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Read this if you are at a rural health clinic or are considering developing one.

Section 130 of H.R. 133, the Consolidated Appropriations Act of 2021 (Covid Relief Package) has become law. The law includes the most comprehensive reforms of the Medicare RHC payment methodology since the mid-1990s. Aimed at providing a long-overdue payment increase to capped RHCs (freestanding and provider-based RHCs attached to hospitals greater than 50 beds), the provisions will simultaneously narrow the payment gap between capped and non-capped RHCs.

This will not obtain full “site neutrality” in payment as was a goal of CMS and the Trump administration, but the new provisions will help maintain budget neutrality with savings derived from previously uncapped RHCs funding the increase to capped providers and other Medicare payment mechanisms.

Highlights of the Section 130 provision:

  • The limit paid to freestanding RHCs and those attached to hospitals greater than 50 beds will increase to $100 beginning April 1, 2021 and escalate to $190 by 2028.
  • Any RHC, both freestanding and provider-based, will be deemed “new” if certified after 12/31/19 and subject to the new per-visit cap.
  • The above in effect eliminates uncapped cost-based reimbursement for provider-based RHCs certified subsequent to 12/31/19.
  • Grandfathering would be in place for uncapped provider-based RHCs in existence as of 12/31/19. These providers would receive their current All-Inclusive Rate (AIR) adjusted annually for MEI (Medicare Economic Index) or their actual costs for the year.

If you have any questions about your specific situation, please contact us. We’re here to help.

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Section 130 Rural Health Clinic (RHC) modernization: Highlights

Read this if your organization, business, or institution is receiving financial assistance as a direct result of the COVID-19 pandemic.

For companies and organizations that received federal funding to assist them during the COVID-19 pandemic, there have been some updates on Uniform Guidance. Here is a brief summary of those updates, audit threshold, federal funds subject to that threshold, and other pertinent information regarding the guidance.

Audit threshold

Non-federal entities that expend federal funds of $750,000 or more are required to have an audit in accordance with Subpart F of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance).

Funds subject to threshold

  • 93.498 Provider Relief Fund
  • 21.019 Coronavirus Relief Fund
  • 84.425 Higher Education Stabilization Fund
  • 32.006 COVID-19 Telehealth Program
  • 84.184C CARES Act Project SERV
  • 93.461 COVID-19 Testing for the Uninsured
  • 93.527 Grants for New and Expanded Services under Health Center Program
  • 93.665 Emergency Grants to Address Mental and Substance Use Disorders During COVID-19
  • 93.967 COVID-19 Testing for Rural Health Clinics

Funds exempt from threshold

  • 59.073 (Small Business Administration) Payroll Protection Loan Program
  • 59.072 Economic Injury Disaster Loan Emergency Advance

Audit options

  • Single Audit in accordance with Uniform Guidance
  • Program-specific audit (only applicable if the non-federal entity expends Federal awards under one single CFDA)

Reporting timetables

  • Automatic three-month audit submission extension for Single Audits of 2020 year-ends through September 30, 2020 (only if recipient received some form of COVID-19 funding subject to Uniform Guidance)
    • Example, a June 30, 2020 year-end’s initial date is March 31, 2021, however this was extended to June 30, 2021

Compliance supplement addendum takeaways

  • Released December 22, 2020
  • Provides guidance on auditing above CFDAs
  • For organizations with year-ends prior to December 31, 2020, above funding will be reported in the Schedule of Expenditures of Federal Awards (SEFA) for fiscal years ending in 2021

For-profit considerations

  • Department of Health and Human Services (HHS) has determined for-profit commercial organizations (which envelopes hospitals, senior living facilities, and other health facilities) are required to includes PRF payments in determining the $750,000 threshold
  • Currently, HHS guidance makes reference to organizations “receiving” not “expending” PRF, which is not in line with current Uniform Guidance definitions – AICPA has reached out for clarification
  • There is a third option under HHS guidance for organizations to have a financial audit performed in accordance with U.S. generally accepted auditing standards and U.S. generally accepted governmental auditing standards. However, there is uncertainty as to the specifics of this option and if this option would receive reporting extensions discussed above – AICPA has reached out for clarification

If you have questions about accounting for, or reporting on, funds that you have received as a result of the COVID-19 pandemic, please contact a member of our Single Audit Team. We’re here to help.

