On January 11, 2021, IslerDare PC published their “Employee Benefits Update”, addressing important aspects of the Consolidated Appropriations Act. As the authors of the report (Andrea O’Brien, Vi D. Nguyen, Jeanne Floyd, and Ashley Hedge) point out, “Buried in this nearly 6,000-page law were a number of changes that provide COVID-related relief from payroll taxes, as well as numerous changes affecting health and welfare plans, flexible spending account programs, and retirement plans.”
Below are excerpts from the IslerDare update related specifically to how the Consolidated Appropriations Act impacts payroll relief and retirement plan provisions, items of special interest to readers of Deferred Compensation News.
The report, Key Implications of the Consolidated Appropriations Act 2021 on Employee Benefit Plans, will be available in entirety on the IslerDare PC website. It includes further commentary on medical billing and health coverage transparency rules, flexibility for health and dependent care flexible spending accounts and extension of tax exemption or student loan repayments.
From the IslerDare report: Key Implications of the Consolidated Appropriations Act, 2021 on Employee Benefit Plans
“On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 (the “CAA”). The CAA contains numerous payroll, retirement, and health and welfare provisions, many of which relate to COVID-19 relief. …
The CAA provides certain payroll-related relief to businesses and individuals, including the following:
- Expansion and Extension of Employee Retention Credit. The CAA expands and extends the employee retention credit introduced as part of the CARES Act (previously discussed here), which provided certain eligible employers who were financially impacted by the COVID-19 pandemic with a refundable payroll tax credit for a percentage of “qualified wages”. The credit is now available until July 1, 2021; the percentage of qualified wages eligible for the credit has increased from 50% to 70%; and the per employee limit on qualifying wages has increased to $10,000 per quarter (thereby increasing the payroll tax credit to $7,000 per employee per quarter). In addition, the definition of eligible qualifying employers has changed.
- Extension of Paid Sick and Family Leave Tax Credits. The paid sick and family leave refundable tax credits enacted as part of the Families First Coronavirus Response Act (and previously discussed in our User’s Guide) are extended for three additional months, through March 31, 2021, even though the corresponding emergency paid sick leave and expanded family and medical leave requirements expired on December 31, 2020.
- Extension of Deadline to Repay Deferred Payroll Taxes. If an employer voluntarily deferred payment of their employees’ share of Social Security taxes on applicable wages between September 1, 2020 and December 31, 2020, they now have until December 31, 2021 (not April 30, 2021) to have their affected employees pay the deferred taxes. The CAA also clarifies that penalties and interest will not begin to accrue on the deferred amounts until January 1, 2022. …
Retirement Plan Provisions
The CAA provides additional relief to employer-sponsored retirement plans:
- Partial Plan Termination Relief. A tax-qualified retirement plan will not be treated as having a partial termination, and thus will not be required to fully vest all affected participants, during any plan year which includes the period beginning on March 13, 2020, and ending March 31, 2021, if the number of active participants covered by the plan on March 31, 2021 is at least 80% of the active participants covered by the plan on March 13, 2020. This provision is intended to help employers who may have laid off employees in response to the COVID-19 pandemic but who then re-hired them relatively quickly.
- Money Purchase Plan Coronavirus-Related Distributions. The CARES Act* exception to the 10% early withdrawal tax for coronavirus-related in-service distributions now applies to coronavirus-related in-service distributions made from money purchase pension plans. This provision applies retroactively to coronavirus-related in-service distributions from money purchase pension plans made on and after March 27, 2020.
- Disaster-Related Distribution and Loan Relief (non-Coronavirus related). Participants that maintain a principal residence within a federal disaster area, which is declared during the period beginning January 1, 2020, and ending on February 25, 2021, may be able to take up to $100,000 from a qualified retirement plan without incurring an early- distribution penalty. Additionally, increased loan amounts and suspension of loan repayments of up to one year may be available to qualifying individuals affected by such disasters. Employers wishing to adopt these provisions will need to adopt corresponding plan amendments by the last day of the first plan year beginning on or after January 1, 2022 (i.e., December 31, 2022 for calendar year non-governmental plans).
- In-Service Distributions. In very targeted relief, the permissible age for in-service distributions in building and construction multiemployer plans is lowered from age 59-½ to age 55 for certain employees in the building and construction industry.”
*CARES Act “Coronavirus Aid, Relief, and Economic Security Act” https://www.congress.gov/bill/116th-congress/senate-bill/3548/text?q=product+actualizaci%C3%B3n
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any tax advice contained herein is of a general nature. You should seek specific advice from your tax professional before pursuing any idea contemplated herein.
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