July 29, 2020
On July 28, 2020, the Senate passed the Health, Economic Assistance, Liability Protection, and Schools Act (“HEALS Act”). In a way, this is the Senate’s counter to the House of Representatives’ Health and Economic Recovery Omnibus Emergency Solutions Act (“HEROES Act”) passed back in May. The HEALS Act would cost around $1 trillion, roughly one-third the spend on the HEROES Act.
While the HEALS Act as presented is not expected to pass in the House, now that the Senate has laid out a detailed proposal for another round of stimulus, the process of negotiating provisions amenable to both chambers can begin with more earnest and specificity. With the current PPP ending on August 8, the Federally enhanced unemployment insurance benefits set to expire on July 31, and the Democratic and Republican National Conventions set to occur in August, Congress has little time to reach a consensus.
The HEROES Act focused on increasing funding for COVID-19 testing and contact tracing, expanding health benefits, supporting hospitals and frontline medical workers, providing direct payments to individuals, improving the Paycheck Protection Program (PPP), and extending unemployment benefits.
Following is a summary of the key provisions of the HEALS Act.
Business loan programs
- The Paycheck Protection Program currently only allows a single forgivable loan per borrower. Many businesses have already fully expended their loan, and yet many continue to face significant declines in revenues. The HEALS Act would allow an additional $190 billion for a second round of loans. Eligible businesses are those that employ up to 300 individuals and demonstrate a reduction in gross revenues of at least 50%. Like the first program, the maximum loan size would be 2.5x average total monthly payroll costs, but the maximum loan is $2 million. If this is a company’s second PPP loan, the total borrowing between the two is capped at $10 million. Also, the current 60/40 cost allocation for payroll and non-payroll costs would continue, facilitating loan forgiveness. The PPP would be expanded to allow certain supplier costs, worker protection expenditures and operations expenditures. A simplified forgiveness application process would be available for smaller loans.
- Certain “recovery sectors”, such as seasonal businesses and those in low-income areas, could receive long-term loans. The Act authorizes $100 billion for these low-interest loans. Qualifying businesses cannot have more than 500 employees and must demonstrate at least a 50% reduction in gross revenues. Borrowers could get up to twice their annual revenue, up to $10 million, with a maturity of up to 20 years at a 1% fixed interest rate. The loans could be used for working capital, acquisition of fixed assets, and refinancing existing debt. These loans do not have the forgiveness provision that the PPP provides.
- Enhanced Employee Retention Tax Credit (ERTC)
This provision would increase this refundable payroll tax credit to 65% of qualified wages, up from the current 50%. The proposed bill also reduces the qualified gross receipt threshold from 50% to 25% of the previous year’s same calendar quarter. It also raises from $10,000 to $30,000 the allowable claimed wages per year with a $10,000 limit per quarter. Two other notable provisions are the increase in size of qualified businesses to 500 employees or less and a allowing PPP loan recipients to also claim this credit.
- Safe and Healthy Workplace Tax Credit
A new payroll tax credit is proposed providing a 50% refundable credit for” qualified employee protection expenses.” These expenses would include COVID-related workplace modifications, cleaning supplies, property and equipment, COVID-19 testing, and the like. Maximum quarterly credits would be implemented based on the number of employees.
- Work Opportunity Tax Credit (WOTC)
The HEALS Act proposes a temporary expansion of WOTC to include a new targeted group, 2020 qualified COVID-19 unemployment recipients, incentivizing employers to reduce the number of individuals getting unemployment benefits. The proposal increases the maximum credit to 50% of $10,000 qualified first-year wages compared to the previous 40% of $6,000 qualified first-year wages. It also removes the limitation on rehires.
- Deductibility of Business Meals
A 100% deduction for business meals would be allowed through December 31, 2020, in an effort to help stimulate the food industry. Currently, the meals deduction is limited to 50% of qualifying expenditures.
- Federal Pandemic Unemployment Compensation
The Federal Pandemic Unemployment Compensation (FPUC) was enacted under the CARES Act and provided an additional $600 of weekly unemployment benefit in addition to each state’s unemployment compensation, running through July 25th.
The HEALS Act proposes a continued federal supplemental benefit at a lesser amount of $200/week through September. Beginning in October, this program would be replaced with one that provided 70% of lost wages through a combination of state unemployment payment and federal compensation up to $500 per week. It also directs states to inform employers about state work requirements and inform recipients of unemployment benefits. It also proposes $2 billion to assist states with their unemployment programs.
- State & Local Changes
The bill proposes an expansion of the CARES ACT Coronavirus Relief Fund (CRF) that would allow state and local governments to use CRF monies up to 90 days after their 2021 fiscal year ends compared to the current December 31, 2020 deadline. CRF funds would also be allowed to replace 2020 and 2021 revenue shortfalls with some exclusions.
Individuals who perform employment duties in multiple states would generally only be subject to income tax in their state of residence. If such an employee is in a state for more than a limited time, income tax may be required for that other state.
- Stimulus Checks
Similar to the CARES Act, a second stimulus check of $1,200 per individual ($500 per dependent) would be sent. Payments would be made to individuals with adjusted gross income up to $75,000 ($112,500 for heads of household and $150,000 for married couples filing jointly). The HEALS Act would expand the scope of qualified dependents to include those excluded in the last round of payments, including children over the age of 17.
JPS will continue to monitor the HEALS Act and HEROES Act bills.
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