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Uniform Guidance—where we are today

The COVID-19 emergency has caused CMS (Centers for Medicare & Medicaid Services) to expand eligibility for expedited payments to Medicare providers and suppliers for the duration of the public health emergency.

Accelerated payments have been available to providers/suppliers in the past due to a disruption in claims submission or claims processing, mainly due to natural disasters. Because of the COVID-19 public health emergency, CMS has expanded the accelerated payment program to provide necessary funds to eligible providers/suppliers who submit a request to their Medicare Administrative Contractor (MAC) and meet the required qualifications.

Eligibility requirements―Providers/suppliers who:

  1. Have billed Medicare for claims within 180 days immediately prior to the date of signature on the provider’s/supplier’s request form,
  2. Are not in bankruptcy,
  3. Are not under active medical review or program integrity investigation, and
  4. Do not have any outstanding delinquent Medicare overpayments.

Amount of payment:
Eligible providers/suppliers will request a specific amount for an accelerated payment. Most providers can request up to 100% of the Medicare payment amount for a three-month period. Inpatient acute care hospitals and certain other hospitals can request up to 100% of the Medicare payment amount for a six-month period. Critical access hospitals (CAHs) can request up to 125% of the Medicare payment for a six-month period.

Processing time:
CMS has indicated that MACs will work to review and issue payment within seven calendar days of receiving the request.

Repayment, recoupment, and reconciliation:
The December 2020 Bipartisan-Bicameral Omnibus COVID Relief Deal revised the repayment, recoupment and reconciliation timeline on the Medicare Advanced and Accelerated Payment Program as identified below. 

Hospitals repayment, recoupment and reconciliation timeline 
Original Timeline 
Time from date of payment receipt  Recoupment & Repayment
120 days  No payments due 
121 - 365 days  Medicare claims reduced by 100% 
> 365 days provider may repay any balance due or be subject to an ~9.5% interest rate      Recoupment period ends - repayment of outstanding balance due 

Hospitals repayment, recoupment and reconciliation timeline 
Updated Timeline
Time from date of payment receipt  Recoupment & Repayment
1 year  No payments due 
11 months  Medicare claims reduced by 25% 
6 months  Medicare claims reduced by 50% 
> 29 months provider may repay any balance due or be subject to an 4% interest rate  Recoupment period ends - repayment of outstanding balance due 

Non-hospitals repayment, recoupment and reconciliation timeline
Original Timeline 
Time from date of payment receipt  Recoupment & Repayment
120 days  No payments due 
121 - 210 days Medicare claims reduced by 100% 
> 210 days provider may repay any balance due or be subject to an ~9.5% interest rate Recoupment period ends - repayment of outstanding balance due 

Non-hospitals repayment, recoupment and reconciliation timeline
Updated Timeline 
Time from date of payment receipt  Recoupment & Repayment
1 year No payments due 
11 months  Medicare claims reduced by 25% 
6 months Medicare claims reduced by 50% 
> 29 months provider may repay any balance due or be subject to an 4% interest rate  Recoupment period ends - outstanding balance due 

Application:
The MAC for Jurisdiction 6 and Jurisdiction K is NGS (National Government Services). The NGS application for accelerated payment can be found here.

The NGS Hotline telephone number is 1.888.802.3898. Per NGSMedicare.com, representatives are available Monday through Friday during regular business hours.

The MAC will review the application to ensure the eligibility requirements are met. The provider/supplier will be notified of approval or denial by mail or email. If the request is approved, the MAC will issue the accelerated payment within seven calendar days from the request.

Tips for filing the Request for Accelerated/Advance Payment:
The key to determining whether a provider should apply under Part A or Part B is the Medicare Identification number. For hospitals, the majority of funding would originate under Part A based on the CMS Certification Number (CCN) also known as the Provider Transaction Access Number (PTAN). As an example, Maine hospitals have CCN / PTAN numbers that use the following numbering convention "20-XXXX". Part B requests would originate when the provider differs from this convention. In short, everything reported on a cost report or Provider Statistical and Reimbursement report  (PS&R) would fall under Part A for the purpose of this funding. 
 
When funding is approved, the requested amount is compared to a database with amounts calculated by Medicare and provides funding at the lessor of the two amounts. The current form allows the provider to request the maximum payment amount as calculated by CMS or a lesser specified amount.
 
