On May 28, 2020, the House overwhelmingly passed a bill to loosen key rules for the Paycheck Protection Program (PPP).

The plan would:

  • Reduce the percentage of aid money that must be spent on payroll from 75% to 60%
  • Extend the window businesses have to use the funds from 8 weeks to six months
  • Push back a June 30 deadline to rehire workers
  • Extend from two years to five years the time new PPP loans must be paid back if the amount provided does not convert to a grant
  • Let companies receiving loan forgiveness defer payroll taxes

The bill is now headed to the Senate.

We plan to discuss legislative updates during our next free webinar on Wednesday, June 3.  Click here to register: https://us02web.zoom.us/webinar/register/WN_-M0pBsjMST-YuFXZnGsHXw

This communication should not be construed as tax or legal advice or tax or legal opinion on any specific facts or circumstances. This communication does not create any accountant/client or attorney/client privilege. The contents are intended for general informational purposes only, and you are urged to consult a tax advisor or lawyer concerning your own situation and legal questions.

Bucks Back to Work Small Business Grant

Bucks County has outlined a new grant program to help small businesses that have been negatively impacted by COVID-19.

http://buckscounty.org/government/CommunityServices/BacktoWorkGrantProgam

To qualify, applicants must be for-profit businesses, founded no later than 2018, that have less than $700,000 gross annual revenue and fewer than 50 employees. Primary operations and headquarters must physically be located in Bucks County, and a majority of revenue must be generated in Bucks, not outside locations. Please see the above link and Fact Sheet for a complete list of eligibility requirements.

Bucks County business owners are invited to a Zoom webinar TODAY, May 21, 2020. If interested, you must register for the Zoom session by 12:00 PM. See the above link for more details.

Applications will be accepted on Tuesday, May 26 ONLY, between the hours of 5 AM and 9 PM.

This communication should not be construed as tax or legal advice or tax or legal opinion on any specific facts or circumstances. This communication does not create any accountant/client or attorney/client privilege. The contents are intended for general informational purposes only, and you are urged to consult a tax advisor or lawyer concerning your own situation and legal questions.

SBA Extends “Necessity” Certification Return-By Date to May 18, 2020

Yesterday afternoon the SBA extended until May 18, 2020 the PPP loan return-by date related to the PPP loan “necessity” certification. This is the second extension of the return-by date which allows PPP borrowers who determine they cannot meet the necessity certification required for all PPP loans to return the funds. This extension is intended to allow PPP borrowers to consider how the safe-harbor announced yesterday related to the necessity certification (FAQ46) might apply to their situation .

As indicated by the SBA in FAQ45, for purposes of the Employee Retention Tax Credit, borrowers that return the PPP funds by the return-by date will be treated as though they had not received a PPP loan. This will allow such borrowers to take advantage of the tax credit to the extent they are otherwise eligible.

This communication should not be construed as tax or legal advice or tax or legal opinion on any specific facts or circumstances. This communication does not create any accountant/client or attorney/client privilege. The contents are intended for general informational purposes only, and you are urged to consult a tax advisor or lawyer concerning your own situation and legal questions.

SBA Announces Safe Harbor for PPP Loan “Necessity” Certification

Today the SBA again updated its FAQs related to PPP loans, this time with a welcome safe harbor to the “necessity” certification required by all borrowers. In FAQ46, the SBA announced that “any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.” This is good news for many borrowers who had determined a need for the PPP loan but were worried that the SBA might not agree with their assessment.

As you are aware, over the past few weeks the “necessity” certification for a PPP loan has been in the news and on everyone’s minds. As part of the PPP application, every borrower was required to certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” In response to several large public companies receiving PPP loans, the SBA issued FAQ31 which focused on whether large companies had the ability to access other sources of liquidity and reiterating the requirement that the PPP loan must be a necessity. This guidance was later extended to all borrowers, causing many borrowers to question whether the SBA would agree with the borrower’s determination that the loan was “necessary” and whether they should return the loan just to be safe. The SBA set an initial date of May 7, 2020 for borrowers to return the PPP loan if they could not meet the “necessity” certification. In FAQ43, the SBA extended the return-by date to tomorrow, May 14, 2020.

Today’s FAQ announcement clarifies that the SBA will accept that the necessity certification was made in good faith by borrowers (including their affiliates) that received less than $2 million in total of PPP loans. It also provides that borrowers receiving in excess of $2 million, while unable to rely on the safe harbor, may still be able to meet the necessity certification based on their individual circumstances. The SBA reiterated that loans in excess of $2 million will reviewed by the SBA for compliance with PPP program requirements.

The link below is the text of the FAQ, and it explains the reasoning behind this decision. https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf

This communication should not be construed as tax or legal advice or tax or legal opinion on any specific facts or circumstances. This communication does not create any accountant/client or attorney/client privilege. The contents are intended for general informational purposes only, and you are urged to consult a tax advisor or lawyer concerning your own situation and legal questions.

SBA to Provide Exemption from Loan Forgiveness Reduction for Non-Returning Employees

Yesterday the Small Business Administration (SBA) issued a new FAQ which helps PPP borrowers whose employees elect not to return to work.  As set forth in the CARES Act, the PPP loan amount eligible for forgiveness is to be reduced, in part, if a PPP borrower’s average number of full-time equivalent employees during the 8-week loan period is less than the average number of such employees previously employed by the borrower. 

One issue beyond the control of PPP borrowers is employees that do not accept rehire offers, potentially effecting a PPP borrower’s ability to receive full forgiveness.  The SBA announced that they will be issuing guidance which will exclude laid-off employees that do not accept rehire offers from the loan reduction calculation if the following requirements are met:

  1. The PPP borrower makes a good faith, written offer of rehire;
  2. The rehire offer is for the same salary/wages and the same number of hours;
  3. The employee rejects the offer of rehire; and
  4. The rejection is documented by the PPP borrower.

The FAQ cautioned both employers and employees, that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.

Employers in Pennsylvania may want to consider completing and filing a Form UC-1921W (Refusal of Suitable Work) with the PA Department of Labor and Industry as one method of documenting the employment rejection (although the FAQ does not discuss methods of documentation).  Filing this form may also assist with an employer’s unemployment compensation rate for next year.  

If you have any questions, please reach out to us.  We are here to help. 

This communication should not be construed as tax or legal advice or tax or legal opinion on any specific facts or circumstances. This communication does not create any accountant/client or attorney/client privilege. The contents are intended for general informational purposes only, and you are urged to consult a tax advisor or lawyer concerning your own situation and legal questions.

Expenses Paid with Forgivable PPP Loans Not Deductible

The Internal Revenue Service (IRS) recently released guidance on the deductibility of expenses reimbursed by a Payment Protection Program (PPP) loan that is then forgiven. In Notice 2020-32, the IRS states that no deduction is permitted for expenses normally deductible to the extent the expenses were reimbursed by a PPP loan that was forgiven. The disallowance is to prevent a double benefit by preventing a deduction for excluded income.

Some lawmakers disagree with the IRS’ guidance. They believe the intent of the program was to provide small businesses with liquidity to retain their employees. The notice is contrary to that intent.

A spokesperson for House Ways and Means Committee Chairman Richard Neal stated, “We are planning to fix this in the next piece of response legislation.”

Our office is monitoring this situation closely and will provide you with updates as needed. Please call our office if you have any questions.

This communication should not be construed as tax or legal advice or tax or legal opinion on any specific facts or circumstances. This communication does not create any accountant/client or attorney/client privilege. The contents are intended for general informational purposes only, and you are urged to consult a tax advisor or lawyer concerning your own situation and legal questions.