Senate Introduces Relief PackageJuly 29, 2020
Late Monday evening, July 27, Republican senators released a package of bills aimed at COVID-19 relief and its ongoing economic impact. The bills include new liability protections for employers and schools, additional funding for testing and health care, and a wide variety of tax incentives.
The slew of individual Republican bills authorizes about $1 trillion in new spending, and represents a compromise between the Senate GOP leadership and the administration. These bills are seen as a starting point for negotiations with Democrats, who remain united behind the sprawling $3 trillion Heroes Act that passed the House in May.
Cross-party negotiations began following the introduction of the Senate bills with a meeting between House Speaker Nancy Pelosi (D-Calif.), Senate Minority Leader Chuck Schumer (D-N.Y.), Treasury Secretary Steven Mnuchin, and White House Chief of Staff Mark Meadows.
The proposal was released as a series of stand-alone bills that Majority Leader Mitch McConnell (R-Ky.), said would be known collectively as the Health, Economic Assistance, Liability Protection, and Schools (HEALS) Act. Notable proposals in the Senate plan include:
- Incentives for businesses to hire and retain employees plus an additional round of economic recovery payments for individuals;
- An expansion of the current Paycheck Protection Program (PPP), but without a fix to clarify that certain business expenses related to PPP loan forgiveness are deductible;
- New tax incentives to promote domestic production of personal protective equipment (PPE) and encourage repatriation of intangible property relating to medical PPE;
- A temporary increase (to 100 percent) in the deduction for business meals;
- Liability protections for health care workers, business owners, and employees;
- New spending for schools and coronavirus testing;
- Greater flexibility for state and local governments to use funds already allocated in the Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted in March; and
- A pathway for ensuring solvency of the Social Security and Medicare trust funds.
Congress is hoping to complete action on this measure within the next few days to allow both chambers to leave Capitol Hill for their traditional August recess and the quadrennial political conventions. Adding urgency is the fact that the CARES Act’s $600 per week unemployment bonus expires this week.
Please see below for a detailed summary of the HEALS Act.
One of the separate bills being rolled-into the HEALS Act is legislation from Sens. Marco Rubio (R-Fl.) and Susan Collins (R-Maine), the Continuing Small Business Recovery and Paycheck Protection Program Act, which would expand small-business provisions of the CARES Act.
This piece of the HEALS Act would create a guaranteed long-term, low-interest working capital product by improving the terms of 7(a) loans for seasonal businesses and businesses located in low-income communities. The loans would equal 2x the borrowers’ annual revenues, up to $10 million, with a maturity of up to 20 years at an interest rate that is fixed at one percent to the borrower. The bill would allow businesses with 500 employees or fewer and have seen their revenues decline by 50 percent or more in the first or second quarter this year compared to the same quarter last year.
The provision also would provide funds to allow the hardest-hit small employers – those that have seen their revenues decline by 50 percent or more in the first or second quarter this year compared to the same quarter last year – to receive a second PPP loan. The bill would limit these second forgivable loans to entities with 300 or fewer employees and create an additional set aside of funds for businesses with 10 or fewer employees to ensure equitable access to forgivable loans. The bill includes a $10 billion set aside for community lenders to access second draw funds.
Businesses would be allowed to utilize forgivable PPP funds for personal protective equipment for workers, adaptive investments needed for businesses to operate safely amid the COVID-19 pandemic, and additional expenses. It would also simplify the forgiveness application and documentation requirements for smaller loans under $150,000. Additionally, it would further expand eligibility to certain 501(c)(6) organizations with 300 employees or fewer as well as favorable loan calculations for farmers and ranchers.
Finally, the lending language would provide for $10 billion in long-term debt with equity features to registered SBA Small Business Investment Companies (SBICs) that invest in small businesses with significant revenue losses from COVID-19, manufacturing startups in the domestic supply chain, and in low-income communities.
Business Tax Provisions
Among the plan’s business-focused tax policies are provisions that would:
- Expand the CARES Act’s employee retention tax credit (ERTC), including by increasing the credit rate from 50 percent to 65 percent, increasing the base of qualified wages on which the credit is applied from $10,000 per employee to a maximum of $30,000 per employee per year, relaxing the decline-in-gross-receipts threshold that in part determines eligibility for the credit, and, with certain limitations, allowing Paycheck Protection Program funding recipients to also avail themselves of the ERTC.
- Expand the work opportunity tax credit (WOTC) – for individuals hired after the date of enactment and before January 1, 2021 – by establishing a new “targeted group” for individuals who are certified as having received unemployment compensation immediately prior to their hiring date.
- Provide a new refundable credit against the 6.2 percent employer-side Social Security payroll tax for certain business expenses incurred before 2021 to protect employees from COVID-19 (for example, costs related to testing, PPE, cleaning products or services, and reconfiguring workplaces and technology to prevent the spread of the virus).
- Establish a safe harbor that would allow – for the remainder of 2020 – marketplace platform companies – those operating in the “gig” economy, for example – to provide certain coronavirus-related assistance to service providers without jeopardizing the service provider’s independent contractor status, while also providing that certain noncash assistance received by a service provider will be excluded from taxable income.
- Provide that, through 2024, for purposes of state and local income tax, employees who work in multiple states would be subject to income tax only in their state of residence and any non-residence state(s) in which they worked more than 30 days. For calendar year 2020, the threshold would be 90 days for employees working outside their residence jurisdiction “as a result of the COVID-19 public health emergency.”
- Provide a full deduction for business meal expenses paid or incurred before January 1, 2021.
Another stand-alone bill included in the overall package is the Safe to Work Act, introduced by Sen. John Cornyn (R-Texas) which would put COVID-19-related disputes in federal courts and protect parties except in cases of “gross negligence or willful misconduct.” When people sue over coronavirus exposure, they would have to list the places they went and people they encountered in the two weeks before experiencing symptoms. They would also need a medical expert supporting the complaint.
Punitive damages would only be available in cases of willful misconduct and could not exceed compensatory damages. Overall awards would be reduced by the amount plaintiffs received from sources like insurance and government reimbursement. The bill would allow punitive damages against people who send certain coronavirus-related demand letters. The provisions would last through at least October 2024.
Supply Chain & Intellectual Property
The HEALS Act would create a new 30 percent investment tax credit (ITC) designed to incentivize the manufacture of PPE within the U.S. (total credit allocations would be capped at $7.5 billion), while also mandating that the federal government purchase domestic-made PPE to refill the Strategic National Stockpile.
It also would allow U.S. taxpayers receiving the new ITC for U.S.-made PPE to repatriate intangible property associated with that PPE manufacturing activity without immediate U.S. tax effect. (Built-in gain on the property would be preserved and realized if later sold or transferred).
Individual Tax Provisions
On the individual side of the tax code, the HEALS Act calls for another round of direct stimulus payments at the same level enacted under the CARES Act – that is, $1,200 for an unmarried taxpayer, $2,400 for joint filers, and $500 per dependent, subject to a phase-out based on household income. But it would expand the range of household members eligible for the $500 dependent payment to include dependents of any age. (The CARES Act provision is limited to dependent children up to age 17.)
The HEALS Act also would temporarily increase the flexibility of tax-preferred flexible spending accounts (FSAs), dependent care flexible spending accounts (DCFSAs), and health savings accounts (HSAs) by:
- Allowing employees to roll over unused 2020 contributions to their FSAs and DCFSAs into the 2021 plan year and,
- Treating expenses for care provided at employer on-site clinic as eligible expenses under the HSA rules.
Click here to read NSBA’s letter of support for Continuing Small Business Recovery and Paycheck Protection Program Act.