A representative from National Government Services indicated the preference was to receive one request for Part A per hospital. The form provides for attachment of a listing of multiple PTAN and NPI numbers that fall under the organization.

Interest after recoupment period:
On Monday, April 6, 2020, the American Hospital Association (AHA) wrote a letter to the Department of Health and Human Services and CMS requesting the interest rate applied to the repayment of the accelerated/advanced payments be waived or substantially reduced. AHA received clarification from CMS that any remaining balance at the end of the recoupment period is subject to interest. Currently that interest rate is set at 10.25% or the “prevailing rate set by the Treasury Department”. Without relief from CMS, interest will accrue as of the 31st day after the hospital has received a demand letter for the repayment of the remaining balance. The hospital does have 30 days to pay the balance without incurring interest.  

We are here to help
If you have questions or need more information about your specific situation, please contact the hospital consulting team. We’re here to help.

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Medicare Accelerated Payment Program

This article is the first in a series to help employee benefit plan fiduciaries better understand their responsibilities and manage the risks of non-compliance with ERISA requirements.

On Labor Day, 1974, President Gerald Ford signed the Employee Retirement Income Security Act, commonly known as ERISA, into law. Prior to ERISA, employee pensions had scant protections under the law, a problem made clear when the Studebaker automobile company closed its South Bend, Indiana production plant in 1963. Upon the plant’s closing, some 4,000 employees—whose average age was 52 and average length of service with the company was 23 years—received approximately 15 cents for each dollar of benefit they were owed. Nearly 3,000 additional employees, all of whom had less than 10 years of service with the company, received nothing.

A decade later, ERISA established statutory requirements to preserve and protect the rights of employees to their pensions upon retirement. Among other things, ERISA defines what a plan fiduciary is and sets standards for their conduct.

Who is—and who isn’t—a plan fiduciary?
ERISA defines a fiduciary as a person who:

  1. Exercises discretionary authority or control over the management of an employee benefit plan or the disposition of its assets,
  2. Gives investment advice about plan funds or property for a fee or compensation or has the authority to do so,
  3. Has discretionary authority or responsibility in plan administration, or
  4. Is designated by a named fiduciary to carry out fiduciary responsibility. (ERISA requires the naming of one or more fiduciaries to be responsible for managing the plan's administration, usually a plan administrator or administrative committee, though the plan administrator may engage others to perform some administrative duties).

If you’re still unsure about exactly who is and isn’t a plan fiduciary, don’t worry, you’re not alone. Disagreements over whether or not a person acting in a certain capacity and in a specific situation is a fiduciary have sometimes required legal proceedings to resolve them. Here are some real-world examples.

Employers who maintain employee benefit plans are typically considered fiduciaries by virtue of being named fiduciaries or by acting as a functional fiduciary. Accordingly, employer decisions on how to execute the intent of the plan are subject to ERISA’s fiduciary standards.

Similarly, based on case law, lawyers and consultants who effectually manage an employee benefit plan are also generally considered fiduciaries.

A person or company that performs purely administrative duties within the framework, rules, and procedures established by others is not a fiduciary. Examples of such duties include collecting contributions, maintaining participants' service and employment records, calculating benefits, processing claims, and preparing government reports and employee communications.

What are a fiduciary’s responsibilities?
ERISA requires fiduciaries to discharge their duties solely in the interest of plan participants and beneficiaries, and for the exclusive purpose of providing benefits for them and defraying reasonable plan administrative expenses. Specifically, fiduciaries must perform their duties as follows:

  1. With the care, skill, prudence, and diligence of a prudent person under the circumstances;
  2. In accordance with plan documents and instruments, insofar as they are consistent with the provisions of ERISA; and
  3. By diversifying plan investments so as to minimize risk of loss under the circumstances, unless it is clearly prudent not to do so.

A fiduciary is personally liable to the plan for losses resulting from a breach of their fiduciary responsibility, and must restore to the plan any profits realized on misuse of plan assets. Not only is a fiduciary liable for their own breaches, but also if they have knowledge of another fiduciary's breach and either conceals it or does not make reasonable efforts to remedy it.

