How the second round of COVID-19 stimulus relief impacts your construction business
As this pandemic creeps into 2021, congress finally provided another round of much-needed stimulus. Passed by both houses and signed into law on Dec. 27, this new bill provides about $900 billion dollars in relief funding. To spare you from reading through the 6,000-page bill yourself, we are here to give you the lowdown on everything you need to know.
To start, this is the fourth COVID -19 bill passed by the federal government to provide relief to Americans and businesses that have experienced loss due to the pandemic. Formally known as the Consolidated Appropriations Act, 2021, the bill provides many different types of relief, ranging from additional PPP loans for construction companies to tax relief and employee benefits.
What relief does the CAA provide?
Additional clarification and funding for the Paycheck Protection Program
Back in March, the CARES Act introduced the Paycheck Protection Program with $349 billion in funding. After businesses quickly evaporated the first round of funds, congress added an additional $310 billion to the program. With businesses still suffering from the detrimental economic effects of lockdowns and restrictions, the CAA includes more than $248 billion in additional PPP loans to small businesses. Like past PPP funding, amounts are first come, first serve and are only available until they run out.
In addition to payroll expenses, utilities and rent permitted by the CARES Act, the CAA also provides expanded usage of the PPP loans for construction companies, including:
- Operations expenditures (payment for software, cloud computing, and other HR and accounting needs)
- Property damage costs from vandalism and looting due to public disturbances in 2020 that were not covered by an applicable insurance policy
- Supplier costs (expenditures essential to the current operations of the entity)
- Worker protection expenditures (PPE and other equipment needed to comply with federal health and safety guidelines related to COVID)
In November, the IRS issued further guidance with Revenue Ruling 2020-27 that prohibited deductions on a forgiven PPP loan. The ruling detailed scenarios in which borrowers may not deduct eligible expenses. The CAA reverses the IRS’ ruling and clarifies that business expenses paid for using tax-free loans made under the CARES Act’s Paycheck Protection Program are tax-deductible even when paid with a forgiven loan. This new provision applies to both existing and new PPP loans for construction companies.
To be eligible for a second PPP loan, a borrower must:
- Employ less than 300 employees; and
- Demonstrate at least a 25% reduction in gross receipts in any quarter of 2020 relative to the same 2019 quarter.
Borrowers would be eligible for full loan forgiveness equal to all expenditures noted above if they meet the current spending requirement of 60/40 minimum on payroll costs.
Tax relief for businesses
Buy your team lunch this year, the CAA provides a temporary allowance of full deductions for business meals.
Employers will be able to deduct 100% of their business meal expenses that are incurred in 2021 and 2022, rather than the standard rate of 50%.
Modifications to the employee retention tax credit
If your business was forced to shut down or you lost a significant amount of business because of COVID-19 restrictions and you took advantage of the employee retention credit in 2020, it is being extended through June 30, 2021.
In addition to the date extension, the CAA increased the tax credit to 70% for qualified wages paid after Dec. 31, 2020 and increased the limit to $10,000 per quarter, rather than the year.
The CAA also lowered the threshold in gross receipts, so if you had less than 80% of gross receipts for the same quarter in 2019 you may be eligible for this tax credit.
Extension of paid leave tax credits
The FCCRA required employers with under 500 employees to provide paid leave to certain employees impacted by COVID-19. The CAA provides that eligible employers that do continue to offer this leave can continue to receive the tax credit through March 31, 2021, but it no longer requires employers to offer leave beyond December 31, 2020.
Employer tax credit for paid family and medical leave
The CAA extended this tax credit through 2025. Employers can claim a general business credit of up to 25% of wages paid to employees during FMLA leave (subject to certain requirements and limitations).
Employee retention tax credit for employers impacted by disasters
When disaster strikes in ways unrelated to COVID-19 and causes your construction business to be inoperable during an applicable disaster period, you can receive a tax credit equal to 40% of an employee’s qualified wages, up to $6,000 per employee.
Benefits and plan changes
To stay competitive and retain good workers, many construction businesses offer health insurance and other benefits to their employees. This section details how The CAA may affect those employee benefits you offer.
Generally, if you offer a health plan to your employees, employees cannot make changes to their plan mid-year without an exception like marriage, birth or death in the family. Additionally, FSA funds must be used and are not allowed to roll over into another plan year.
The new bill allows employers to amend their plans to:
- Permit employees to carry over unused benefits, up to the full amount for 2020, into 2021 (or for 2021 into 2022);
- Allow a 12-month grace period for unused benefits at the end of 2020 and 2021;
- Allow employees to make a prospective mid-year election change in the 2021 plan year;
- Increases the maximum age for covered dependents from 12 to 13 for the 2021 plan year; and
- Allows post-termination reimbursements from health FSAs for individuals who cease participation in the plan during calendar years 2020 or 2021, through the end of the plan year in which their participation terminated.
If you offer a student loan repayment benefit for your employees, the CARES Act allowed an employer to provide a student loan repayment to employees on a tax-free basis during 2020. The CAA extends this beneficial tax treatment through 2025.
The CAA also contains specific provisions relating to group health plans. If you think this may relate to your business, you can find more information from the National Law Review.
Individual stimulus checks and unemployment benefits
Like the first round of stimulus in the CARES Act, the CAA is providing all individuals making less than $75,000 annually an economic stimulus payment of $600. This would be $2,400 for a family of four. The CAA is also extending federal unemployment insurance benefits by $300 a week for unemployed individuals.
While the CAA does not provide any liability shields for businesses, nor funding for state and local governments, COVID-19 legislation is changing every day and we at Buildertrend, the No. 1 construction project management software, will do what we can to keep you informed.
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