Congress’s end of year package contained many provisions that HARDI members can utilize in the coming months. In the bill Congress extended the Paycheck Protection Program and created a second draw option for businesses with a drop on revenue, allows qualifying PPP participants to use the Employee Retention Tax Credit, expanded the disaster loan and small business lending programs, and returned the business meal and entertainment provisions to 100% deductibility. In addition to COVID relief, the package signed by President Trump last Sunday contained the American Innovation and Manufacturing Act which regulates the phase-down of HFC production and use. Below are important details and timelines for utilizing these programs.
1. Paycheck Protection Program:
Congress has authorized a total of $806.5 billion through March 31, 2021 for the Paycheck Protection Program, $284.5 billion is new funding available for businesses. The legislation allows small businesses to take a second round of forgivable loans under the Paycheck Protection Program. SBA is required to release regulations for the updated program within 10 days of the bill signing (Signed into law on Dec. 27). Originally SBA planned to reopen lending before the end of the year, however the delay in bill signing has slowed re-opening but lenders should be able to open applications within the next few weeks, if any HARDI members are interested in new or second draw PPP loans, it is best to talk to your lender before the program re-opens.
The legislation expanded the use of PPP funding to include additional non-payroll costs:
- Payments for software or cloud computing services that facilitate operations, product delivery, payroll expenses, and other functions.
- Costs related to property damage, vandalism, or looting due to public disturbances in 2020, if the damage wasn’t covered by insurance.
- Payments made to suppliers of essential goods under contracts and purchase orders in effect before a PPP loan was issued.
- Purchases of personal protective equipment.
- Adaptations such as drive-through windows, ventilation systems, sneeze guards, and screening capabilities to comply with social distancing, sanitation, and other requirements related to Covid-19.
Second Draw Loans: Qualifying businesses will be able to receive 2.5 times their average monthly payroll with a maximum of $2 million loans. To qualify for a second loan, entities would have to:
- Employ 300 or fewer workers, instead of the current 500-employee threshold.
- Demonstrate that they had at least a 25% reduction in gross revenue during a quarter in 2020 compared with the same period in 2019, with some exceptions.
- Exhaust their first loan before receiving a second one.
PPP borrowers will be allowed to choose a loan forgiveness period ranging from eight to 24 weeks. Existing borrowers that received PPP loans of less than $150,000 will be allowed to submit simplified applications for forgiveness with limited documentation.
Our friends at Crowell and Moring are hosting a webinar to go through all of the changes to PPP on January 5 at 3pm EST. You can register here.
2. PPP Deductibility:
The legislation reversed a decision made by the IRS that would have limited the ability of businesses using PPP funds to deduct the value of business expenses paid with PPP funds. With this provision any business expenses that would normally be deductible will continue to be deductible for the upcoming tax season. HARDI joined over 700 trade associations in asking Congress for this fix.
3. Employee Retention Tax Credit:
The legislation extends and expands the CARES Act employee retention tax credit (ERTC). ERTC allows businesses to take a tax credit from the employer’s portion of payroll taxes for up to $10,000 per quarter of qualifying employees’ wages. Overall, this provision is much better for qualifying small businesses including those that previously took PPP loans like many HARDI members. The bill also lowered the qualification requirements but did retain an annual revenue decrease which is different from the quarterly decreased used by second draw PPP loans. The bill made some changes retroactive, while others are only prospective.
Beginning on January 1, 2021 and through June 30, 2021, the provision:
- Increases the credit rate from 50 percent to 70 percent of qualified wages.
- Expands eligibility for the credit by reducing the required year-over-year gross receipts decline from 50 percent to 20 percent and provides a safe harbor allowing employers to use prior quarter gross receipts to determine eligibility.
- Increases the limit on per-employee creditable wages from $10,000 for the year to $10,000 for each quarter.
- Increases the 100-employee delineation for determining the relevant qualified wage base to employers with 500 or fewer employees.