ERISA provides for a mandatory civil penalty against a fiduciary who breaches a fiduciary responsibility under ERISA or commits a violation, or against any other person who knowingly participates in such breach or violation. That penalty is equal to 20 percent of the "applicable recovery amount" paid pursuant to any settlement agreement with ERISA or ordered by a court to be paid in a judicial proceeding instituted by ERISA.

ERISA also permits a civil action to be brought by a participant, beneficiary, or other fiduciary against a fiduciary for a breach of duty. ERISA allows participants to bring suit to recover losses from fiduciary breaches that impair the value of the plan assets held in their individual accounts, even if the financial solvency of the entire plan is not threatened by the alleged fiduciary breach. Courts may require other appropriate relief, including removal of the fiduciary.

Over the coming months, we’ll share a series of blogs for employee benefit plan fiduciaries, covering everything from common terminology to best practices for plan documentation, suggestions for navigating fiduciary risks, and more.

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What's in a name? A lot, if you manage a benefit plan.

Read this if you work at a renewable energy company, developer, or other related business. 

When entering into agreements involving tangible long-lived assets, an asset retirement obligation can arise in the form of a legal obligation to retire the asset(s) at a certain date. In the alternative/renewable energy industry, these frequently present themselves in leases for property on which equipment (i.e., solar panels) is placed. In the leases there may be a requirement, for example, that at the conclusion of the lease, the lessee remove the equipment and return to the property to its original condition.

When an asset retirement obligation is present in a contract, a company should record the liability when it has been incurred (usually in the same period the asset is installed or placed in service) and can be reasonably estimated. The fair value of the liability, typically calculated using a present value technique, is recorded along with a corresponding increase to the basis of the asset to be retired. Subsequent to the initial recognition, the liability is accreted annually up to its future value, and the asset, including the increase for the asset retirement obligation, is depreciated over its useful life.

As a company gets closer to the date the obligation is realized, the estimate of the obligation will most likely become more accurate. When revisions to the estimate are determined, the liability should be adjusted in that period.

It is important to note that this accounting does not have any income tax implications, including any potential increase to the investment tax credit (ITC).

These obligations are estimates and should be developed by your management through collaboration with companies or individuals that have performed similar projects and have insight as to the expected cost. While this is an estimate and not a perfect science, it is important information to share with investors and work into cash flow models for the project, as the cost of removing such equipment can be significant. 

Recording the liability on the balance sheet is a good reminder of the approximate cash outflow that will take place in the final year of the lease. If you have any questions or would like to discuss with us, contact a member of the renewable energy team. We’re here to help.

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Asset retirement obligations in alternative/renewable energy

Read this if your agency is involved with COVID-19 vaccination distribution.

Although states have already created COVID-19 vaccination plans, your state can still implement critical strategies to improve your distribution plan. In October 2020, the Centers for Disease Control (CDC) released the Interim Playbook version 2.0, providing a key framework for states and jurisdictions to build their COVID-19 vaccine distribution plans. The federal government asked that immunization programs in each state plans based on this model. The Playbook contains 15 sections of planning elements for states to consider in the development of their plan. Completing a plan of this extent while simultaneously trying to manage the pandemic has led some states to leave out or not thoroughly address critical components in their plans. 

The Kaiser Family Foundation (KFF) analyzed and collected common themes from each of the 47 state vaccination plans. Their analysis identified areas of weakness in the following areas of each plan: 

  • Priority populations for vaccinations in states 
  • Identifying networks of providers 
  • Developing data collection and reporting
  • Forming communication strategies

Each of the four areas each contained multiple findings, but since the vaccine has already started to roll out, some aspects of the plan cannot be revised. However, it is not too late to improve upon certain elements, especially for data collection and reporting, as well as communication strategies. 

The following recommendations for improvement of state plans are based on the findings from the KFF State COVID-19 vaccine distribution analysis report

States should identify a clear data reporting and collection plan that accounts for the COVID-19-specific data requirements.

According to KFF, an immunization registry or database has been included in 53% of the state COVID-19 plans; in the others it was an unclear component of the plan. The data collection process for COVID-19 vaccinations will be complex and unique due to a number of factors including the nature of a phased rollout, new provider enrollment and onboarding, storage requirements, multiple vaccines and doses, and off-site vaccination locations

Since a little over half of all states have arranged for either new systems or are developing or adding features to current immunization registries, states that are lacking a comprehensive approach could benefit from adopting elements present in the other plans. For example, some states detail how their current immunization system is being utilized for the COVID-19 vaccine, in addition to upgrading certain features in order to meet the anticipated increase in demand. 

