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COVID-19, Tax & Assurance Guidance

HEROES Act Introduced May 12: Stimulus Package Phase 4

Posted on May 13, 2020 by

Sarah Russell

Sarah Russell

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As we anxiously wait for additional guidance related to the CARES Act and the Paycheck Protection Program (PPP) loan, the House is busy drafting its next round of legislation. While we are likely weeks away from enactment of the next round of stimulus (according to our Senate leaders), the House of Representatives introduced the HEROES Act on May 12. We have reviewed the summary to see what might be included once the next bill arrives. Below is a high-level summary directed at the small business community.

PPP Related Provisions

  • Clarifies that expenses paid with PPP funds that are forgiven are deductible.
  • Allows payroll tax deferral, provided for under the CARES Act, for businesses receiving loan forgiveness under the PPP. Under the CARES Act borrowers are only allowed payroll tax deferral until the loan is forgiven

New or Expanded Tax Credits

  • Introduces a payroll tax credit for qualified fixed costs, including rent, mortgage obligations, and utility payments. Such terms use the same definition as the PPP. Each quarter, qualified expenses are limited to 25% of wages, or 6.25% of gross receipts, with a maximum of $50,000. Employer size and COVID-19 impact limitations apply to this credit.
  • Extends the refundable payroll tax credit for paid sick and family leave through the end of 2021, and increases the limitation on credits for paid family leave to $12,000 (compared to $10,000 in the Family First Coronavirus Response Act (FFCRA)).
  • Provides for certain technical corrections to FFCRA.

NOL Provisions

  • Permanently suspends the limitation on excess business losses for non-corporate taxpayers. The CARES Act suspended this provision for 2018, 2019 and 2020 only.
  • The CARES Act allows a 5-year carryback for net operating losses incurred in 2018, 2019 or 2020. The HEROES Act amends this by limiting the carrybacks to tax years beginning on or after January 1, 2018. It also prohibits taxpayers with excessive executive compensation or excessive stock buybacks and dividends from carrying back losses.
  • The bill also calls for a second round of stimulus checks to be sent to American families in the same manner and for the same amount as the last round. It goes without saying that changes will be made to this proposed bill before the President signs anything. The bill is estimated at $3 trillion, and the Republican Senate has indicated they aren’t in a hurry to pass another round of stimulus as they want to “wait and see” how Phase 3 impacted the economy. Clayton & McKervey will keep you up to date as this continues.

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The above represents our best understanding and interpretation of the material covered as of the date of this post. Things are moving at a rapid pace, and as such, information is subject to change. This information is provided for informational purposes only and is not intended to be a substitute for obtaining accounting, tax, or financial advice from an accountant.

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Sarah Russell

Shareholder, Tax

As the leader of the firm's tax group, Sarah supports growth-driven domestic and international businesses with tax planning, consulting and compliance.

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