Provisions of the Consolidated Appropriations Act 2021 OFMA

Provisions of the Consolidated Appropriations Act, 2021 OFMA Convention January 19, 2021

What We Will Cover � Changes to Paycheck Protection Program � Grants for Shuttered Venue Operations � Benefit plan provisions � Other tax provisions and extenders

Paycheck Protection Program

PPP Expenses are Deductible � CARES Act provided that forgiveness of PPP loans is non-taxable to borrowers � IRS responded: ◦ Expenses paid with nontaxable PPP funds are nondeductible � CAA clarified – expenses now deductible ◦ Applies to both first and second PPP loans � Basis issues?

PPP Reopening – First draw � First time (draw) borrowers: ◦ Generally same provisions as original PPP �<500 employees, 2. 5 x average monthly payroll ◦ Adds 501(c)(6) & destination marketing organizations �<300 employees �Lobbying efforts are <15% receipts, <15% activities, <$1 m expenses ◦ Adds housing cooperatives ◦ Includes those who took employee retention credit � Previous borrowers: ◦ May reapply if borrower returned part or all of the funds ◦ May increase loan as a result of subsequent rule changes

PPP – Ineligible Entities � Entities ineligible for first & second draw loans: ◦ Excluded on first draw ◦ Primarily engaged in political or lobbying activities ◦ Organized in, or has significance to, China or Hong Kong ◦ Received a Shuttered Venue Grant ◦ The President, VP, head of Executive dept. or member of Congress, or spouse of such person own 20% or more ◦ Publicly traded company ◦ Previously received a second draw ◦ Has permanently closed

PPP Second Draw - Summary � Eligibility: ◦ <300 employees (per location) ◦ 25% reduction in gross receipts in any calendar quarter of 2020 quarter vs. 2019 ◦ Has used or will use first draw funds � Loan amount: ◦ 2. 5 x average monthly payroll �Exception: Accommodation & Food Industry (NAISC code 72) � 3. 5 x average monthly payroll ◦ Maximum loan $2, 000

PPP Second Draw – Gross Receipts � Gross receipts includes: ◦ All revenue in whatever form received or accrued from whatever source including: �Sales of products or services �Interest �Dividends �Rents �Royalties �Fees �Commissions �Reduced by returns and allowances � Excludes ◦ First draw PPP loan forgiveness and EIDL advances

PPP Second Draw – Gross Receipts � 25% Reduction ◦ Entity in business all four quarters of 2019 �Compare any calendar quarter 2020 to 2019 or �Compare annual 2020 to 2019 ◦ Entity NOT in business during Q 1 or Q 2 of 2019 �Compare any 2020 quarter to Q 3 or Q 4 of 2019 ◦ Entity NOT in business during Q 1, Q 2, or Q 3 of 2019 �Compare any 2020 quarter to Q 4 of 2019 ◦ Entity NOT in business in 2019, but operational on Feb. 15, 2020 �Compare Q 2, Q 3, or Q 4 of 2020 to Q 1 of 2020

PPP Second Draw – Gross Receipts � Documentation ◦ Relevant tax forms, including annual tax forms, quarterly financial statements or bank statements ◦ Loans over $150, 000 �Documentation submitted with loan application ◦ Loans $150, 000 or less �No documentation required with loan application �Must be submitted on or before loan forgiveness application

PPP Second Draw – Payroll � Payroll calculation options: ◦ 2019 calendar year or ◦ 2020 calendar year or ◦ Precise 1 year period before the date the loan is made � Self-employed/partners ◦ Use 2019 or 2020 � Documentation: ◦ Similar to the first draw ◦ No additional documentation required if: �Used calendar 2019 figures on both first and second draw and �Lender is the same

PPP – Timing � First draw opened 1/11/21 ◦ Targeted to community financial institutions � Second draw opened 1/13/21 ◦ Targeted to community financial institutions � Expected to be fully open week of Jan. 18 th

PPP Forgiveness - Changes � Covered period: ◦ Between 8 & 24 weeks of loan origination date ◦ Alternative covered period eliminated ◦ Allows options which may impact: �Wage reduction’s �FTE’s