Other states have also described their transition to the Immunization Gateway, a centralized technical infrastructure sponsored by the CDC Immunization Information Systems Support Branch, and led by the US Department of Health and Human Services Office of the Chief Technology Officer. The Gateway is securely hosted through the Association of Public Health Laboratories (APHL). States can review the data collection and reporting sections of other states’ plans to gain a greater understanding of how their plan can be improved by describing data reporting and collection processes.   

States should address racial and ethnic disparities in vaccine distribution and acceptance through targeted and evidence-based communication strategies. 

The KFF analysis of state COVID-19 plans indicated about 49% of state plans include specific mention of racial or ethnic minority populations in regards to communication. Communication plans need to include targeted strategies as minority populations and people of color have shown greater hesitation in receiving the vaccine, even if it is free and determined safe by scientists and federal authorities. The virus has had a disproportionate impact on communities of color and minority populations, and a lack of communication to these populations may continue to enhance these disparate health outcomes.

One way to improve a communication plan by addressing racial or ethnic minority populations would be by incorporating the National Standards for Culturally and Linguistically Appropriate Services (CLAS), specifically the standards for Communication and Language Assistance:

  • Offer language assistance to individuals who have limited English proficiency and/or other communication needs, at no cost to them, to facilitate timely access to all health care and services
  • Inform all individuals of the availability of language assistance services clearly and in their preferred language, verbally and in writing
  • Ensure the competence of individuals providing language assistance, recognizing that the use of untrained individuals and/or minors as interpreters should be avoided
  • Provide easy-to-understand print and multimedia materials and signage in the languages commonly used by the populations in the service area

A communication plan that considers the racial and ethnic minority populations most vulnerable to adverse health outcomes and have shown a lack of trust in the scientific community would be advisable in order to combat disproportionate negative outcomes from the COVID-19 virus in the future. 

A COVID-19 vaccine distribution plan is an important aspect of each state’s strategy to control the spread of the virus. In order to lead to effective vaccine distribution, it is vital for the plans to thoroughly address data collection, reporting, and tracking. It is also important to consider implementing a communication plan that incorporates strategies to reach racial and ethnic minority groups who might have been disproportionality impacted by COVID-19 as a way to improve your state’s health equity approach to COVID-19 vaccination efforts. By implementing these considerations, your state’s COVID-19 vaccine distribution plan could become more effective in improving the health outcomes of your population. 

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Two ways states can improve their COVID-19 vaccination distribution plans

Read this if you are a business owner or interested in upcoming changes to current tax law.

As Joe Biden prepares to be inaugurated as the 46th President of the United States, and Congress is now controlled by Democrats, his tax policy takes center stage.

Although the Democrats hold the presidency and both houses of Congress for the next two years, any changes in tax law may still have to be passed through budget reconciliation, because 60 votes in the Senate generally are needed to avoid that process. Both in 2017 and 2001, passing tax legislation through reconciliation meant that most of the changes were not permanent; that is, they expired within the 10-year budget window. Here is a comparison of current tax law with Biden’s proposed tax plan.

Current Tax Law
(TCJA–present)
Biden’s stated goals
Corporate tax rates and AMT

Corporations have a flat 21% tax rate and no corporate alternative minimum tax (AMT), which were both changed by the TCJA.

These do not expire.

Biden would raise the flat rate to the pre-TCJA level of 28% and reinstate the corporate AMT, requiring corporations to pay the greater of their regular corporate income tax or the 15% minimum tax (while still allowing for net operating loss (NOL) and foreign tax credits).

Capital gains and Qualified Dividend Income

The top tax rate is 20% for income over $441,450 for individuals and $496,600 for married filing jointly. There is an additional 3.8% net investment income tax.

Biden would eliminate breaks for long-term capital gains and dividends for income above $1 million. Instead, these would be taxed at ordinary rates.

Payroll taxes

The 12.4% payroll tax is divided evenly between employers and employees and applies to the first $137,700 of an individual’s income (scheduled to go up to $142,400 in 2020). There is also a 2.9% Medicare Tax which is split equally between the employer and the employee with no income limit.

