January 4, 2021

U.S. President Signs COVID Stimulus And FY 2021 Spending Bill, But Trade Program Expires

As Connecting the Dots reported two weeks ago, before the Christmas holiday the U.S. Congress overwhelmingly passed a fourth COVID-19 relief bill and final spending legislation for fiscal year 2021. After a few days of uncertainty and veto threats, President Donald Trump signed the legislation on December 27. Both bills included several provisions that should help businesses. These programs include:

Paycheck Protection Program (PPP) – The COVID relief bill:

  • Extends the program through March 31, 2021 and provides $284 billion in new funding;
  • Preserves deductibility of business expenses paid with PPP funds by reversing Internal Revenue Service guidance denying deductions for trade and business expenses (e.g. payroll) associated with forgiven PPP loans, which under the CARES Act are not considered as taxable income;
  • Grants flexibility to businesses to choose a “covered period” of any duration between eight and 24 weeks to spend their loan funds;
  • Creates new categories of expenses to the list of allowable uses of PPP funds, including worker protection (e.g., personal protective equipment), operational expenses, and supplier costs;
  • Allows businesses to take second loans of up to $2 million if they have fewer than 300 employees and if they experienced a quarterly revenue loss of more than 25 percent in 2020 as compared to the same quarter in 2019; and
  • Provides simplified loan forgiveness application for loans of less than $150,000.

CARES Act’s Employee Retention Tax Credit  –  The COVID relief bill:

  • Extends and expands the CARES Act refundable payroll tax credit for “eligible employers” affected by COVID-19 through June 30, 2021;
  • Increases the credit percentage from 50 percent to 70 percent;
  • Increases the amount of qualifying wages per employee from $10,000 for the year to $10,000 per quarter;
  • Changes the gross receipts test from a 50 percent quarterly decline when compared to the prior year quarter to a 20 percent decline;
  • Raises the full-time employee threshold from 100 to 500;
  • Allows employers to claim the credit and participate in the Paycheck Protection Program but with restrictions to prevent double dipping;
  • Codifies IRS guidance whereby health plan expenses can be counted as qualified wages when employers pay no other wages (e.g. furloughed workers who continue to get healthcare); and
  • Qualifies new employers for the credit.

Extended Tax Credits –  The fiscal year 2021 spending bill:

  • Allows U.S. companies to redeploy capital from active foreign business operations among their foreign subsidiaries without incurring additional tax costs, a provision that ensures manufacturers with global operations can compete on a level playing field;
  • Extends the Work Opportunity Tax Credit for five years; and
  • Offers employees who have deferred their share of the payroll tax to have until December 2021 to pay back the tax.

The U.S. Chamber of Commerce has provided additional materials that will help small businesses understand their eligibility for these programs. Click here to view those tools.

Not included in the year-end legislation: a renewal of the Generalized System of Preferences (GSP) program, which allows eligible products from designated developing countries to enter the United States duty-free on a nonreciprocal basis for an established period of time. As the law firm Holland and Knight explained, this renewable program expired on December 31, 2020, which means authorization will lapse until lawmakers can resume negotiations toward a deal in the new year and the new Congress.

Holland and Knight also explained that expiration means that “GSP eligible goods entered or withdrawn from warehouse will be subject to tariffs effective January 1, 2021.”

While the lapse will present hurdles for importers, the law firm also noted “GSP has lapsed prior to renewal in 10 of the 14 times that the program has been extended since its inception in 1974.” Indeed, “When GSP last expired in 2017, it took Congress several months to renew the program, during which time imports were subject to duties” and “upon renewal, Congress extended the program retroactively from the original expiration date so that importers were refunded for duties incurred (sans interest) during the lapse.” As such, on December 21, U.S. Customs and Border Protection CBP issued a bulletin advising importers to continue flagging GSP eligible imports beginning January 1, 2021, because it has “programming in place that, in the event that GSP is renewed with a retroactive refund clause, will allow CBP to automate the duty refund process.”