The new $900 billion COVID-19 stimulus bill has been signed into law, packed full of provisions that will impact nearly everyone in the new year. Some of the items that matter the most to businesses are related to the Families First Coronavirus Response Act (FFCRA), changes to the Paycheck Protection Program (PPP) and tax provisions.

The hefty piece of omnibus legislation, coming in at well over 5,000 pages in length, includes plenty of items not related to pandemic relief. There will almost certainly be official guidance offered regarding how the bill is interpreted and applied, but in the meantime, we have important details regarding how it impacts small businesses.

Tax credits and more   

The new stimulus bill includes some language that can affect your taxes. One of the most notable is that the refundable payroll tax credit for mandated paid sick and family leave from the stimulus bill earlier this year has been extended through March of 2021. The Employee Retention Tax Credit (ERTC) has also been extended through July 1, 2021 and includes the following increases, starting January 1, 2021:

  • Increased credit rate from 50% to 70%.
  • Increases per-employee creditable wages to $10,000 per quarter.
  • Makes it a little easier to qualify for the credit by lowering the limit for declining YoY gross receipts from 50% to 20%.
  • New definition of “large employer” for determining the qualified wage based by 100 to 500 employees.

Additionally, companies that received PPP funds are no longer restricted from participating in ERTC, but you can only use wages that were not paid with forgiven PPP funds to calculate the credit.

Changes to retirement plan distributions

The new stimulus bill is similar to the original CARES Act in how it deals with retirement plan distributions. Here are some of the main details you should know about:

  • Removes 10% penalty for qualified disaster distributions.
  • Allows income to be split over 3 tax years from date of withdrawal
  • Allows 3 years to repay distributions, essentially treating it like a direct rollover during this time frame.
  • Distributions must be made within 180 days of the enactment of the Act.

Families First Coronavirus Response Act (FFCRA)

The new stimulus bill does not include an extension of FFCRA leave requirements, but it does allow covered employers that voluntarily provide emergency paid sick leave or emergency paid Family Medical Act leave to take the tax credit through March 31 of 2021.  This means that while FFCRA is no longer required and the hours/balances have not reset, there are tax credits available for companies that provide leave until the end of March.

Employers with less than 500 employees will not have to provide paid FFCRA leave under federal law as of January 1, 2021. It’s important to remember, however, that you might still have to provide paid leave under state or local laws. Be sure to take a close look at your policies and make sure they comply with the laws in your area.

Paycheck Protection Program (PPP) Updates  

The Paycheck Protection Program was infused with $284 billion dollars to provide additional loans. The money received under a PPP loan does not count toward your taxable income. You can also deduct expenses that were paid with forgiven PPP funds without restrictions.

The stimulus bill also allows companies that were “hard hit” by the pandemic to receive a second PPP loan. According to the bill, small companies and non-profits with 300 or fewer employees that can show a 25% loss of gross receipts during any quarter of 2020 as compared to 2019, which totals 2.5 times the average monthly payroll up to $2 million fall into this category.

$286 Billion in Direct Relief

The direct relief portion of the new stimulus bill was one of the largest points of debate delaying the bill being signed into law. As it stands, however, the original amounts remain: $600 for individuals making up to $75,000 annually, or couples making up to $150,000 annually with an additional $600 per each dependent child.

Eligible people earning between $75,000 and $99,000 may receive reduced stimulus checks as well. This will depend upon your income and family size, but a family of four that qualifies for the full stimulus amount can receive up to $2,400.

Just like the first round of stimulus checks, those that have direct deposit information on record with the IRS will likely see funds in a couple of weeks. Keep in mind, the amount of the check is based on your most recent tax return.

The new stimulus legislation also includes unemployment benefits. The delay in signing the bill into law, however, may create a delay in rolling out the additional benefits. As it stands, however, the originally proposed $300 a week in Federal Pandemic Unemployment Compensation (FPUC) was signed into law.  The funding for this increased unemployment benefit is set to end on March 14, 2021.

The new stimulus bill is complex and touches areas as diverse as foreign aid to rental assistance. As points of the bill are clarified, and official guidance is offered, we’ll update you here as soon as possible.

You can also read the complete language of the new bill  here.

The material presented here is educational in nature and is not intended to be, nor should be relied upon, as legal or financial advice. Please consult with an attorney or financial professional for advice.