Biden would maintain the 12.4% tax split between employers and employees and keep the $142,400 cap but would institute the tax on earned income above $400,000. The gap between the two wage levels would gradually close with annual inflationary increases.

International taxes (GILTI, offshoring)

GILTI (Global Intangible Low-Tax Income): Established by the TCJA, U.S. multinationals are required to pay a foreign tax rate of between 10.5% and 13.125%.

A scheduled increase in the effective rate to 16.406% is scheduled to begin in 2026.

Offshoring taxes: The TCJA includes a tax deduction for corporations that manufacture in the U.S. and sell overseas.

GILTI: Biden would double the tax rate to 21% and assess a minimum tax on a country-by-country basis.

Offshoring taxes: Biden would establish a 10% penalty surtax on profits for goods and services manufactured offshore and a 10% advanceable “Made in America” tax credit to create U.S. manufacturing jobs. Biden would also close offshoring tax loopholes in the TCJA.

Estate taxes

The estate tax exemption for 2020 is $11,580,000. Transfers of appreciated property at death get a step-up in basis.

The exemption is scheduled to revert to pre-TCJA levels.

Biden would return the estate tax to 2009 levels, eliminate the current step-up in basis on inherited assets, and eliminate the step-up at death provision for inherited property passed along by the decedent.

Individual tax rates

The top marginal rate is 37% for income over $518,400 for individuals and $622,050 for married filing jointly. This was lowered from 39.6% pre-TCJA.

Biden would restore the 39.6% rate for taxable income above $400,000. This represents only the top rate.

Individual tax credits

Currently, individuals can claim a maximum of $2,000 Child Tax Credit (CTC) plus a $500 dependent credit.

Individuals may claim a maximum dependent care credit of $600 ($1,200 for two or more children).

The CTC is scheduled to revert to pre-TCJA levels ($1,000) after 2025.

Biden would expand the CTC to $3,000 for children age 17 and under and offer a $600 bonus for children age 6 and under. It would also be fully refundable.

He has also proposed increasing the child and dependent care tax credit to $8,000 ($16,000 for two or more children), and he has proposed a new tax credit of up to $5,000 for informal caregivers.

Separately, Biden has also proposed a $15,000 tax credit for first-time homebuyers.

Qualified Business Income Deduction under Section 199A

As previously discussed, many businesses qualify for a 20% qualified business income tax deduction lowering the effective rate of tax for S corporation shareholders and partners in partnerships to 29.6% for qualifying businesses.

Biden would phase out the tax benefits associated with the qualified business income deduction for those making more than $400,000 annually.

Education

Forgiven student loan debt is included in taxable income.

There is no tax credit for contributions to state-authorized organizations that sponsor scholarships.

Biden would exclude forgiven student loan debt from taxable income.

Small businesses

There are current tax credits for some of the costs to start a retirement plan.

Biden would offer tax credits for businesses that adopt a retirement savings plan and offer most workers without a pension or 401(k) access to an “automatic 401(k)”.

Itemized deductions

For 2020, the standard deduction is $12,400 for single/married filing separately and $24,800 for married filing jointly.

After 2025, the standard deduction is scheduled to revert to pre-TCJA amounts, or $6,350 for single /married filing separately and $12,700 for married filing jointly.

The TCJA suspended the personal exemption and most individual deductions through 2025.

It also capped the SALT deduction at $10,000, which will remain in place until 2025, unless repealed.

Biden would enact a provision that would cap the tax benefit of itemized deductions at 28%.

SALT cap: Senate minority leader Charles Schumer has pledged to repeal the cap should Biden win in November (the House of Representatives has already passed legislation to repeal the SALT cap).

Opportunity Zones

Biden has proposed incentivizing - opportunity zone funds to partner with community organizations and have the Treasury Department review the program’s regulations of the tax incentives. He would also increase reporting and public disclosure requirements.
Alternative energy Biden would expand renewable energy tax credits and credits for residential energy efficiency and restore the Energy Investment Tax Credit (ITC) and the Electric Vehicle Tax Credit.


If you have questions about your specific situation, please contact us. We’re here to help.

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Biden's tax plan and what may change from current tax law

Read this if you are an employer looking for more information on the Employee Retention Credit (ERC).