PPP Forgiveness - Changes � Payroll costs – include group life, disability, vision, or dental insurance � Eligible expenses expanded to include: ◦ Operations expenses �Software & cloud computing expenses to facilitate business operations and recordkeeping ◦ Property damage �Related to looting and vandalism due to public disturbances in 2020 that was not covered by insurance ◦ Supplier costs �Expenses paid to supplier that are essential to operations ◦ Worker protection expenditures �Operating or capital expenses to adapt to comply with health and safety requirements with COVID-19

PPP Forgiveness - Changes � Maintains � EIDL 60% payroll/40% non-payroll split advance grants ◦ Non-taxable ◦ Expenses paid with grant are deductible ◦ No longer reduce PPP forgiveness

PPP Forgiveness - Changes � Simplified forgiveness for loans under $150, 000 ◦ One page application ◦ Borrowers required to provide: �# of employees �Estimated amount of loan spent on payroll costs �Total value of loan ◦ Borrower also must: �Attest to complying with PPP requirements �Borrower must maintain records � 4 years for employment � 3 years for other ◦ For 2 nd draw loans, borrower is required to provide documentation on loss of revenue

“Gross Receipts” for Not-For-Profits � CAA references Code Section 6033 for not-forprofits to use when determining gross receipts and 25% reduction � Regs. under Sec. 6033 define gross receipts to include proceeds from sale of investments/other property, not the gain � Example: $1 M of proceeds, $800 K of basis, gain of $200 K - $1 M is gross receipts component � Troublesome if client has frequent portfolio trades � Nothing to do with operations

New NFP Borrowers under PPP � Sec. 501(c)(6) trade associations/business leagues and Destination Marketing Organizations (“DMO”) now eligible for PPP loan � Requirements for Sec. 501(c)(6) orgs. : o 300 or fewer employees o Does not receive more than 15% of receipts from lobbying o Lobbying activities are not more than 15% of activities o Lobbying expenditures < $1 M during most recent tax year ended prior to 2/15/2020

New NFP Borrowers under PPP (cont’d) � DMO’s have same requirements as Sec. 501(c)(6) orgs. except for $1 M limit on lobbying � DMO’s can be 501(c) organizations, a quasigovernment entity, or a political subdivision of a state or local government � Sec. 501(c)(6)/DMO uses Second Draw application? o No mention of needing 25% reduction in CAA � Other eligible orgs. : housing cooperatives under Sec. 216(b), veterans orgs. , news orgs. (FP and NFP)

Grants for Shuttered Venue Operations

What is it? �A $15 billion grant program for eligible venue operations who demonstrated a 25% or more reduction in revenues in one 2020 quarter over the same 2019 quarter.

Who are potentially eligible? � Live venue operators and promoters, theatrical producers, or live performing arts organization operators � Museum � Motion � Talent operators picture theater operators representative

Criteria: � Have been fully operational on or before February 29, 2020; � A reduction in gross earned revenue of 25% of more from one 2020 quarter compared to the same quarter in 2019; � Be in operation or intend to resume operations; and � Meet venue requirements � NOTE: An applicant’s revenue does not include amounts received under the CARES Act and the SBA is to use the accrual method of accounting for determining revenue

Grants for Shuttered Venue Operations Cont…. � What entities are not eligible? o Majority owned or controlled by a publicly-traded entity; o Receives more than 10% of gross revenue from Federal Funding in 2019; o Foreign operations; o Operations in more than 10 states; o Gross revenue derived in the adult entertainment industry; o Employ more than 500 FTE’s as of 2/29/20; or o Receiving a PPP loan after December 27, 2020

Size of Grants: � Grants are capped at $10 million. When applying the affiliation rules, the grant is capped at $60 million (entity plus 5 affiliates). � Initial Grant: � Supplemental Grant: o If in operation on January 1, 2019 – 45% of gross earned revenue during 2019 o If began operations after January 1, 2019 – 6 x the average monthly gross earned revenue for each full month in operation in 2019 o Q 1 2021 revenue is not more than 30% of Q 1 2019; grant will equal 50% of initial grant o Supplemental grants cannot be administered until all initial grants submitted within the programs first 60 days have been processed