- Provides rules to allow new employers who were not in existence for all or part of 2019 to be able to claim the credit.
Retroactive to the effective date included in section 2301 of the CARES Act, the provision:
- Provides that employers who receive Paycheck Protection Program (PPP) loans may still qualify for the ERTC with respect to wages that are not paid for with forgiven PPP proceeds.
- Clarifies that group health plan expenses can be considered qualified wages even when no other wages are paid to the employee, consistent with IRS guidance.
4. Disaster Loans:
The CARES Act expanded the SBA’s Economic Injury Disaster Loan (EIDL) program and authorized the agency to advance as much as $10,000 for recipients to pay sick leave to workers affected by Covid-19, retain employees, and make other covered payments.
The legislation would double the authorization for advance funds to $40 billion, from $20 billion, and extend it through Dec. 31, 2021. For companies that did not receive the full $10,000 emergency grant, the bill would provide $20 billion for these businesses to receive the difference between $10,000 and the advance funds they received under the CARES Act. Eligible recipients would include those with 300 or fewer employees that are located in low-income communities and that had economic losses of at least 30% over eight weeks compared with a similar period before the pandemic.
The measure also would repeal a provision from the CARES Act that requires PPP forgiveness amounts to be reduced based on EIDL advances.
5. SBA’s 7(a) and 504 Loan Programs:
In addition to PPP and EDIL, the Small Business Administration has been using some long-term lending programs to help businesses during the pandemic including the 7(a) and 504 loan programs. Congress provided and additional $1.92 billion for the SBA to:
- Increase its maximum guarantees for 7(a) loans to 90% through Sept. 30, 2021.
- Temporarily increase 7(a) express loans.
- Temporarily waive certain fees associated with the 7(a) and 504 loan programs.
- Allow eligible small businesses to use 504 program funds to refinance existing debt equal to 100% of the cost to expand those businesses.
- Support as much as $7.5 billion each year in debt refinancing for 504 program projects that don’t involve expanding a small business.
6. Additional Tax Changes:
Business Meal and Entertainment Deduction: For 2021 and 2022, businesses can deduct the full value of business meals and entertainment. The Tax Cuts and Jobs Act previously limited this deduction to 50%.
Payroll Tax Deferral: Workers who’ve had their payroll taxes deferred since September would be given until Dec. 31, 2021, to pay back the government, instead of through April 30, 2021, as originally directed by the Treasury Department.
Paid Leave Credits: The measure would extend credits for unused paid sick and family leave provided under the Families First Coronavirus Relief Act through March 31, 2021. However, the requirement for businesses to offer paid sick and family leave un FFCRA is no longer required.
7. Families First Coronavirus Response Act:
The Families First Coronavirus Response Act (FFCRA) created in March of 2020 required businesses with fewer than 500 employees to offer paid sick and family leave to employees with coronavirus or family with coronavirus. The end of year package did not extend these requirements, however as previously mentioned the tax credits for voluntarily providing these leave options, if an employee has not used up the allowable leave, is still available through March 31, 2021.
American Innovation and Manufacturing Act:
Starting next year HARDI and the rest of the industry will work with the incoming EPA Administrator and our contacts within the Stratospheric Protection Division, which currently regulates refrigerants under the Clean Air Act, to determine next steps in regulating how the different industries using hydrofluorocarbons will phase-down their use. President-elect Biden has chosen Michael Regan, North Carolina’s top environmental regulator to lead the EPA during the next administration, it was also rumored Mary Nichols the outgoing California Air Resources Board chair was a possible pick. Regan as North Carolina’s Department of Environmental Quality was one of the few states in the US Climate Alliance to not adopt any HFC rules in recent years. HARDI’s goal is to ensure enough HFCs are retained to meet future service needs for the installed base of air-conditioning and commercial refrigeration.
If you have any questions about the COVID relief measures or the AIM Act, please reach out to Alex Ayers (firstname.lastname@example.org). HARDI will continue to monitor these programs as regulations are released and will update you on relevant information.