The Consolidated Appropriations Act, 2021 (CAA) consists of over 5,500 pages detailing programs and credits meant to support those impacted economically by the COVID-19 pandemic. The CAA contains many provisions of particular interest to employers and human resources personnel. The following offers an overview of such provisions.
The CAA provides more flexibility for health and dependent care flexible spending arrangements. The relief package allows individuals with eligible FSAs to roll over unused amounts in 2020 to 2021 and from 2021 to 2022. The grace period for both years has been extended to 12 months after the end of the plan year. Additionally, employers may permit employees to change contribution amounts mid-year for 2021. A special carry forward rule for dependent care flexible spending arrangements extends the ability to submit claims reimbursements in 2021 for expenses related to a child who turned 13 during the plan year and who has an unused balance.
Student Loan Repayment
Under the CARES act, employers could provide up to $5,250 annually toward an employee’s student loans, and the payment would not be included in the employee’s income. The $5,250 cap applies to other educational assistance (e.g., tuition, fees, and books) as well. The benefit originally ran through December 31, 2020; however, the CAA now extends the provision through December 31, 2025.
Deductions for Business Meals
Thanks to the CAA, businesses can deduct 100% of meals provided by a restaurant rather than being subject to the 50% limit that generally applies otherwise. This provision is in effect for 2021 and 2022.
Employer Payroll Tax Credit
The Families First Coronavirus Response Act (FFCRA) provided stability to families by requiring small business owners to pay up to 2 weeks of sick leave to employees who were unable to work due to COVID-19 and up to 10 weeks of qualified family leave for parents and guardians who could not work due to a child at home without school or care options. Employers could receive a fully refundable tax credit equal to the wages paid through December 31, 2020. The CAA extends the credits through March 31, 2021 for employers who voluntarily opt to continue to offer the provisions to employees.
Employee Retention Credit
Through the CARES Act the Employee Retention Credit (ERC), originally available for 2020 only, offset employer’s payroll tax liability to encourage organizations to maintain their staffing. The ERC allowed employers who did not receive Paycheck Protection Program (PPP) loan funds to claim a credit equal to 50% of the first $10,000 of qualified wages paid to an employee during an eligible quarter. A quarter was considered eligible if business operations were fully or partially suspended by a government order or the business experienced a significant drop in gross receipts compared to the same quarter in 2019. Companies who employed more than 100 individuals could only claim the credit on wages paid to employees who were paid not to work.
The CAA extends the ERC through June 30, 2021 and loosens some of the restrictions and qualifications to make the program more accessible. Most notably, the CAA allows taxpayers to claim the ERC and receive PPP loan funds. The only qualifier being that the wages utilized to calculate the ERC will not qualify for forgiveness under the PPP.
Other changes in the CAA to the ERC include the following.
- Qualified wage limits per quarter rather than in total: Employers can now claim credit for wages up to $10,000 per employee per quarter.
- Increase in percentage employers can claim: Employers may now claim 70% of qualified wages in the first two quarters of 2021 compared to the 50% allowed in 2020.
- Higher threshold for number of employees: The change in qualified wages that occurred after 100 employees does not kick in until the number of employees exceeds 500.
Deferred Payroll Taxes
President Trump’s August 8, 2020, executive order offered employers deferred withholding and payment of the employee’s portion of Social Security taxes beginning Tuesday, September 1, 2020, and ending December 31, 2020. The order required employers to pay the deferred payroll taxes between January 1, 2021 and April 30, 2021. The CAA extends the repayment period to December 31, 2021.
If you have questions or would like more information on how the CAA impacts you or your business, contact a Hantzmon Wiebel team member today. We will help you take the right next step.