Disbursement Priority of Grants: � � First Priority – During the first 14 days of the program, grants will be awarded to entities who have had a 90% reduction in revenue from 4/1/20 – 12/31/20 compared to the same period in 2019; Second Priority – During the next 14 days of the program, grants will be awarded to entities who have had a 70% reduction in revenue from 4/1/20 – 12/31/20 compared to the same period in 2019; Thereafter, all eligible entities: Special priority provision - $2 billion of the $15 billion appropriated funds are reserved for the first 60 days of the program for eligible persons or entities with 50 or fewer FTE’s.

What Can the Funds be Used For? � � � For initial grants – costs incurred between March 1, 2020 and December 31, 2021 For supplemental grants – costs incurred through June 30, 2022 Eligible Costs Include: o o o o Payroll Costs – follow PPP guidelines Covered Rent – follow PPP guidelines Covered Utilities – follow PPP guidelines PPE Interest payments on pre 2/15/20 mortgages Payments to Independent Contractors (capped at $100, 000) and Other ordinary and necessary business expenses

Consolidated Appropriations Act, 2021 Benefit Plan Provisions

Families First Coronavirus Response Act � Originally passed into law March 18, 2020 � Implemented new requirements for 1. Sick leave 2. Family and medical leave � Required for employers with less than 500 employees � Tax credits supplemented the cost for employers � Under the FFCRA these benefits were only temporary and ended on December 31, 2020

Families First Coronavirus Response Act and the CAA, 2021 � Paid sick and family leave mandate was NOT extended � But under CAA an employer may VOLUNTARILY elect to extend these benefits through March 31, 2021 � Tax credits remain available ◦ Sick Leave – credit is up to $511/day, maximum $5, 110 per employee ◦ Family and Medical Leave – credit is $200/day up to a maximum of $10, 000 per employee

Partial Plan Termination Relief � IRC requires all qualified retirement plans to provide 100% vesting upon plan termination or a partial termination � What is a “partial termination” � NO bright line test – 20% threshold used � CAA grants a reprieve � Period covered 3/13/2020 to 3/31/2021 � If participants covered on 3/31/2021 at least 80% of number on 3/13/2020 – NO partial termination

Required Minimum Distributions-Reminder � CARES Act suspended RMD’s for the 2020 tax year � Nothing in the CAA changed or extended the suspension � Required minimum distributions must resume for 2021 � Keep in mind under the SECURE Act the age RMD’s must start is no longer age 70 ½, beginning with 2020 the age changed to 72

Qualified Disaster Distributions � The CAA adds this new type of in-service distribution – Qualified Disaster Distribution (QDD) � Applies to a “qualified individual” impacted by a “qualified disaster” � Requirements are the same as Coronavirus Related Distributions (CRD): ◦ Up to $100, 000 ◦ No 10% penalty or tax withholding ◦ Taxed ratably over 3 years and can be recontributed within 3 years to avoid taxation

Qualified Disaster Distributions � Qualified Individual – two requirements 1. 2. � Principal place of residence is located in a qualified disaster area, and Who suffered an economic loss as a result of the qualified disaster A qualified disaster must be declared by the President under the Robert T. Stafford Disaster Relief Act � Effective beginning January 1, 2020 � Requires a plan amendment to implement

Qualified Disaster Loans � Qualified Individual – same two requirements 1. 2. � � Principal place of residence is located in a qualified disaster area, and Who suffered an economic loss as a result of the qualified disaster Allows for plan loans up to $100, 000 or 100% of vested account balance (normally lesser of $50 k or 50% of vested balance) Repayment relief for outstanding loans may be suspended up to 1 year, interest continues to accrue during this period