The Coronavirus Disease 2019 (COVID-19) stimulus package signed into law by President Trump on December 27 makes very favorable enhancements to the Employee Retention Credit (ERC) enacted under the Coronavirus Aid, Relief and Economic Security (CARES) Act. 

Background

The CARES Act passed in March 2020 provided certain employers with the opportunity to receive a refundable tax credit equal to 50 percent of the qualified wages (including allocable qualified health plan expenses) an eligible employer paid to its employees. This tax credit applied to qualified wages paid after March 12, 2020, and before January 1, 2021. The maximum amount of qualified wages (including allocable qualified health plan expenses) taken into account with respect to each eligible employee for all calendar quarters in 2020 is $10,000, so that the maximum credit an eligible employer can receive in 2020 on qualified wages paid to any eligible employee is $5,000.

The ERC was for eligible employers who carried on a trade or business during calendar year 2020, including certain tax-exempt organizations, that either:

  • Fully or partially suspend operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19; or
  • Experienced a significant decline in gross receipts during the calendar quarter.

If an eligible employer averaged more than 100 full-time employees in 2019, qualified wages were limited to wages paid to an employee for time that the employee was not providing services due to an economic hardship described above. If the eligible employer averaged 100 or fewer full-time employees in 2019, qualified wages are the wages paid to any employee during any period of economic hardship described above.

Updated guidance: ERC changes

The bill makes the following changes to the ERC, which will apply from January 1 to June 30, 2021:

  • The credit rate increases from 50% to 70% of qualified wages and the limit on per-employee wages increases from $10,000 per year to $10,000 per quarter.
  • The gross receipts eligibility threshold for employers changes from a more than 50% decline to a more than 20% decline in gross receipts for the same calendar quarter in 2019. A safe harbor is provided, allowing employers that were not in existence during any quarter in 2019 to use prior quarter gross receipts to determine eligibility and the ERC. 
  • The 100-employee threshold for determining “qualified wages” based on all wages increases to 500 or fewer employees.
  • The credit is available to state or local run colleges, universities, organizations providing medical or hospital care, and certain organizations chartered by Congress (including organizations such as Fannie Mae, FDIC, Federal Home Loan Banks, and Federal Credit Unions). 
  • New, expansive provisions regarding advance payments of the ERC to small employers are included, including special rules for seasonal employers and employers that were not in existence in 2019. The bill also provides reconciliation rules and provides that excess advance payments of the credit during a calendar quarter will be subject to tax that is the amount of the excess.
  • Employers who received PPP loans may still qualify for the ERC with respect to wages that are not paid for with proceeds from a forgiven PPP loan. This change is retroactive to March 12, 2020. Treasury and the SBA will issue guidance providing that payroll costs paid during the PPP covered period can be treated as qualified wages to the extent that such wages were not paid from the proceeds of a forgiven PPP loan.
  • Removal of the limitation that qualified wages paid or incurred by an eligible employer with respect to an employee may not exceed the amount that employee would have been paid for working during the 30 days immediately preceding that period (which, for example, allows employers to take the ERC for bonuses paid to essential workers).

Takeaways

For most employers, the ERC has been difficult to use due to original requirements that prevented employers who received a PPP loan from ERC eligibility and, for those employers who did not receive a PPP loan, the requirement that there be a more than 50% decline in gross receipts. In addition, those employers who qualified for the ERC and had more than 100 employees could only receive the credit for wages paid to employees who did not perform services.

It is important to note that most of the new rules are prospective only and do not change the rules that applied in 2020. The new guidance should make it easier for more employers to utilize the ERC for the first two quarters of 2021. The following types of employers should evaluate the ability to receive the ERC during the first and/or second quarter of 2021:

  • Those that used the ERC in 2020 (the wage limit for the credit is now based on wages paid each quarter and the credit is 70% of eligible wages);
  • Those that previously received a PPP loan;
  • Those that have a more than 20% reduction in gross receipts in 2021 over the same calendar quarter in 2019;
  • Those employers with more than 100 but less than 500 employees who have had a significant reduction in gross receipts (i.e., more than 20%)1

For more information

If you have more questions, or have a specific question about your particular situation, please call us. We’re here to help.

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Stimulus bill extends and expands the Employee Retention Credit