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COVID-19, Tax & Assurance Guidance

Additional Stimulus on the Horizon: Understanding the Anticipated HEALS Act

Posted on September 8, 2020 by

Tarah Ablett

Tarah Ablett

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As talks renew in a final effort to pass a new stimulus bill, here is a refresher on the HEALS Act and a look at the newly proposed HEROES Act.

On July 27, republican senators unveiled what is being referred to as “CARES 2” or the HEALS (Health, Economic Assistance, Liability Protection and Schools) Act, in response to the ongoing effect COVID-19 has had on the economy. While it seems the Democrats and Republicans are still far apart on a deal, we are closely monitoring the situation. Here are some key takeaways from the initial draft of the Act.

Payroll Protection Program (PPP) Continued Improvements – The bill introduced under the HEALS Act would expand eligible expenditures under the PPP to include certain operations costs, property damage unreimbursed by insurance proceeds as a result of 2020 public demonstrations, supply costs for goods already under contract that the business needs, and costs for complying with COVID-19 health mandates. The bill also commits funds for “PPP Second Draw Loans”, available to those businesses hit hardest. To be eligible, businesses must have 300 or fewer workers and must demonstrate a loss of revenue greater than or equal to 50% in one of the first two quarters of 2020 compared to 2019. To qualify for forgiveness, businesses must spend 60% of the loan on payroll costs, and the other 40% on other eligible non-payroll costs. The Act also includes provisions to reduce the administrative burden on small businesses seeking forgiveness. Borrowers who received $150,000 or less would have their loans automatically forgiven if they sign and submit to their lender an attestation that they made a good faith effort to comply with the requirements under the PPP. Anyone who borrowed more than $150,000 up to $2 million would no longer be required to submit much of the documentation currently required to substantiate loan forgiveness.

Additional Small Business Administration (SBA) Funds – SBA 7(a) and investment loan programs are to have funds allocated with favorable loan terms and grant opportunities.

A Second Wave of Economic Stimulus Rebates for Individuals – The proposed rebates are very similar to the first round of rebates announced under the CARES Act, including AGI limitations and rebate amounts. A couple basic differences:

  • $500 per dependent is not limited to dependents under the age of 17; dependents of any age would qualify the taxpayer for the extra $500
  • Decedents prior to January 1, 2020 & prisoners at the time of enactment and/or during all of 2020 would be ineligible for a rebate (this is retroactive to the initial CARES Act rebate)

Unemployment Compensation Modifications – Under the CARES Act, unemployed individuals were supplemented $600 per week, on top of each state’s unemployment benefits, through July 2020. The HEALS Act replaces $600 with $200 per week through September 2020. Beginning in October, the flat dollar amount would be replaced with a formula to equal 70% of the individual’s lost earnings, when combined with the state’s offering, (up to $500 per week) through the end of 2020. There are also provisions to provide states with funding for strengthened technological infrastructure to support the surge of claims and streamline many processes, as well as combat fraud related to unemployment claims.

Improved Employee Hiring and Retention Payroll Tax Credit – The CARES Act provided employers with the opportunity for a refundable payroll tax credit in the amount of 50% of eligible wages paid if the employer’s gross receipts declined more than 50% compared to the same quarter in the prior year. The HEALS Act proposes to raise the credit to 65% of eligible wages paid and employers would qualify if the decline in gross receipts is greater than 25% compared to the same quarter in the prior year. Moreover, the CARES Act capped eligible wages at $10,000 per employee for the year. The HEALS Act offers to raise the cap to $10,000 per employee, not to exceed $30,000 for the year. Also, the HEALS Act improvements to the payroll tax credit are expanded to include employers with 500 employees or less, compared to the CARES Act provision of 100 employees or less. Last but certainly not least is the proposed coordination with the PPP. While overlapping benefits would be disallowed, the HEALS Act advocates to allow employers to be eligible for both programs.

Short-Term Expansion of the Work Opportunity Tax Credit – The HEALS Act suggests a new group of eligible employees for the Work Opportunity Tax Credit, being qualified COVID-19 unemployed individuals as certified by the state or local agency. Employers would be eligible for the credit if hiring takes place prior to January 1, 2021 and the hired individual is unemployed during the week immediately preceding hire date. The credit is expanded monetarily to be 50% of the first $10,000 of wages paid to the individual during the year.

Safe and Healthy Workplace Tax Credit – A new tax credit would be offered to employers in an effort to alleviate the burden of expenses incurred to safeguard against COVID-19 in the workplace. Expenses such as protective personal equipment, cleaning supplies and services, office reconfiguration and technology would provide a refundable payroll tax credit in the amount of 50% of eligible expenditures, not to exceed a cap of $1,000 per employee for the first 500 employees, $750 for each employee between 500 and 1,000 and $500 for each employee above 1,000. The eligible expenditure period is March 13, 2020 through December 31, 2020.

Temporary Expansion of Deductible Business Meals – Under the Act, 100% of qualified meals and beverage expenses from a restaurant incurred before January 1, 2021 would be deductible, compared to 50% current deductibility rules.

The changes to the PPP forgiveness provisions generally have bi-partisan support as similar provisions were included in the bill passed by the House earlier this summer.  Due to the changes, many banks have not begun accepting loan forgiveness applications in an effort to reduce the work that will be required under the current program rules.

On October 1, the House passed a new version of the HEROES Act as the next step in reaching an agreement. Known as HEROES 2.0, this COVID-19 relief proposal includes individual stimulus check payments, enhanced unemployment benefits, updates to the Paycheck Protection Program with over $30 billion additional allocated, and more.

We anticipate a lot will change if another stimulus bill is passed. Secretary Mnuchin and Speaker Pelosi are continuing discussions this, but it is unclear if they are any closer to negotiating a deal that will pass both chambers of Congress. We will keep you updated as more information becomes available. For additional information, call us at 248-208-8860 or click here to contact us. We look forward to speaking with you soon.

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Tarah Ablett

Senior Manager, Tax

Tarah helps manufacturing and industrial automation clients leverage tax planning opportunities and navigate tax compliance issues.

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