Presidential Memorandum � � � Issued August 8, 2020 by President Trump Allow employers the option to defer the employees portion of the 6. 2% Social Security Tax Deferral period applied to wages from 9/1/2020 to 12/31/2020 Employee must then repay the amount ratably between 1/1/21 to 4/30/2021 – Penalties and interest begin to accrue 5/1/2021 Changes under the CAA ◦ Repayment period extended through 12/31/2021 ◦ Employers remain liable to collect and pay the full amounts deferred ◦ Penalties and interest begin to accrue 1/1/2022

New Flexibility for FSA Plans � � Under the CAA employers have new flexibility related to their flexible spending account (FSA) plans New options include 1. 2. 3. 4. FSA carryovers – unused funds for 2020 or 2021 many be carried over to the next plan year FSA extended grace period – for plans with a grace period this period may be extend from 2. 5 mo. to up to 12 mo. Terminated employees – those who terminate in 2020 or 2021 the plan may reimburse expenses through the end of that year(plus any grace period) Change in status – for 2021 years employees may make prospective changes in FSA elections without regard to a change in status

Employee Retention Tax Credit � � General rules – part of the CARES Act Allows eligible employers a tax credit equal to 50% of qualified wages (up to $10, 000) for each employee ($5, 000 maximum credit per employee) Applies to wages paid between 3/13/20 to 12/31/20 Eligible employer - defined ◦ Any calendar quarter in 2020 (1) operations fully or partially suspended due to a government order for COVID-19 (2) decline in gross receipts of more than 50% compared to the same quarter of the prior year � Qualified wages is dependent on the number of employees ◦ <100 – all wages qualify ◦ >100 – only wages paid to employees not providing services during shutdown � Ended at 12/31/2020

Employee Retention Tax Credit – Changes under the CAA extends the credit through June 30, 2021 Changes include: � Increase credit from 50% to 70% of qualifying wages � Wage cap increased from $10, 000 for all calendar quarters to $10, 000 per quarter for 2021 � Eligible employer definition modified ◦ Required decline in gross receipts modified from 50% to only 20% for 2021 � Retroactive changes ◦ PPP borrowers may be eligible for this tax credit to the extent qualifying wages are not paid using forgiven PPP loan proceeds

Other Tax Provisions & Extenders

Overview � In total, the CAA contains 72 separate tax-related provisions, many were routine extensions or clarifications.

Additional Recovery Rebate � $600 per taxpayer ($1, 200 MFJ) and $600 for each qualifying child � Rebate is reduced by $5 for every $50 over AGI thresholds: ◦ Single - $75, 000 ◦ Head of Household - $112, 500 ◦ Married Filing Jointly - $150, 000 � Eligibility based on 2019 income tax filings and taxpayers are not required to repay any overpayment � 84% of U. S. households should receive the full rebate while 5% should receive a reduced rebate

Business Meal Deduction � Temporarily increased the 50% business meals deduction to 100% for 2021 – 2022 that are provided by a restaurant � Expenses that are 50% deductible for 2020 that are now 100% deductible for 2021 – 2022: ◦ ◦ Meals provided for the convenience of the employer Meals in office during meetings of employees Client business meals Meals during business travel � Deduction industry is meant to stimulate the restaurant

Individual Tax Provisions � Charitable Contributions ◦ Extends the above-the-line cash contribution deduction through 2021 ◦ $300 ($600 MFJ) for individuals who take standard deduction ◦ Allows cash contributions to offset 100% of AGI through 2021 � Educator Expense ◦ Eligible educators can include PPE and other supplies for the $250 above-the–line deduction � Medical Expenses ◦ Makes the 7. 5% AGI threshold permanent

Other Tax Provisions � Qualified Mortgage Interest ◦ Extends qualifying mortgage insurance premiums as deductible mortgage interest through 2021 � Tuition Expenses ◦ CAA merges the AGI phaseout for the American Opportunity Tax Credit and Lifetime Learning Credit to a single phaseout beginning in 2021 � Employer Education Assistance Relief ◦ Extends the exclusion of employer-paid student loan repayments of up to $5, 250 through 2025 � Nonbusiness Energy Property Credit ◦ Extends the credit for purchase of nonbusiness energy property through 2021.

Questions? Tiffany Rankin, CPA trankin@maloneynovotny. com (614) 547 -8630