In a long-awaited move, Congress was able to pass legislation that offers a bevy of 2020 holiday gifts to American businesses. The staffing industry stands to benefit greatly from the The Consolidated Appropriations Act, 2021.
Controversy had swirled around the income tax treatment of PPP debt forgiveness. The loan forgiveness was originally intended to be tax free by Congress, but the Internal Revenue Service (“IRS”) offered contradictory guidance that would have effectively rendered the forgiveness as additional 2020 taxable income. The new law overrules the IRS, and deems PPP debt forgiveness to be non-taxable once more. (Note: certain states may not follow the federal approach, which bears watching.)
The new law also initiates a new round of PPP funding for 2021, although it appears the 2021 tranche of funds will be capped at $2 million and targeted towards smaller borrowers with under 300 employees. PPP borrowers will also need to demonstrate a 25% gross revenue decline in any 2020 quarter compared to the same quarter in 2019.
The lucrative tax credit forever seems to be on the “chopping block.” Congress, however, has seen fit to extend the WOTC program for 5 years - a great relief for participants in the program.
WOTC affords employers generous tax credits for hiring and employing individuals within certain targeted groups.
Staffing firms in the light industrial vertical are the heaviest users of the WOTC program, but all staffing firms are well advised to evaluate whether the program would be advantageous.
Under the CARES Act, this tax credit was generally available to businesses that had operations fully or partially suspended due to COVID-19, or suffered significant declines in revenues. However, businesses participating in the PPP loan program were ineligible for the credit.
Under the new law, which extends the ERC program to July 2021, businesses may partake in both the PPP program and the ERC simultaneously, although no “double dipping” on wages is permitted.
The ERC is now expanded under the new Act, allowing a tax credit of 70% of qualified wages. Qualified wages are $10,000 per employee, per quarter. Eligibility for the ERC is dependent on the business suffering a 20% quarter over quarter drop in revenue, and certain regulations are more restrictive on employers with more than 500 employees.
The ERC can be an important tool for staffing firms who have suffered serious declines and disruptions in operations.
The Act provides additional changes that can be meaningful for staffing firms, including loosening of restrictions on the deductibility of business meals, charity, and medical expenses.
As with all COVID-19 related legislation, additional guidance is sure to be forthcoming, and each staffing enterprise will need to consult with their own accountants and advisors to determine the specific impact of these new provisions given their own unique circumstances.